Nortel Adds to Optical Networking Portfolio

FRAMINGHAM (03/17/2000) - Nortel Networks Corp. said this week it would purchase Xros Inc. for $3.25 billion in stock. The acquisition gives Nortel Xros' optical switching technology, which Nortel said is critical for creating end-to-end all-optical networks.

Fiber-optic networks will become increasingly important as companies look to outsource to application service providers, Nortel said, because optical promises to provide a real-time experience for users connected to a remote server.

The Xros acquisition adds to Nortel's capability to switch and route the data at the optical layer. Today, even on networks that use optical fiber for data pipes, switching and routing still has to be done electrically, and converting optical signals to electrical and back again can create congestion at network junctions in the process, Nortel said.

"The objective is to try to do the switching with light," said Tam Dell'Oro, an analyst at The Dell'Oro Group Inc. in Portola Valley, Calif.

"The way that optical transmission over light works today is dumb. The brains are in the routers and switches, and all the brain work is done electrically," Dell'Oro said.

New Switch to Be Tested

Nortel said the first product from Sunnyvale, Calif.-based Xros would be the X-1000 optical switch, which is capable of optically connecting up to 1,152 pairs of optical fiber inputs and outputs.

The switch was designed to operate at today's standard of 10G-bps and scale to speeds of 40G and 80G-bps in the future. Customer trials for the X-1000 are scheduled for this summer, according to Nortel.

Dell'Oro noted that optical networking start-up companies are popping up everywhere, a fact that isn't lost on Nortel. The Brampton, Ontario, telecommunications equipment provider expects to increase its optical business by about 60 percent this year, Dell'Oro said.

She said Nortel's biggest competitor is Murray Hill, N.J.-based Lucent Technologies Inc., which had a total of $3.7 billion in revenue from its optical business last year, compared with Nortel's $4.6 billion.

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