Its announcement of metro DWDM developments is just part of a bigger plan

April 19, 2000

6 Min Read
Sorrento Puffs Itself Up For An IPO

Today's announcement of very high performance metro DWDM gear by Sorrento Networks, Inc http://www.sorrentonet.com may have more to do with preparing the ground for an IPO than anything else.

There's three reasons for coming to this conclusion.

First, Sorrento's announcement takes a bit of believing. It says the upgrade of its Gigamux DWDM product will support 64 channels each operating at 10 Gbit/s in a range of topologies, including rings. That amounts to a huge leap forward in technology - so big that competitors and analysts are suspicious. They say it's hard to see how Sorrento could make such equipment at a price that would be attractive to carriers.

Second, this follows hard on the heels of other announcements that look as though they're designed to make Sorrento attractive to investors. These include deals that could generate large orders and the appointment of a new president for Sorrento, Oren Shaffer.

Third, Osicom Technologies Inc http://www.osicom.com (Nasdaq ticker: FIBR) , Sorrento's parent company, is probably looking for a way of boosting its own share price, which has slumped in the past month, from a high of $149.75 to below $40. See http://quotes.nasdaq-amex.com/quote.dll?chart=1&page=charting&mode=basics&symbol=FIBR%60&selected=FIBR%60

So, if an IPO is in the offing, is Sorrento a company worth investing in? The best way of addressing this question is to take a closer look at the company's technology and business dealings.

Let's start with Sorrento's focus on metro DWDM, which is a bit like China - a potential market of huge proportions, when and if it wakes up.

In the case of metro DWDM, the first efforts at stirring up demand among carriers didn't work because the gear was too expensive and lacked on-ramps to help operators fill big pipes with existing services.

As a result, vendors have been launching second generation metro DWDM products this year - ones that are much lower cost and are sometimes packaged with edge equipment so that it can be used efficiently.

Right now, it's not clear whether this will be enough to trigger an explosion of demand for metro gear. All that can be said is that vendors are expecting it to. The big ones are pouring money into metro developments and acquisitions, and scores of startups are crawling out of the woodwork with developments targeting this market (see Sonet Goes POP).

Sorrento has certainly managed to get itself noticed in this crowded field with today's announcement. But it's going to have its work cut out convincing people that it can deliver on its promises.

As noted, competitors are skeptical. "Ten gigabit transmission, on all 64 channels, in a ring? If they can really do it, then I congratulate them," says Ola Perlson director of product management for optical networking with Ericsson Inc. http://www.ericsson.com, which launched its own metro DWDM developments last month (see Ericsson Intros Metro DWDM Gear). "I may even send my resume over there,"he jokes, adding:"I think to do all of this at once is really a stretch."

Right now, state-of-the-art metro DWDM systems can handle 10 Gbit/s over a couple of wavelengths running over the same fiber. Doing this on 64 wavelengths would require very powerful signal generators, according to Perlson. "I'm not saying it can't be done, but it would be quite an accomplishment." </ In some respects, this is just a war or words. DWDM has been dogged by marketing people making "optimistic" performance claims for future products and Sorrento is probably just joining in..

Actually, there's no "probably" about it. At present, Sorrento couldn't build a box capable of supporting 64 OC-192 (10 Gbit/s) channels at a price that carriers would find attractive, according to Scott Clavenna principal analyst with Pioneer Consulting.http://www.pioneerconsulting.com. "It is hard to get an OC-192 interface for less than $100,000 and I don't know a metro operator out there who would spend $640,000 per box," he says. "Technologically, this is interesting, but there doesn't seem to be a practical place for it now."

In fact, boosting bandwidths in metro networks is not a number one priority for many operators. They're more interested in handling higher level traffic more efficiently, and they want to improve their ability to provision services and cope with unexpected changes in traffic volumes, according to Clavenna.

Sorrento agrees, and says that its developments address these issues. However, it's hard to pin down specifics on exactly how they do this. The upgraded Gigamux is already being tested by one service provider, Sorrento says, but declines to say which one.

A bit of digging in the files Osicom has submitted to Nasdaq suggests a likely candidate: United Pan-Europe Communcations NV (UPC) http://www.upccorp.com - and also reveals one of Sorrento's hidden strengths.

Here's the score. On March 23, Osicom announced a deal under which UPC acquired 33 percent of Sorrento's Series A Convertible Preferred Stock for $16.5 million.

It's no accident that UPC is a very big potential customer for Sorrento. It run Europe's largest group of broadband networks, providing cable TV, Internet access and other services in 13 countries. Its networks have a potential market of 10.5 million homes, and already connect close to quarter of a million users.

In fact, UPC is more than a potential customer. In its 8-K filing to Nasdaq, Osicom says that the deal with UPC gives Sorrento preferred supplier status. It also names two other carriers that have signed similar deals. Here's an excerpt of the filing:

" Sorrento entered into Strategic Alliance and Equipment Purchase Agreements with UPC on March 3, 2000. Under the terms of those agreements, UPC has agreed to purchase Sorrento's optical networking products, subject to certain evaluations, over the next three years for use in its network. In addition, UPC has agreed to make Sorrento its preferred supplier of optical networking equipment in all cases where Sorrento's products are available at prices and with the functionality required by UPC's network, and Sorrento has agreed to develop products designed for use in UPC's network. UPC and Sorrento also contemplate working together on joint sales and marketing initiatives.

Sorrento also entered into Strategic Alliance and Equipment Purchase Agreements with AT&T Broadband Newtork Solutions on February 23, 2000, and an Equipment Purchase Agreement with Sistel on February 29, 2000. "

The whole filing is on http://www.nasdaq.com/asp/quotes_sec.asp?symbol=FIBR`&selected=FIBR`

All of this capped by Sorrento's appointment of a new president and COO, Oren Shaffer, on March 30. Prior to joining Sorrento, Schaffer was CFO of Ameritech, Inc - in other words, someone that's already well known on Wall Street. An IPO is obviously on the way.Light Reading

http://www.lightreading.com

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like