Optical/IP Networks

Nortel, Intel Back Subsystem Startup

The most interesting thing about today’s announcement of a $77 million second round of funding for Network Elements Inc., a subsystem startup, is who’s providing it (see Network Elements Cops $77 Million).

A “significant” although undisclosed proportion of it is coming from Nortel Networks Corp. (NYSE/Toronto: NT) and Intel Corp. (Nasdaq: INTC), according to Bruce Murdock, the startup’s president and CEO.

The backing strongly indicates that Network Elements has got some hot technology -- it also may indicate that Nortel is thinking of acquiring the startup sooner or later.

So, what’s so hot about Network Elements? The startup is developing modules that aim to speed up the development of high-speed telecom equipment. Essentially, the modules enable system vendors to buy off-the-shelf subsystems to build their gear, rather than having to spend a lot of time and money designing and developing everything from the ground up, using individual components from different suppliers.

Network Elements has already launched the first product in its “Optical Networking Module” product line, which can be used to build a variety of Ethernet, IP, Sonet, and DWDM equipment (see 10-Gig Module From Network Elements).

The first products operate at 10 Gbit/s. Future products will operate at speeds of up to 40 Gbit/s and will incorporate additional functions such as long-reach optics and multiprotocol support, the company says.

Nortel is already a Network Elements customer and will be "sharing ideas" and co-developing products with the startup, according to Murdock. Nortel, of course, already makes components but doesn’t combine them in the way Network Elements does

“The Network Elements and Nortel combination is a perfect match,” says Murdock. “They’re strong on the optical side, and our strength is in the integration and packaging of optical and electrical components, as well as our protocol processing ASICs.”

Agere Systems, the Lucent Technologies Inc. (NYSE: LU) component spinoff, is Network Elements’ most notable competitor (see Lucent's Agere Files for IPO). It also happens to be one of Nortel’s biggest rivals, making the idea of a potential Nortel buy-out plausible. But Murdock says selling the company hasn't been considered at this point.

“We haven’t even discussed them buying us,” says Murdock. “Right now we are focused on building a great public company.”

As for Intel’s role, the company is expected to integrate its products into Network Elements products and use the module company as a new distribution channel for higher-speed processors.

”It’s hard to sell individual high-speed products,” says Murdock. “System vendors don’t want to have a laser from one place and a processor from another. They want a pre-tested, plug-and-play solution that is already put together. It helps them reduce their time to market.”

Other participants in Network Elements’ second round of funding include Credit Suisse First Boston and Western Technology Investment, together with previous investors New Enterprise Associates and Alloy Ventures. Funding now totals $100 million.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

Marguerite Reardon 12/4/2012 | 9:02:54 PM
re: Nortel, Intel Back Subsystem Startup What is happening with Nortel's plan to spin out its component division?
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