ADVA Eyes Movaz, Meriton

It's no secret ADVA Optical Networking (Frankfurt: ADV) is itching to expand its business in North America. But the company may now be ready to take it a step further -- industry sources have told Light Reading that the metro optical networking player has talked to at least Movaz Networks Inc. (see ROADMs Roll On) and Meriton Networks Inc. about a serious deal, including potential acquisition.

Sources tell Light Reading ADVA has met with both metro optical networking companies during the past month. ADVA and Meriton are competitors, and both have focused on the North American market.

ADVA won't confirm any specific meetings, but the company isn't at all shy about the fact that it's in a partnership mood.

"We're definitely talking to a variety of different companies," says Brian McCann, ADVA's chief marketing and strategy officer. "We did acquire Metro Packets last year… so there's precedence for that." (See ADVA Completes Metro Packet Buy .)

Here's what we don't know: It's not clear how serious talks have become between either of the companies. It's also not clear if ADVA -- a company that does much of its business through partnerships -- was simply trying to develop an OEM relationship.

But everyone in the market knows that the WDM and optical transport space is ripe for a rollup. "ADVA's done a great job of bringing WDM all the way to the enterprise," says Scott Clavenna, Chief Analyst, Heavy Reading. "Fujitsu and Cisco are kicking butt in the metro core. But there's not a whole heck of a lot of room left in between, so some consolidation needs to happen."

While ADVA admits it is talking to a lot of folks, it won't name names. "There's no specific deal that I'd be able to comment on because we're meeting with dozens of companies in looking at our opportunities going forward," says McCann.

McCann says ADVA is funding its organic growth, too, as reflected in the company's most recent earnings announcement.

During the second quarter 2005, ADVA increased its revenues by 27 percent in just one year. ADVA also upped its full year 2005 guidance to a range of between €$126 million (US$155.8 million) and €$132 million ($163 million). (See ADVA Reports Big Q2 Revenues).

Still, ADVA thinks it can be bigger and better in the U.S. "Our overall market share position in the U.S. is still less than 10 percent," McCann says.

Clavenna points out that ADVA could benefit from a stronger carrier focus. Meriton, for instance, has forged relationships with Ericsson AB (Nasdaq: ERICY) and Fujitsu, and it has a role in BT Group plc's (NYSE: BT; London: BTA) 21st Century Network (see Meriton Raises $54M, Finds Good Company). Movaz claimed to have $40 million in shipments last year, with nearly half of that going to carrier customers. The company also has reseller deals with Lucent Technologies Inc. (NYSE: LU) and Motorola Inc. (see Movaz Networks).

But ADVA's doing well financially, too, and the company says it doesn't feel the pressure to hop on a deal just because the technology's new or exciting. "The biggest discouragement we have when we go out to meet with companies is, 'where's the business model' ", McCann says. "I mean, technology is great, but when we look at company valuations, we've got to figure out how to drive an operating income so that we can have a p/e [price to earnings ratio] that's meaningful in the future."

Meriton would not comment for this story. Movaz did not return calls seeking comment.

— Phil Harvey, News Editor, Light Reading

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