Nortel Networks’ acquisition of CoreTek Inc. for $1.4 billion in stock last week helps solidify its lead over Lucent Technologies in the optical networking market.
Nortel and Lucent are leading Sycamore Networks, Cisco Systems and others in a race to assemble the most desirable suite of optical networking equipment first. The market for optical equipment, expected to be the foundation for the next generation Internet, is expected to grow 50 percent a year through 2003, according to Ryan Hankin Kent, a telecommunications industry analysis firm.
While Lucent tends to develop most of its equipment in-house, Nortel has pursued a Cisco-style acquisition strategy, using its $177 billion market capitalization to acquire optical network components that fit together like pieces of a puzzle. Nortel’s stock price has more than quadrupled in the past year. In December, the company acquired Qtera, a maker of technology that allows optical traffic to travel longer distances. Last week it announced it would pay $3.25 billion for Sunnyvale, Calif.-based Xros, which makes all-optical switches.
“What’s exciting about CoreTek is that it’s the next building block after Xros,” said Greg Mumford, president of Nortel’s optical networks unit. “We don’t believe that Lucent has anything that measures up to this.”
In fiber-optic networks, where information travels as waves of light over thin strands of glass or plastic, many separate channels of traffic can travel through a single fiber. Each channel travels at a different wavelength, or color, just as cars travel in different lanes along a highway.
More Top Picks Best Patio Umbrellas
CoreTek, based in Wilmington, Mass., is developing lasers that can be tuned to any wavelength. In existing networks, providers install a different laser for each channel in their networks. The company’s devices use tiny, movable mirrors to quickly change the wavelength of light as it travels through a network. The technology enables network service providers to more rapidly reroute traffic along a different channel and allows Nortel to keep one laser in inventory, not dozens.
“Tunable lasers will help Nortel get more optical systems out the door faster,” said Greg Geiling, an equity research analyst with J.P. Morgan, which advised Nortel on the deal. Both Nortel and Lucent have developed tunable lasers in-house but those lasers don’t have the flexibility of the CoreTek product, Mumford said. But Chris Nicoll, director of carrier and optical infrastructure analysis for Current Analysis, a market research firm, said Nortel hasn’t necessarily pulled ahead.