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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froggy 12/4/2012 | 7:30:06 PM
re: Tellabs Nabs Ocular Lg,

Are you an engineer at TLABS ? That might explain why you need to buy Ocular
stuartb 12/4/2012 | 7:30:05 PM
re: Tellabs Nabs Ocular Even more strange is that each of the messages is slightly different?? If he is from T-Labs, Ocular has their work cut out for them.

Also Lg, to comment and clarify one of the items you cut & pasted from an Ocular presentation:

"At 14 times the density of cerent, 7 times the density of Cyras, this box can kick some serious butt"

The OSX beats Cerent and Cyras in VT cross-connect capacity only (as opposed to port density or STS cross-connect capacity). In fact, Ocular repositioned their box months ago to compete against Tellabs in the WB-DCS market. They did this because the architecture of their product prevented them from being able to compete with Cerent on cost or scalability.

realoptics 12/4/2012 | 7:30:05 PM
re: Tellabs Nabs Ocular This may not such a good deal for TLAB even though assuming that Ocular has a good team and products are also sellable, too much cash percentage in the deal, people from Ocular may start to take the cash and run.

May be TLAB's decision makers are related to thos of Ocular's--just pure speculation!
Optitude 12/4/2012 | 7:30:05 PM
re: Tellabs Nabs Ocular GOOD POINT!
Optitude 12/4/2012 | 7:30:05 PM
re: Tellabs Nabs Ocular GOOD POINT!
optigirl 12/4/2012 | 7:30:04 PM
re: Tellabs Nabs Ocular A few things to consider about this acquisition:

From the looks of things, Ocular was going to be competing with Tellabs. Buying them takes a competitor out of the picture, be that Ocular or another MFG who would have picked them up.

Ocular was getting some interest from some major carriers but would probably have a hard time being able to back up the requirements that a major carrier would place on them. Having a company like Tellabs doing the selling allows those orders to get the support a start-up cannnot offer while allowing Tellabs some potential revenue opportunities they might not have earned otherwise.

Lastly, Tellabs is in real trouble with its failure to get some big RBOC DWDM deals so maybe this might shore up the bottom line.

Time will tell if this was a good deal but hey, the folks at Ocular got a reasonable payout (partly in cash), the VC's got a 5-6xs return on their money and it sure beats the hell out of another start-up that closed their doors and fired everyone like we have seen a lot of lately.

Just my 2 cents...
k_j 12/4/2012 | 7:30:03 PM
re: Tellabs Nabs Ocular
Agreed, only time will tell exactly what the motivation was....

Tellabs should/could have done much more with Salix and company but there seemed to be a lack of understanding of how to position themselves in the market.

Tellabs needs to gain acceptance as a MSPP vendor after the Salix/NetcoreSys downfall. Had there been better positioning during the Salix days, Tellabs wouldn't have had to worry about re-inventing themselves now.

Too much money is being wasted on MSPP development and failures. Albeit a great idea to have OOO,PNNI, MPLS, ATM + FR with core BGP + gigE capacity in the same system, we've yet to see enormous success in this MSPP market. That said we should give Tellabs credit for maintaining a grasp on their digital cross connect customers.

I wish both Ocular and Tellabs luck with this. Maybe Tellabs learned something from the Salix days and this is an "if I could do it again, what would I do differently" type of strategy.
FiberFarmer 12/4/2012 | 7:30:03 PM
re: Tellabs Nabs Ocular I think Ocular probably repositioned themselves focusing on VT level grooming 1)because they could do it, 2)it resonated with carriers, and 3)it differentiated them from the rest of the God Boxes. Other GodBoxes / MSPP's should take a lesson - too little differentiation among the host of would be players.

Now we'll get to see if Tellabs bought them to take them out, or to "reinvent" themselves as they claim... either way, the Tellabs track record doesn't bode well for Ocular. Hope they are happy with the cash...

HarveyMudd 12/4/2012 | 7:30:02 PM
re: Tellabs Nabs Ocular A company that used to take pride in making digital cross connects is buying cross connect device from Ocular. What is wrong with Tellabs? Tellabs is paing too much money?

In the interest of the shareholders Tellabs should backout from the deal?

Ciena is not going to make any money from the Cyras products? No one iscomplementing Ciena for acquiring Cyras? In fact Cyras has broght the Ciena stock prices.
eyesright 12/4/2012 | 7:30:01 PM
re: Tellabs Nabs Ocular Does anyone know of any other start up doing VT level grooming?

If this was an Ocular differentiator why is it important to Telcos?
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