Meriton Buys Mahi Networks

MADRID -- Broadband World Forum Europe 2005 -- Canadian metro optical network vendor Meriton Networks Inc. has acquired Mahi Networks Inc. for an undisclosed sum, executives from the two firms announced here this morning. (See Meriton Acquires Mahi.)

The new company, to be known simply as Meriton Networks, will have current Meriton CEO Mike Pascoe at its helm, while Mahi president and COO Bill Gartner will be COO.

The deal brings together two of the metro optical sector's smaller players following months of speculations and consolidation talks. (See ADVA Eyes Movaz, Meriton.)

According to Pascoe, the combination of Meriton's DWDM and CWDM products, designed for mesh network topologies, with Mahi's reconfigurable optical add/drop multiplexer (ROADM) technology, which is optimized for ring networks, creates a widely applicable set of access and metro optical products that the new company will call its Agile Optical Networking portfolio.

The CEO believes this portfolio, managed ultimately by a single network management system, can help carriers address the pressing capacity challenges being created by the widely anticipated, and already increasing, traffic volumes created by the introduction of video, storage, and enterprise Ethernet services.

Heavy Reading Chief Analyst Scott Clavenna believes the combination makes sense and that the Agile Optical Networking approach is "a very big deal," but he notes that the new company faces many business and competitive challenges.

"Mahi brings some very strong ROADM and WDM transport capabilities, especially at 10 Gbit/s, to the equation, and Meriton brings a very low cost solution for WDM access and metro, with fully integrated STS/VC switching, which many operators are now asking for. So they can claim that the products are complementary, but there is still significant overlap."

Clavenna adds: "But Meriton will be taking on Mahi's burn rate, integration challenges, and startup status. It still hasn’t solved the OEM/partnership puzzle." And when you're up against rivals with the might of Cisco Systems Inc. (Nasdaq: CSCO), Fujitsu Ltd. (Tokyo: 6702; London: FUJ), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), "that's a big issue."

Clavenna believes Mahi needed to become part of a larger player to survive, especially now that Tellabs appears to have won a big contract with , for which Mahi was competing. (See Tellabs Running ROADMs at Verizon .)

Meriton has landed a role in BT Group plc's (NYSE: BT; London: BTA) next-generation network plans, riding on Fujitsu's coattails. (See Fujitsu Shares Its 21CN Success.) That, though, appears to be Meriton's major account -- like Mahi, the majority of its wins have been with small service providers or utility firms. (See Mahi Restructures & Swims East and AltaLink Deploys Meriton HSM.)

So what's next for the new company? Pascoe says he will be hiring new sales staff to take the total number of employees up to about 150 from the current 135 (80 from Meriton, between 50 and 60 from Mahi). There will be some job overlap that "will need addressing," admits the CEO.

As for the technology, Meriton's first job is to get all the products working under a single network management system, and then the company can look at extending its capabilities beyond the current Layer 0 and Layer 1 and into Layer 2. Clavenna says this makes sense, but that there's no great rush. "Ethernet over optical transport is becoming a big deal, but is primarily a 2007 opportunity at most carriers, so they have time," says the analyst.

Pascoe will also be seeking partnerships with larger vendors that have complementary product lines, such as those with a strong access infrastructure offering. He also says the company is on course to reach profitability without having to raise any more money, but he wouldn't say when breakeven would come.

— Ray Le Maistre, International News Editor, Light Reading

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MrLight 12/5/2012 | 4:10:29 AM
re: Meriton Buys Mahi Networks The concept of ROADMs as an optical network element is reasonable , however at this time the current crop of ROADMs are still struggling to get the components , such as tunable lasers , wavelength selective add/drop filters , 1xN devices, programmable compensators (required for 10Gbps+) etc. As such they are at the "walk stage" versus the "run stage" as a networked product. To put it bluntly - the current incumbent OADM vendors like Nortel, Ciena, Alcatel, and Cisco can create the ROADMs being offered by the startups by essentially replacing their fixed lasers and filters with Gǣtunable productsGǥ.

As such the startups doing ROADMs need find a way to do more than what the incumbent vendors can do to upgrade their existing OADMs to Gǣpseudo-ROADMGǥ. Even just adding a tunable laser plug-in card to an existing OADM product line for sparing purposes already takes a reasonable bite out of the current ROADM potential market. This is re-affirmed by the fact that the current crop of ROADMs from startups have about the same percentage of electronics in the wavelength path as the existing OADMs.

As stated in the summary of Heavy Reading's Research Report on ROADMs http://www.heavyreading.com/de... , ROADMs are currently:

"...by their nature devices, not whole systems G a distinction that has led to some confusion in the marketplace about just what constitutes a ROADM system, when some vendors offer products with similar functionality based on different underlying device technologies."

The danger of basing something on Gǣdifferent underlying device technologiesGǥ is of course if that technology is made by someone else and it is single sourced, contingency plans need to be put in place.

In addition focusing too much on device technology can lead to compromises at the system and network level. To get beyond the equipment sparing value and the inventory reduction value associated with todayGs class of ROADMs requires more system thinking.

Heavy Reading chose Gǣ to call this market opportunity the "reconfigurable optical networking market" , as such ROADM vendors get the benefit of looking as though they are addressing a wider market then they are since each vendor only has a subset of products that addresses only a part of this market and blurs to the "next-gen metro optical networking system" .

flush_meat 12/5/2012 | 2:59:07 AM
re: Meriton Buys Mahi Networks I see. So, it looks like a nice homework has been done before this deal. But, does anyone make big bucks? Guess not.
paolo.franzoi 12/5/2012 | 2:59:07 AM
re: Meriton Buys Mahi Networks
Petaluma was already shut copletely. There was 2 employees working out of their homes that were marketing types. This would seem to be a good time to cleanse them from the books.

deauxfaux 12/5/2012 | 2:59:07 AM
re: Meriton Buys Mahi Networks Out swimming in cold choppy seas, I'd sure rather grab a life preserver than a "brick" like Mahi
flush_meat 12/5/2012 | 2:59:07 AM
re: Meriton Buys Mahi Networks Don't know if this is good or bad. Any idea what the price is? Also, is the Petaluma doors completely?
Balet 12/5/2012 | 2:59:06 AM
re: Meriton Buys Mahi Networks I still remember an arrogant Mahi's marketing guy driving his red sport car on 101 with plates: Mahi Mrktg...
I wonder where he is now and what company is he riding nowadays?
geof hollingsworth 12/5/2012 | 2:59:05 AM
re: Meriton Buys Mahi Networks I don't think there is anything left from the original Mahi business.
tigre 12/5/2012 | 2:59:02 AM
re: Meriton Buys Mahi Networks Relevant issues:
1. Cadogan was at ADC and Pasco at ADC/Pairgain => well-acquainted so I assume Pasco knows what he's getting.

2. Seems unlikely that Cadogan ever had plans to run the company -> brought in to sell it off

3. Real fault for the Mahi "failure" has to partly lie with former CEO Chris Rust. He was never more than a Director at some second-tier companies. He made the jump to the VCs during the boom and was installed (dumped?) into Mahi. Very slick guy but certainly not an experienced executive particularly during tough market conditions

4. I think Pasco can make something of this, but the real story is how much VC money (can anyone recap?) was invested into Mahi with almost all of it certainly lost
optiplayer 12/5/2012 | 2:59:00 AM
re: Meriton Buys Mahi Networks I quickly scanned LR to see if I could find total VC investment in Mahi but couldn't find it. Their last round was $70M in '04 so its likely the total was over $100M. As you point out, its likely the VCs took a bath on this one and the employees, with the exception of Cadogan, likely realized very little if anything.

Interesting that Rust was touting Mahi as an IPO candidate just 15 months ago and now they sell out to another start-up... ouch.

I believe Rust (now at USVP) was a founder of Mahi while at Sequoia then joined as CEO in '01. The mistake was continuing with a giant "god-box" given that so may prior attempts to build these failed miserably.
douggreen 12/5/2012 | 2:59:00 AM
re: Meriton Buys Mahi Networks Optiplayer,

I believe the total invested in Mahi was $255M.

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