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Report: Chiaro Courting ECI

Core-router startup Chiaro Networks Inc. appears to have found the big-brother sponsor it's been seeking, as ECI Telecom Ltd. (Nasdaq/NM: ECIL) is reportedly considering an acquisition of the company.

According to The Marker.com, an Israeli business news publication, ECI is in talks to invest $6 million to $20 million in Chiaro, which has already raised $210 million. The deal gives ECI an option to acquire Chiaro for $20 million to $30 million.

Officials at Chiaro and ECI were not immediately available for comment.

Chiaro's Enstara router has won a few deals in research networks, and the company claims to be in trials with a passel of large carriers (see Chiaro Seeks Its Footing). But carriers worry that startups might vanish, and they like to see the backing of a larger company to ensure the product will live on if the startup doesn't.

Chiaro needs that element of trust, because the company's router is being pitched for overhauls where carriers hope to converge multiple networks onto a single core based on Internet Protocol (IP) and Multiprotocol Label Switching (MPLS). Enstara would not only sit at the core, but would also reduce the number of routers needed at the core, Chiaro officials say.

If it lands ECI, Chiaro will at least have solved the partner side of the equation. The problem for Chiaro has been that most of the big players are spoken for. Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), and Juniper Networks Inc. (Nasdaq: JNPR) have their own core routers -- the 7750 Service Router, CRS-1, and T640, respectively. Lucent Technologies Inc. (NYSE: LU) is reselling Juniper's routers, and Huawei Technologies Co. Ltd. and Nortel Networks Ltd. (NYSE/Toronto: NT) both have reseller deals with Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7).

ECI, meanwhile, participates in the metro market selling equipment including multiservice provisioning platforms (see ECI Intros Small MSPP and ECI Merges WDM With MSPP). But the company doesn't have a core router to call its own.

Building a core router is an expensive gamble, but startups continue to roll the dice. Having tried once with Nexabit Networks (acquired by Lucent), Mukesh Chatter has founded Axiowave Networks Inc. to chase the core, and Cisco has invested in BCN Systems Inc., a Silicon Valley startup reportedly working on a core router. (See Axiowave Queues in the Core and BCN Joins Router Race.)

— Craig Matsumoto, Senior Editor, Light Reading




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buddha_bone 12/5/2012 | 1:07:37 AM
re: Report: Chiaro Courting ECI Alcatel acquired the TSR from Avici? Wonder
what Avici has to say about that....-bb
Pete Baldwin 12/5/2012 | 1:07:33 AM
re: Report: Chiaro Courting ECI erp... Thanks for spotting that, bb. We'll make the correction.
reoptic 12/5/2012 | 1:07:33 AM
re: Report: Chiaro Courting ECI Sounds like the board is selling the company for a song to get it off the books. 30M ain't much to get when you have spent 200M of VC funds. Dump and go. Tough hall given Chiaro has unfinished product and no customers; you wonder if ECI has any idea what they are getting into. They will be spending a lot more than 30M every year to even try to keep it going.
watcher10 12/5/2012 | 1:07:29 AM
re: Report: Chiaro Courting ECI Its interesting. ECI never seems to go
into anything without thinking it through. And
when they commit to going after something, they
go all the way. Going after the core (for them)
is strange, but if they really decide that this
is what they want to do, I would not want to
be in their way. What people have told me
is that if they set their minds to something,
they just don't give up.

I don't think they can do much in North America,
but they have lots of business in a whole lot of
other places. Its not necessarly a large amount
of business in any one place, but in total its
more than it might seem.

The other thing to consider is that at this point
in the cycle, its not unknown for companies
to rapidly grow into new product areas by picking
up things on the cheap.

What I can say for sure is that underestimating
ECI is never a good thing to do. Alcatel can
tell you all about it.

al_bass 12/5/2012 | 1:07:29 AM
re: Report: Chiaro Courting ECI I would also really question calling the
7750 Service Router a core router. Its an
MSE (and a good MSE!), but not really a core.
I dont know of anyone who has bought, deployed
or even tested the 7750 as a core router.

The core router is the 7770.

al_bass 12/5/2012 | 1:07:29 AM
re: Report: Chiaro Courting ECI
"Parnerships" are not good enough anymore. Nobody
is going to take a standalone company selling
routers seriously without some form of
equity investment by one larger partner and
real backing. Reseller agreements are DOA at
most places these days. You better be an equity
investor and sign in blood to support the thing
or you get a door in the face.

Whatever faith was left in startups operating
on their own went under when Cisco bought
Procket.

Cisco showed with that deal that they could reach
out and destroy any startup they wanted (and
leave those who believed and took a risk on the
startup out holding the bag).

null0 12/5/2012 | 1:07:24 AM
re: Report: Chiaro Courting ECI The 7770 is a discontinued product, rumours are that alcatel may be thinking of building their own core router.....

http://www.lightreading.com/do...
PrivateCEO 12/5/2012 | 1:07:15 AM
re: Report: Chiaro Courting ECI Alcatel sued Chiaro before Chiaro even had telephone service years ago. While the suit was settled, and Krish Prabhu and George Brunt are long gone, Alcatel can't put it behind them. Also, many of the Chiaro folks are ex-alcatel. The Alcatel guys don't want to see them succeed even if it hurts Alcatel in the process. Jealousy is blinding them from makng good business decisions.
light-headed 12/5/2012 | 1:07:06 AM
re: Report: Chiaro Courting ECI Alcatel sued Chiaro before Chiaro even had telephone service years ago. While the suit was settled, and Krish Prabhu and George Brunt are long gone, Alcatel can't put it behind them. Also, many of the Chiaro folks are ex-alcatel. The Alcatel guys don't want to see them succeed even if it hurts Alcatel in the process. Jealousy is blinding them from makng good business decisions.
-------------------------------------------------

Yes and the fact that the product is a piece of science fiction hardware that may or may not function well (didn't see it do much at the isocore booth at Supercomm) with no customers probably has no bearing on Alcatel having no interest.

That is my smarmy comment of the day...

;)
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