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Cisco makes another optical acquisition

Will Cisco's $99 million CoreOptics buy turn out better than its past optical networking purchases?

By , Network World
May 20, 2010 12:25 PM ET

Network World - Cisco announced plans to acquire privately held CoreOptics, a designer of digital signal processing technology for optical networking applications, for $99 million in cash.

The acquisition of CoreOptics is Cisco's second this week. Earlier, Cisco said it will acquire privately held Moto Development Group, a consumer product design and development consultancy, for an undisclosed sum.

Tech M&A deals of 2010

CoreOptics will bring to Cisco expertise in digital ASIC design, advanced modulation formats, as well as optical systems, applications and network architecture. Cisco says CoreOptics will enable it to provide "highly advanced" 100Gbps transmission technology to service providers for supporting IP-based video, mobility and cloud services.

Citing its own research, Cisco believes global IP traffic will increase fivefold from 2008 to 2013 with a 40% compound annual growth rate.

Cisco says the next phase of optical networking innovation will be sophisticated modulation formats and advanced DSP technologies to enable efficient transmission of large amounts of data over existing fiber optics. This will allow service providers to manage capital expenditures by accommodating growth in network traffic over existing infrastructure, the company says.

CoreOptics is based in San Jose, but a majority of its employees are in Nuremberg and Gerlingen, Germany. Upon completion of the acquisition, CoreOptics employees will become part of the Cisco Service Provider Technology Group and work with Cisco's existing optical engineering teams in Monza, Italy; Bangalore, India; and Richardson, Texas.

In addition to the $99 million in cash, Cisco will pay retention-based incentives in exchange for all shares of CoreOptics. The acquisition is expected to close in the second half of calendar year 2010.

Cisco's track record in acquiring optical networking companies is spotty. In 1999, the company paid $7.4 billion for Cerent, a maker of metropolitan networking transmission gear, and Monterey Networks, a maker of optical switches. Cisco killed the Monterey product in 2001 and has steadily lost share and expertise in optical multiservice SONET/SDH provisioning platforms (MSPP), a $6 billion market where the Cerent platform competes.

Cisco also acquired Pirelli Systems in 1999 for long haul and extended long haul dense wavelength division multiplexing transport. That product line -- the ONS 15808 -- was discontinued in 2005.

While stating that its intent with most acquisitions is to capture a market in transition and attain a No. 1 or 2 share position, Cisco was No. 10 in the MSPP market in 2009, according to Dell'Oro Group. However, Dell'Oro notes that in the first quarter, Cisco's optical revenues increased 15% year-over-year, making it the No. 6 vendor by revenue share. And in the WDM Metro market space, where the 15454 also plays, Dell'Oro estimates Cisco was the No. 3 vendor on a revenue share basis.

Infonetics Research notes that Cisco and Fujitsu posted large first quarter market share gains in the packet-optical market segment, presumably the area the CoreOptics technology will address.

Read more about lans & wans in Network World's LANs & WANs section.

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