Nortel buys Photonic Technologies

Sydney-based optical components company Photonic Technologies has sold the rest of its business to one-third stakeholder Nortel Networks, two years after Nortel acquired a share in the company.

The Canadian company snapped Photonic up for $62 million ($US35.5 million) in cash in what Ralph Betts, managing director of Photonic Technologies, called "the logical next step for us". Betts agreed to the takeover because of the need to move quickly. "Speed in this market is absolutely critical," he said.

Photonic designs and makes optical components such as filters and circulators for telecommunication applications, "critical components that extend the speed and reach of high capacity optical networks", Betts said Photonic was founded in 1993, when Betts and his co-founder Steven Frisken were left without jobs by the formation of Telstra when OTC, the government company that ran Australia's overseas telecommunications links, merged with domestic phone carrier Telecom.

The company began in Betts's garage when the pair could see a future for photonics technology, so carried on with their research by leasing the equipment they needed from their previous employer. They had been researching the potential of fibre optics using light to carry phone calls.

They now develop technology for system manufacturers who supply telecommunication providers such as Telstra.

Photonic's 70 employees and Sydney facility will now become a fully-owned part of Nortel's new high-performance optical-component solutions unit.

The cash deal is said to have resulted from the success of the collaboration since Nortel bought a third of Photonics in 1998, according to Reg Bird, president of service provider solutions for Nortel Networks in Australia and South Asia. "We expect to sell $US10 billion in optical technology this year," he said.

Nortel's fibre optic sales increased 150 per cent in the previous quarter alone, he said. Fibre optic technology has become hot property for US networking companies looking for ways to speed up the Internet.

Nortel has been increasing its research and development investment in optical Internet, with plans to pump in more than $US600 million this calendar year and quadruple its investment to address the growing demand. The move "demonstrates our commitment by increasing our infrastructure here", Bird said.

Analysts predict the growth rate of the optical Internet market is 37 per cent a year. "It is the only technology that can manage the growth of the Internet," Bird said, even though he believes the market is greatly underestimated.

Betts and Frisken will keep their positions in Photonics, reporting to Nortel as part of the deal.

"This really provides the investment needed to take our ideas and inventions forward in the global marketplace. It's a red-hot industry and we needed capital to properly address this market," Betts said.

Optical networks allow the transferral of huge amounts of data from point to point via fibre-optic cables, with demand largely being driven by the Internet.

Nortel quoted estimates from market analyst RHK that the global optical Internet market would grow 28 per cent a year to reach $US52.3 billion in 2003, up from $US19.4 billion last year.

Photonic's components allow the manipulation and control of the polarisation of light critical to increasing the speed and reach of these optical networks. The company made $US2.5 million in revenue last calendar year, 90 per cent from exports.

"It gives us the technology to deliver better fibre-optic systems to telecommunications operators.

They will be faster, more flexible and capable of longer distances," said the strategic business development director of Nortel's optical component solutions unit, Steve Turley.

Nortel planned to significantly develop Photonic Technologies and take advantage of the pool of photonics engineering expertise in Australia, Turley said. "Because of the quality of engineering resource and technology, Sydney is a place where we will focus a lot more investment," he said.

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