Nortel Shuts Optical Switch Effort

Nortel confirms it won't be releasing the switch technology it bought with Xros

March 5, 2002

2 Min Read
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

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