Nortel to acquire Xros for $US3.25 Billion

In its second major acquisition in three months, Nortel Networks yesterday said it will buy California-based optical switch maker Xros in a stock deal worth $US3.25 billion.

Nortel plans to combine its Qtera Ultra technology, acquired in December also for $3.25 billion in Nortel stock with Xros' silicon-based micro-mirror technology in a future all-optical network, Nortel officials said in a conference call. Silicon-based micro-mirror technology allows data to be switched through large-scale optical networks entirely in the form of light.

Nortel's aggressive record of acquisition -- it also announced plans to buy Promatory Communications in January is part of the company's strategy to meet bandwidth demands, said Clarence Chandran, president of Nortel's service provider and carrier group.

Nortel's carrier customers are interested in an all-optical network that will be able to deliver millions of instant Internet sessions, thousands of video channels and large volumes of electronic business transactions at high speeds, Chandran said.

Greg Reznick, chief executive officer of Xros, who also participated in the conference call, said there has been interest "from all fronts" in an all-optical network. Discussions with customers "revolve around enabling technology that allows them to build to the scale they foresee they are going to need in the future," Reznick said.

Chandran declined to name the customers that Nortel has been talking with, but he said trials were expected to begin in the third quarter.

Xros' switches are designed to operate at 10G bits per second (bps), today's standard, as well as the future optical speeds of 40G bps and 80G bps, according to Nortel. Nortel will introduce networks capable of delivering those future speeds next year, the company said.

Xros' X-1000 switch is capable of arbitrarily connecting up to 1,152 pairs of inputs and outputs with an all-optical pathway from each input to each output, Reznick said. The all-optical pathway makes the cross-connect completely independent of the bit rate and the underlying format or protocol of the data.

Both Chandran and Reznick said they were confident about Nortel's lead over competitors in delivering an all-optical network. Chandran declined to discuss specifics, but he estimated that Nortel has a nine-to-12 month lead over competitors. The size of the market is expected to be about $500 million next year, growing to about $15 billion in 2004, he said.

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