Infinera's planned acquisition of Sweden's Transmode is a rare M&A move by the California company that mostly answers the question of how Infinera will fill out its metro 100G story. The last bit of the answer will come in the form of a new product announcement planned for later this year.
The Transmode Systems AB deal, which is scheduled to close in the third quarter, quickly gives Infinera Corp. (Nasdaq: INFN) the metro aggregation core, edge and access offerings it had been lacking, and which it will need as this segment of the metro market takes off over the next year or so. Such products are important as metro 100G emerges because 100G is likely to be used in this environment to aggregate multiple 10G circuits. (See Infinera Makes $350M Offer for Sweden's Transmode.)
The buy brings Infinera closer to having an end-to-end metro 100G architecture, a strategy that will be more fully realized when the vendor announces another planned product under the metro aggregation banner later this year. That new platform will incorporate the sliceable PIC technology Infinera announced last month. In the long term, Infinera officials say they see an opportunity to put the sliceable oPIC/ePIC technology into Transmode's products, though the more near-term integration opportunity lies in extending Infinera's software programmability to Transmode's products, including using SDN to enable a common control plane across the different boxes. (See Infinera Asks: Hungry for a Slice of Photonics? and Infinera Flexes Its Multi-Layer Muscles.)
"When you get out to the client access side, there is less of an opportunity to realize benefits of PICs [which are targeted at very high bandwidth applications]," said Infinera CTO Dave Welch, on a conference call discussing the deal. "But, when you get to aggregated rings where capacities are increased, there is more opportunity to do so."
However, nothing is stopping Infinera from immediately taking advantage of what Infinera CEO Tom Fallon described as the complementary product set and market focus of the two companies. While Infinera to date mostly has focused on long-haul, Transmode almost entirely has focused on metro. Also, Infinera draws more than 75% of its revenue from the Americas, while Transmode gets 82% of its business from the EMEA region. The companies have four customers in common: Windstream, XO, Earthlink and Deutsche Telekom.
"It's a huge leveraging opportunity," Fallon said on a Thursday morning conference call announcing the deal. "There is an immediate cross-selling opportunity. Having an end-to-end offering will open up new opportunities with existing customers, and with new customers."
Heavy Reading senior analyst Sterling Perrin said of the pairing, "On paper, the combination looks very good. Management invariably says that acquisitions are completely complementary to existing lines regardless of the reality, but this is a rare case where the statement is actually very true. Product lines, geographies and market segments all add up extremely well in combining Infinera and Transmode."
Since launching its Cloud Xpress platform last year to address the emerging metro data center interconnect market, speculation has mounted about Infinera's next steps in the metro market. That Infinera would develop all its own products for metro seemed like a fair assumption because the company typically has done so, and has made very few acquisitions in its roughly 11-year history.
"We are much more inclined to build from within than acquire," Fallon said, but added that in Transmode, Infinera saw an organizational culture similar to its own. "Don't underestimate what I consider the most important aspect, which is the cultural aspect. Transmode is an engineering-driven culture. It's exceptional at designing for cost and footprint, and it has an expectancy to get paid and earn a fair return."
Still, while the corporate cultures mix well and there appears to be strong growth potential even prior to integrating products at the physical level, technology integration remains a not-so-trivial sticking point. As Perrin pointed out, the market still needs to understand how well Infinera's sliceable PICs will work with Transmode's products.
— Dan O'Shea, Managing Editor, Light Reading