Tellabs Nabs Ocular

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) said Friday it will be acquiring optical crossconnect startup Ocular Networks Inc. for about $300 million in cash and about $55 million in stock options.

The deal makes sense, as Tellabs is actively pursuing next-generation technology, and Ocular needs the kind of sales access that Tellabs has into existing incumbent carrier accounts. During a conference call Friday, Tellabs President and CEO Dick Notebaert called the deal "a logical extension of [Tellabs'] business."

Ocular already has contracts in place and trials ongoing with IXCs and ILECs, says Ocular CEO Ed Kennedy. The company has been booking revenues from its product for about six months now, says a source close to the deal.

The Ocular product combines a multiplexer, a digital crossconnect, and a Layer 2 data switch. It's mostly known for its density: It allows carriers to cram lots and lots of Sonet virtual paths -- connections for an end-to-end route between two points -- into a small physical space within a tier 2 or tier 3 central office. Complementary to Ocular's product is Tellabs' Titan 5500 product, of which there are 3,500 systems installed in carrier networks. The aptly named Titan aggregates and connects DS3, DS1, and STS1 connections in the largest carrier central offices. In some cases, the Ocular product and the Titan 5500 might work side by side, using the Ocular box as an offload for high-speed optical ports.

Tellabs' managers say they expect the Ocular acquisition to generate $50 million to $100 million during 2002, much of that coming in the fourth quarter. Ocular executives cited the company's burn rate at between $2 million and $2.5 million a month.

Sources familiar with the deal say that Ocular was also being courted by some other large players, including Ciena Corp. (Nasdaq: CIEN). It's unclear how far such talks may have gone or whether there were any bidding wars.

Tellabs has struggled with internal development of next-generation products, and it's now apparent that the company has chosen to go the acquisition route instead. It recently shut down work on some of its optical networking products, including the Titan 6700 (see Tellabs Pulls a Switch). In addition, it has been losing momentum with its older crossconnect product, the Titan 5500 (see Tellabs Losing Its Edge?).

The acquisition shows that in a difficult economic environment with a venture-capital funding crunch, startups are being pressured to look to larger partners with sales channels in order to bring their products to market. In Ocular's case, it had raised $50 million in funding since its founding in 1999, and insiders say it wasn't shopping itself when Tellabs came calling.

"It was far from a fire-sale," says Sean Dalton, a partner at Highland Capital Partners (HCP), one of Ocular's early investors. "If management had wanted to keep going [as an independent], we would have loved to have poured a lot more money into the company."

Ocular's other investors include Bessemer Venture Partners, Columbia Capital, and Jafco Ventures.

It's not yet known how many of Ocular's 160 employees will remain at Tellabs. Tellabs' Notebaert left the attrition question wide open during the conference call. "It is our intention to retain the key resources of this acquisition," he says.

The deal, which is subject to regulatory approval, is expected to close in first quarter 2002.

Just after midday Friday, Tellabs shares were down 0.17 (1.10%) to 15.33.

— R. Scott Raynovich, Executive Editor, with Phil Harvey, Senior Editor, Light Reading
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HarveyMudd 12/4/2012 | 7:26:02 PM
re: Tellabs Nabs Ocular Both companies have exactly similar products.So what does Telllabs gain? Nothing.

It meand\s duplicatiion of workforce and technologies.
BadgerAlum 12/4/2012 | 7:26:02 PM
re: Tellabs Nabs Ocular According to a friend who was part of Tellabs' recent RIF (http://www.lightreading.com/do..., they were working on MPLS and ATM features for the 6500. That feature set has been cancelled. His words, "Tellabs is a TDM/SONET company and that is it. If they want to get involved in other technologies they will most likely follow the Cisco model of buying out startups."

Does it seem like the Ocular OSX-6000 would be a replacement for the Titan 6500 upgrades? If so, then the recent RIF would solve the problem of your duplication of workforce, and the cancelation of the 6500 upgrades the duplication of technology. Am I blowing smoke or does this make sense?

owl-light 12/4/2012 | 7:27:35 PM
re: Tellabs Nabs Ocular This is the true joy of life, the being used for a purpose recognized by yourself as a might one; the being thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a feverish, selfish little clod of ailments and grievances complaining that the world will not devote itself to making you happy ... The only real tragedy in life is being used by personally minded men for purposes that you recognize to be base.

- George Bernard Shaw
theanswer 12/4/2012 | 7:28:34 PM
re: Tellabs Nabs Ocular They would perfer to buy White Rock Networks. WRN has a better product strategy than Ocular or Riverstone. White Rock products can go places the other products can't based on size and fuctionality.
stuartb 12/4/2012 | 7:28:34 PM
re: Tellabs Nabs Ocular Where have you been for the last four years Route495?

Alcatel looking to buy Riverstone or Extreme???

They would be looking at them only if they wanted to add to the number of failed Ethernet switch acquisitions (including Packet Engines and Xylan). Who knows, maybe they're going for some kind of record.

Also, how are they considered a competitor to Ocular???
skeptic 12/4/2012 | 7:28:58 PM
re: Tellabs Nabs Ocular Lucent is old news. The first choice is Riverstone but the price is too high.

I think they might do a "Unisphere".
I think redback might be more likely. Alcatel
likes companies on the way down or in trouble.
But then again, they might end up with Astral
point or gotham for that same reason.

Route495 12/4/2012 | 7:28:58 PM
re: Tellabs Nabs Ocular Lucent is old news. The first choice is Riverstone but the price is too high.

I think they might do a "Unisphere".
nachy 12/4/2012 | 7:28:58 PM
re: Tellabs Nabs Ocular What about privates? Is there a reactionary move to the Ocular deal? What about Siemens?

Route_495 12/4/2012 | 7:29:00 PM
re: Tellabs Nabs Ocular


Who should Alcatel buy? What about Ciena?

Potential candidates?
Route495 12/4/2012 | 7:29:00 PM
re: Tellabs Nabs Ocular They were looking into Riverstone & Extreme.


Who should Alcatel buy?
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