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Lightscape Looks West

Light Reading
News Analysis
Light Reading
12/19/2001

Lightscape Networks, an Israeli metro optical equipment maker, says that within a couple of weeks it will announce a large carrier customer that will deploy its box in North America. The ECI Telecom Ltd. (Nasdaq/NM: ECIL) subsidiary told Light Reading on Wednesday that it is also still seeking a venture investor in the U.S. that can help it make even more connections with North American carriers.

Lightscape's interest in selling to North American carriers isn't new, but with only about 6 percent of its sales coming from the region last year, the company sees room for plenty of expansion.

Its latest customer win here is a big deal, especially given that Lightscape had to back off its earlier plans to raise its profile and raise money by launching an IPO in the North American markets. "Because of the economic situation, we had to delay the IPO," says Ido Gur, Lightscape's vice president of marketing.

Earlier this year, the company went on a media tour to talk up its new U.S. offices in Virginia. It mentioned plans for an IPO or some outside financing at that time, but nothing materialized because of the telecom sector collapse.

Now the company is showing an operating profit and is cash-flow positive. It's also looking for an outside investor, but this time the reason is not so much for rapid expansion as it is to get in good with carriers. "We don't actually need the money. It's not a money issue. What we need is a strategic partner with smart money," says Gur. "It's not a big advantage for equipment providers to look as though they're small companies."

That explains why Lightscape continues to lean on ECI's name for leverage when it's convenient. ECI is a billion-dollar worldwide provider of telecom equipment, and it's strong in the European and Asian markets.

Lightscape still continues to support a large and growing customer and revenue base in Asia and Europe, including carriers such as Deutsche Telekom AG (NYSE: DT), NTL, D2 Vodafone, and China Telecom.

Lightscape's flagship product, the XDM, is positioned as a single-box DWDM solution for the metro edge and metro core markets. Ciena Corp. (Nasdaq: CIEN), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), ONI Systems Inc. (Nasdaq: ONIS), Redback Networks Inc. (Nasdaq: RBAK), and Sycamore Networks Inc. (Nasdaq: SCMR) are among its competitors.

"We have 1,000 XDM shelves [deployed] in the field," says Gur. "And that's a number that none of our competitors can talk about."

Lightscape booked about $260 million in revenues in 2000 and employed about 1,000 people worldwide, according to information provided by the company.

In January 2001, the company was spun off from ECI Telecom as a separately managed and operated entity. ECI had split into five companies and had wanted to take each part public.

Before the spinoff, Koor Industries Ltd., the holding company that controls ECI Telecom, disclosed that it had put out feelers concerning the sale of Lightscape and had also talked with banks about raising a private placement funding round. In March, Canadian and Israeli media reported that Nortel was one of the companies that were considering a Lightscape acquisition.

Now, rather than talking up its independence, Lightscape doesn't mind the perception that it's tethered to ECI.

ECI recently reported that during the third quarter of 2001, ended Sept. 30, Lightscape recorded operating profit of $100,000, compared to an operating profit of $7 million for the year-ago quarter.

Lightscape's revenues for its most recent quarter were $53.6 million, compared to $70.1 million a year ago.

The company has said its products are currently being evaluated by North American carriers. Gur says the customer it intends to announce soon is "an international carrier that is using [its] product in North America."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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