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Mergers & acquisitions

Nortel Shuts Optical Switch Effort

Nortel Networks Corp. (NYSE/Toronto: NT) has ceased work on the monster all-optical crossconnect it acquired with Xros Communications in March 2000.

"Nortel has decided not to bring the OpteraConnect PX to market," says spokesman David Chamberlin. Nortel had planned to start commercial trials of the switch later this year.

Chamberlin says "dramatic changes in market conditions" caused Nortel to finally throw in its monogrammed Xros towel. Carriers just aren't interested in big optical switches right now (see No Riches From Optical Switches ).

Sources say Nortel had additional reasons to pull the plug on Xros. It's been an open industry secret that the product's R&D was stymied. And given ongoing delays in its most strategic new products, Nortel is challenged to focus its efforts on more mundane OEO solutions (see Nortel's HDX: The Future Under Fire ).

Chamberlin says it's not yet clear what effect closing Xros will have on Nortel's financials, but he notes that part of the company's $12.4 billion June 2001 writedown was attributable to goodwill associated with the acquisition (see Nortel Buys: Reaping the Whirlwind?).

An undisclosed number of employees who worked for Xros have been laid off. Greg Reznick, the startup's CEO, who has been serving as "president of the Xros division" since the buyout, will continue to report to Brian McFadden, Nortel's president of optical long-haul networks, in an as yet undefined role. "What his next role will be is unclear," Chamberlin says (see When the CEO Hits the Road).

Nortel was criticized for paying too much when it bought Xros for about $3.25 billion in stock, a transaction that amounted to paying about $36 million for each of the startup's 90 employees. Nortel scoffed, citing the deal's basis in stock, not cash, and insisting the price was fair (see Nortel Buys a Monster Crossconnect).

Originally, Nortel hoped to release a massive 1000x1000-port all-optical switch via its Xros deal. But as the months dragged on, it became apparent that the technology had some problems. Sources say the 3D MEMS (micro-electro-mechanical system) components on which Xros originally based its design were unique, but impractical to implement in anything except a massive long-haul switch -- exactly the opposite of what the market wants today.

Despite the canning of the Xros project, sources inside and outside the company say Nortel plans to make the best of what it bought. Efforts are underway to merge elements of the Xros crossconnect with smaller switch chips, they maintain. The results, of course, remain to be seen. Meantime, the waters have closed over the once-bright promise of Nortel's "jawbreaking" all-optical switch.

— Mary Jander, Senior Editor, and Stephen Saunders, Founding Editor, Light Reading
http://www.lightreading.com
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dodo 12/4/2012 | 10:50:53 PM
re: Nortel Shuts Optical Switch Effort Holly Molly

$ 1 B per day of M&A negotiation
optigirl 12/4/2012 | 10:50:53 PM
re: Nortel Shuts Optical Switch Effort Care to 'splain yo way out of this one??

;-)
trixie 12/4/2012 | 10:50:52 PM
re: Nortel Shuts Optical Switch Effort Consulting with the right techies could have saved billions.



Not to mention the right market consultants.....

I'm not close enough to this to know if it was technically feasible, but they surely should have been able to better predict market conditions.

The_Holy_Grail 12/4/2012 | 10:50:52 PM
re: Nortel Shuts Optical Switch Effort Where are the folks who promoted and bought off on this acquisition? This is another clear example of Sr Mgt being cluless in the phtonics and opto-electronics. Where was the due diligence on this acquisition?

Consulting with the right techies could have saved billions.
melao 12/4/2012 | 10:50:52 PM
re: Nortel Shuts Optical Switch Effort The Qtera appears to be on same way right ?

kephill 12/4/2012 | 10:50:52 PM
re: Nortel Shuts Optical Switch Effort Once again, LR prints the negative news and ignores the positive. LR fails to comment on the annoucement today of new optical transmitter products.
kephill 12/4/2012 | 10:50:51 PM
re: Nortel Shuts Optical Switch Effort "they surely should have been able to better predict market conditions"

You can say that about Cisco, Lucent, Ciena etc. None of these companies saw the crash. If the market had held up, they could have spent the additional money on R&D to develop the PX.
The_Holy_Grail 12/4/2012 | 10:50:50 PM
re: Nortel Shuts Optical Switch Effort Maybe they read to many of those so called analyst predictions and market forecasts reports. Everyone of which was way to optimistic.

How come we don't see needs and forecasts from the customer base?

Good luck to the employees who are impacted.
gea 12/4/2012 | 10:50:50 PM
re: Nortel Shuts Optical Switch Effort I don't agree 100% on this one. Wait, the cost or what was basically a prototype with no customers hints of some kind of sweetheart stok trading deals.

BUT, on a technology level, a massively scalable all-optical cross connect looked like it was going to be a real necessity over night, as networks moved over to packets-over-OC-48c and 192c. A company like Nortel may not have seen the Xros box as a big money maker any time soon, but probably felt that they could not afford to have such a hole in their product line and so got a little antsy. I never did fully understand why on earth they pai so much, however.
let-there-be-light 12/4/2012 | 10:50:50 PM
re: Nortel Shuts Optical Switch Effort Remember the days when Nortel was the optical god of the universe?

Everything they did seemed to be right. Stories based on glove compartments of Jaguars became transformed into legends of profound insight and visionary leadership.

Now, they just seem like the dumbest losers in town. By comparison, even stupid old LUcy seems quite smart, if that's possible.

Funny how things change so fast. Pride coming before a fall, maybe.?? Belzy.. still waiting...
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