Ciena buys stake in Laurel

Ciena has acquired a stake in edge router maker Laurel Networks and will resell Laurel's ST200 router.

Ciena was the primary investor in Laurel's $20 million third round, which was announced this week. Ciena is also a new investor in the company.

The deal is consistent with Ciena's strategy to broaden its addressable market by broadening its product line beyond the optical transport and switching systems for which it is known. Ciena invested in and then acquired multiservice edge switch maker WaveSmith Networks, and has an investment in and resale agreement with multiservice core switch maker Equipe Communications.

The Laurel arrangement marks Ciena's entry into the edge router space, a market recently embraced by fellow telecom stalwart Tellabs via its acquisition of Vivace Networks.

Analysts say the two are not done.

"We believe the next logical step for Ciena and Tellabs is a strategic move into the broadband access market," states UBS Warburg Analyst Nikos Theodosopoulos in a research note. "Both companies are virtual pure plays in optical systems, a very competitive and unprofitable market. Given the reality of a slow growth telecom capex environment in the future, we believe Ciena and Tellabs will continue to make strategic extensions into higher growth areas such data and broadband access."

UBS posits that RBOCs and PTTs will continue to cut DSL prices in order to compete with cable MSOs for the broadband pipe into the home. Price cutting should lead to greater DSL subscriber growth, stimulating demand from the RBOCs for more DSL equipment, according to UBS.

Also, the FTTP RFP from three RBOCs should entice the companies to snap up PON or other fiber vendors to get a piece of the FTTP buildout pie.

Though Laurel does not fall into the FTTP barrel, the company did recently unveil a broadband remote access server enhancement to the ST200 that analysts say transforms the router into a high-performance subscriber management system.

Laurel says the Ciena deal will not affect an existing service pact with Fujitsu or a resale arrangement with Marconi. The Marconi relationship is focused squarely on the federal government market, the company says.

Laurel also says it struck the deal with Ciena in response to a flurry of carrier RFPs on the street rather than a specific carrier opportunity. As a small company, Laurel needed the backing of a larger established player in courting the large carrier market, says Steve Vogelsang, vice president and co-founder of Laurel.

"One of the big challenges we've been facing is dealing with large carriers as a start-up," Vogelsang says. "This addresses those concerns. It increases our ability to get executive-level contact" at carriers.

Meanwhile, Laurel's existing investors New Enterprise Associates, Trinity Ventures and Worldview Technology Partners also participated in company's third round. The $20 million also includes a separate transaction between Optovation, a maker of optical networking performance analyzers, and Laurel.

Laurel has raised $102.3 million since its founding in 1999.

This story, "Ciena buys stake in Laurel" was originally published by The Edge.

Copyright © 2003 IDG Communications, Inc.

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