Zhone snaps up Tellium

Zhone Technologies, which makes carrier access gear, and optical switch vendor Tellium have agreed to merge.

The combined company, which will be called Zhone, will offer a range of equipment – customer site access devices, service provider edge concentrators, multiplexing equipment, core trunking and voice-data gateway boxes. Tellium adds the core optical transport component with its Aurora Optical Switch.

Tellium’s gear competes against optical equipment made by Ciena and Sycamore, both of which can groom circuits as small as 51M bit/sec. Tellium’s equipment, however, can’t groom below 2.4G bit/sec, says Ron Westfall, an analyst with Current Analysis.

“It needs work,” Westfall says.

Another goal of the combined company is to have all the equipment manageable and configurable from the same management platform, Westfall says. But that will take some time to integrate, he admits.

When completed, the stock deal would give Zhone shareholders 60% of the shares in the new company. The merged company will boast 250 customers – including the likes of Qwest, Verizon and Bell Canada – but none so far has bought into Zhone’s entire product line as a way to build their network, Westfall says.

“It’s a serious question: How many carriers will buy [digital loop carriers] and muxing equipment in conjunction with optical switches?” he says.

Alcatel seems to be the only vendor succeeding in selling a range of gear to large carriers, Westfall says.

Tellium is just the latest of a long string of acquisitions by Zhone. The company’s business plan from its founding in 1999 was to buy up other companies for the technologies Zhone needed with a $500 million bankroll.

After the merger, Zhone will have $150 million in cash, leaving the door open for more purchases or as a bankroll to buffer the company from the ongoing sluggish carrier-equipment market. Zhone’s revenue for the first six months of this year is $37.6 million, down from $60.7 million for the first six months of last year.

The Tellium deal makes Zhone’s ninth acquisition. Others include NEC eLuminant, Vpacket Communications, the AccessNode Universal Edge 9000 product from Nortel, Xybridge Technologies, OptaPhone Systems, Roundview, CAG Technologies and Premisys Communications.

NEC eLuminant SONET multiplexing gear that is now part of Zhone’s product line could be sold in conjunction with the Tellium products, Westfall says, and integrating those products might reasonably be put on a product development map.