Alcatel SA this week announced a definitive agreement to acquire TiMetra Inc., a privately held maker of edge routers, for US$150 million in stock.
Alcatel says the TiMetra acquisition will allow it to fill out its IP routing portfolio with an MPLS-capable service edge device. Alcatel already offers a core IP router and an MPLS-capable multiservice core switch.
TiMetra's products will enable Alcatel customers to provision SLA-based VPNs and virtual private LANs (VPL). The market for these types of services is currently US$87 billion and expected to grow at a compound annual rate of 17 percent in the coming years, Alcatel says, citing data from IDC.
Many traditional telecom companies are scooping up start-ups developing next-generation data networking equipment based on IP or more cost-effective multiservice technology in an effort to migrate their customers from circuit-based to packet-based infrastructures. Tellabs this week swept up MPLS edge switch/router maker Vivace Networks for $135 million, and Ciena acquired edge switch maker WaveSmith Networks for $158 million.
The purchases are being encouraged by incumbent telecom carriers that would like to purchase and deploy the next-generation gear from start-ups but would rather rely on established, familiar vendors for ongoing service and support.
TiMetra did not have a product on the market yet. But its routers were to compete with edge devices from Cisco and Juniper, as well as Laurel Networks, CoSine Networks, and perhaps Redback Networks - a pretty tall order for a young company without a product to show yet.
“The company was ultimately faced with challenging both (Cisco and Juniper),” says Bill Lesieur, directory of Technology Business Research in Hampton, N.H. “Timetra likely need another hefty round of VC cash to go to market with a finished product, so the investors likely saw the Alcatel deal as a good financial exit relative to the volatile market conditions.”
TiMetra will be launching its SR-Series Service Router family at Supercomm in June.
TiMetra raised over $50 million in two rounds of funding from Accel Partners, Redpoint Ventures and an unnamed "technology partner," says Basil Alwan, Timetra CEO.
Alcatel, meanwhile, needed an edge router to help grow its market share in high-end routing, Lesieur notes. Though Alcatel hardly registers a blip on the radar screen of router market analysts, Lesieur believes the company will eventually overtake Avici Systems as the distant No. 3 player in high-end routing behind Cisco and Juniper and their 98 percent share of the market.
TiMetra has 90 employees, all of whom will be staying with Alcatel, Alwan says. TiMetra will actually increase its staff, Alwan says, as it courts many more customers now as a business unit of Alcatel USA.
Alwan says the SR-Series routers are designed to enable private data services, such as Ethernet virtual private lines, over an IP/MPLS infrastructure that have badwidth and service level guarantees, operations, administration and management tools, and metering and shaping characteristics. This is in contrast to BGP routers that provide "best effort" Internet-class services, he says.
Laurel is the closest competitor to TiMetra, but TiMetra's differentiator is four custom ASICs that have been in development since the company was founded.
"We think we've got the industry-leading service router here, and we'll have the customer announcements to back that up," Alwan says.
Timetra will announce one such customer at Supercomm as part of the SR-Series rollout.
Completion of the acquisition is subject to approval by TiMetra's shareholders, other customary closing conditions and receipt of the approval of the commissioner of the California Department of Corporations. The transaction is expected to close in the third quarter of 2003. Once the acquisition is completed, TiMetra will be integrated into Alcatel USA, which is located in Dallas.