Lucent Acquires Optical Networking Vendor

BOSTON (05/31/2000) - Lucent Technologies Inc. today agreed to purchase Chromatis Networks, a metropolitan optical networking vendor, in a stock deal worth an estimated $4.5 billion.

The purchase is aimed at keeping Lucent competitive in the burgeoning all-optical carrier market, said Jim Slaby, an analyst at Giga Information Group Inc. in Cambridge, Massachusetts.

Lucent, based in Murray Hill, New Jersey, will also give additional shares worth $145 million to key Chromatis employees, contingent upon Chromatis meeting certain performance-based goals.

That figure is based on Lucent's closing price of $58.125 per share yesterday.

The stock dropped to 58 just before Wednesday's closing bell.

Herndon, Virginia-based Chromatis, which has yet to release a product, has developed a fiber-optic system that can transfer data, voice and video on a metropolitan network.

The value of the deal reflects the strength of Chromatis' technology, Slaby said.

Lucent is "looking at the best technology here, not necessarily who's got the best market share," Slaby said.

Chromatis' flagship product, Metropolis, was one of the missing links in Lucent's optical network, Slaby said. Metropolis speeds up the transfer of data packets, voice and video by sending all three at the same time through the bandwidth at different (light) wave lengths.

That technology, known as Dense Wave Division Multiplexing (DWDM), is intended to save companies money by streamlining information being sent through the existing network and so avoiding the need to install more fiber-optic lines.

That capability is the impetus of the deal. Chromatis' Metropolis system will allow Lucent to connect its core fiber-optic networks to its internal networks, according to Lucent spokesman Ray Zardetto.

"It essentially relieves the congestion at the gateway," Zardetto said.

"This is a huge, kind of uncharted territory. The projections for this market are all enormous," Slaby said, "This is a huge, big-stakes game."

And the big players in this market, like Lucent, Nortel Networks Corp. and Cisco Systems Inc., are investing a lot of money on the all-optical networks.

In fact, nearly one-third of the acquisitions made by major networking vendors during the past year have been focused on the optical networking space, according to Slaby. "Everyone is hurrying to fill out their product lines," he said.

Nortel and Cisco made similar acquisitions recently, buying Cambrian Systems Corp. in Kanata, Ontario, and Qeyton Systems in Stockholm, respectively

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