Tellabs acquires Vivace

Tellabs has acquired MPLS edge switch maker Vivace Networks for $135 million in cash and stock.

The acquisition will be announced Tuesday.

The deal marks Tellabs entry into the edge router market. Vivace’s Viva5100 and Viva1050 Multiservice IP Switches are designed as IP service enablement systems that retain carrier investments in frame relay and ATM infrastructures. The switches offer IP, frame relay, ATM, Ethernet and private line services.

The Viva5100 offers over 3,000 DS-3 interfaces and 320G bit/sec of full-duplex switching capacity in half of a telco rack. The Viva1050 provides up to 16G bit/sec of port density for small central offices or points of presence, as well as carrier-owned customer-premise or multi-tenant building locations.

Tellabs is a leading provider of digital cross-connect and transport systems for carriers that’s been grappling with a strategy for migrating its customer base to packet-based infrastructures and services.

Vivace declined comment. Tellabs was not immediately available for comment.

Vivace was founded in 1999 and has raised over $118 million in three rounds of venture financing. The company announced shipment of its Viva products just about a year ago. Vivace said it had a Tier 1 customer when it announced its products but it would not identify the carrier. Sources later indicated it was WorldCom, though neither Vivace nor WorldCom — now MCI — would confirm this.

“It ‘s an interesting move for Tellabs getting into the IP area,” says Michael Ladam, an analyst at Stratecast Partners. “Vivace has a variety of technologies, but the IP component is a new direction for Tellabs. There’s more need for that at the access edge.”

Vivace has a credible product that was gaining traction in carrier accounts, but they were a small player without a proven service, support and company viability record, Ladam notes. As a result, they had limited appeal with service providers looking to do business with bigger, better-heeled vendors, he says.

The challenges for Tellabs are the usual ones, Ladam notes: product integration and training. “They have to staff up to position this (Vivace) product to play in an area where they haven’t played before.”

Tellabs, citing data from Infonetics Research, estimates the market for edge routers and switches is $3 billion in 2003, growing to $5 billion by 2005.

The acquisition is expected to close in the third quarter. Tellabs plans to retain Vivace’s employees and offices in San Jose.

Vivace CEO and co-founder Ken Koenig will become Tellabs senior vice president, advanced data products, and report to Ed Kennedy, president of Tellabs North America.