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Lucent Catches Chromatis

Light Reading
News Analysis
Light Reading
5/31/2000

After nearly a week of anticipation, Lucent Technologies Inc. http://www.lucent.com (NYSE:LU) has confirmed it will acquire privately held Chromatis Networks Inc. http://www.chromatis.com for approximately 78 million shares of Lucent common stock, valued at about $4.5 billion based on Tuesday's closing market price.

Discussions of the deal were first reported in Light Reading last Thursday (see Lucent To Buy Chromatis? ). Chromatis was reportedly approached by other networking companies, including Sycamore Networks http://www.sycamorenet.com (Nasdaq: SCMR).

The amount of the deal excludes the approximate 7 percent stake held by Lucent Venture Partners venture capital subsidiary, giving the company a total value of about $4.8 billion. The deal also includes reward clauses for up to 2.5 million Lucent shares for "key Chromatis employees," according to Lucent officials. The purchase of Chromatis, whose metro Wave Dimension Multiplexing (WDM) product has been in trials with carriers, makes up some lost ground for Lucent, whose own metropolitan-area optical networking products have not fared as well as products from the competition. "In the optical edge market, they didn't have a lot to offer," says Scott Clavenna, principal analyst with http://www.pioneerconsulting.com, of Lucent's metropolitan-area optical efforts. "Lucent has to keep shoring up its offensive against Nortel because they've definitely lost some ground. Chromatis gets them a lot of talent and they get a product that's ready to go."

As for the price of the deal, Clavenna noted that Lucent may not have had a choice. "It's an expensive deal but it's a good deal." Alan Bezoza, optical analyst with CIBC World Markets http://www.cibcwm.com, said that although Lucent trails Nortel in the market, the game is still early. "The market is so embryonic. Cisco http://www.cisco.com and Ciena http://www.ciena.com both paid a lot for product, but none of these guys have much revenue yet," said Bezoza.

Bezoza says that the metropolitan optical market will only show about $100-$200 million in revenue this year, but he expects it to expand to $1.2 billion by 2003.

Chromatis' Metropolis product is designed to integrate data, voice, and video over metro WDM.

--R. Scott Raynovich, Executive Editor, Light Reading http://www.lightreading.com

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