Optical/IP Networks

Laurel & Marconi Make It Official

This morning Marconi Corp. plc (London: MONI) announced details of an OEM agreement that will allow it to resell Laurel Networks Inc.’s flagship edge router under its own brand name (see Marconi to Resell Laurel).

Light Reading first reported on the partnership two weeks ago (see Marconi and Laurel in Talks ). At that time, Marconi acknowledged the two companies were in talks, but no details were given.

According to the terms of the deal, Marconi will rebrand and resell Laurel’s ST200 edge router. Aside from additional ATM emulation features, the newly named BXR 5000 will be exactly the same as the Laurel ST200. The new product will be sold in conjunction with Marconi’s BXR 48000 multiservice core switch that handles both ATM and IP/MPLS traffic to help customers build converged ATM/IP/MPLS networks. While Marconi already has the ASX 4000 switch to aggregate ATM traffic, it has been lacking an IP routing solution.

Unlike other equipment pairings of late -- i.e., Juniper Networks Inc. (Nasdaq: JNPR) and Lucent Technologies Inc. (NYSE: LU); Vivace Networks and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA); TiMetra Networks and Alcatel SA (NYSE: ALA; Paris: CGEP:PA) -- the Laurel/Marconi deal is not geared toward service providers. It will focus "initially and primarily" on its current base of U.S. government customers, according to a company spokesman.

“In today’s environment you need to be very selective about where you’re looking for deals,” says Tom Murray, vice president of marketing for the broadband routing and switching group at Marconi. “We are focusing on less speculative deals and will be going after specific opportunities.”

Murray adds that the company has also consciously chosen not to compete with the bigger telecom equipment suppliers that are partnering and acquiring other IP routing companies. “You won’t see us going up against Lucent and Juniper or Alcatel and TiMetra at all,” he says.

The strategy may not be such a bad idea. To date, Marconi claims to have more than $1.3 billion worth of broadband equipment installed in U.S. government networks. It plans to leverage those relationships to win business on new IP network build-outs. For the first time, the Laurel product will give Marconi the right mix of products to bid on these new contracts.

“Going after more government deals is a smart move for Marconi,” says Kevin Mitchell, an analyst with Infonetics Research Inc. “I don’t think anyone would view them as a big service provider supplier. They’ve targeted an opportunity that they can succeed in and possibly build on in the future.”

The deal will also benefit Laurel. Up until this point, Laurel has only targeted service providers and, so far, has seen some success. It has named Level 3 Communications Inc. (Nasdaq: LVLT) as a customer and is rumored to be close to winning a deal with AT&T Corp. (NYSE: T). But carrier contracts, especially among incumbents, take a long time to win. And with the telecom market still in a slump, spending is expected to continue to be weak.

Steve Vogelsang, co-founder and vice president of marketing for Laurel, says that the company realized about a year ago that it would have to look toward other markets for revenue while it waits for the service provider market to recover. He adds that the company had already set its sights on the federal government, because its networks often look and feel like carrier networks.

“But our biggest challenge was breaking through the door,” he says. “It’s incredibly difficult to get in without the right sales channels.”

Infonetics’ Mitchell says the non-exclusive relationship is a win/win for Laurel. Not only is the company free to cut deals with other equipment suppliers, but it also gets access to an entirely new market that it otherwise would have been unable to crack on its own.

So why didn’t Marconi just buy Laurel? There have been rumors that several telecom equipment companies have been courting the startup (see Laurel: Startup Holdout? ). Murray says the decision to partner had a lot to do with Marconi’s recent financial troubles (see Marconi Details Restructuring and What's Next for Marconi?).

“Marconi just emerged from debt refinancing,” he says. “We are now on more stable footing with an attractive balance sheet, and we aren’t about to do anything that could mess that up from a financial standpoint.”

— Marguerite Reardon, Senior Editor, Light Reading

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