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Marconi Buys Mariposa for ATM Access

Light Reading
News Analysis
Light Reading
9/21/2000
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Why simply resell a technology when you can own it outright? That simple motivation, behind many a corporate acquisition, was part of the impetus for Wednesday's $268 million purchase of integrated access device(IAD) maker Mariposa Technology by Marconi plc (London: MNI).

The acquisition gives Marconi possession of Mariposa's well-received ATX line of IAD boxes, which can combine voice, video, and data elements for transmission over ATM.

"We've had a very strong OEM partnership, and we've decided to take it further and add [Mariposa] to our team," said Rob Brennan, vice president of Marconi's IAD platform group, in a Thursday conference call. According to Mariposa, the company had sales of $600,000 in 1999 and was projecting sales of $11 million to $13 million for this year. The acquisition of the Petaluma, Calif.-based Mariposa also gives the London-based Marconi an important physical foothold in the heart of Sonoma County, Northern California's emerging optical and telecom hotbed.

Marconi had been reselling Mariposa's gear since this past spring, and said that strong sales of the products helped spur the acquisition. The ATX technology will help Marconi address shortcomings in its current IAD product porfolio, which is mostly based on products that use frame relay or IP as the transport protocol, Marconi executives said. Though future products will focus on IP, Marconi execs said that ATM is the only protocol that currently offers solid quality of service (QOS) implementations.

Douglas Smith, a London-based telecom equipment analyst for Donaldson Lufkin & Jenrette, said the acquisition makes sense on several levels for Marconi. Marconi, which previously acquired ATM pioneer Fore Systems, has a "lot of ATM switching" in its customer base, Smith said, making the Mariposa gear an attractive fit.

The acquisition also calls into question the status of Mariposa's other OEM deals for its ATX technology, with Ericsson AB (Nasdaq: ERICY) and Alcatel SA (NYSE: ALA). Though Marconi said the deals will currently remain in place, others questioned whether competitors like Alcatel would continue to purchase technology from Marconi.

Ericsson, which owns a 16 percent investment stake in Mariposa, will likely be able to continue its deal, since they partner with Marconi in other areas, Smith noted. "But the Alcatel business probably goes away," he said.

Marconi said Mariposa's approximately 60 employees will become part of Marconi's existing IAD product group, which employs about 145 people in Ottawa. The relatively low valuation (by current overheated networking market standards, anyway) raised some eyebrows, leading analysts like Smith to conclude that Mariposa's executives were perhaps nervous about the company's IPO chances.

Marconi, which is preparing for a Nasdaq listing later this year, "tends to be quite opportunistic" when it comes to acquisitions, said Smith, who noted that the recent volatility of telecom-related stocks may have caused some jitters. Though Mariposa's Website on Thursday still was displaying company-strategy pages that said an IPO was the ultimate goal, "Maybe they [Mariposa executives] decided to take the safe way out," Smith said.

-- Paul Kapustka, Silicon Valley bureau chief, Light Reading http://www.lightreading.com

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