Lucent Technologies Inc. is close to buying Chromatis Networks Inc., a closely held maker of fiber-optic equipment, for $4.5 billion to $5 billion, people familiar with the talks said.
Lucent, the world's No. 1 maker of phone equipment, may unveil the acquisition this week, though it's still possible the negotiations could fall apart, the people said. Lucent took a stake in Herndon, Virginia-based Chromatis in March 1999 through its Lucent Venture Partners arm. Chromatis has no sales.
Lucent declined to comment and officials at Chromatis were unavailable. The discussions were reported on Friday by Reuters, which said Lucent was in talks to buy Chromatis for as much as $5.7 billion.
Lucent has made 33 acquisitions in four years to expand into markets that are growing faster than its traditional business, fill holes in its product line, or make up for slow development at its labs. Chromatis could help Lucent regain the lead in optical networking it lost to Nortel Networks Corp. last year.
``Optical networking is an area where Lucent has struggled,'' said PaineWebber Inc. analyst Walt Piecyk, who rates Lucent a ``buy.'' ``Maybe they want to be really aggressive about broadening their portfolio.''
Chromatis has developed a product that eliminates the need for several pieces of equipment to run fiber-optic networks in metropolitan areas. The device, named Metropolis, combines the switching, traffic management and extra transmission capacity that phone companies need, all in a single box. That reduces the need for expensive space to house it.
Wouldn't Be First
Lucent wouldn't be the first company to pay a high price for a fiber-optic startup with little or no revenue.
Cisco Systems Inc. acquired Cerent Corp., which had first- half revenue of only $9.9 million, in November for $7.15 billion. Nortel, the biggest maker of fiber-optic equipment, bought Qtera Corp. for $3.25 billion in January when the Boca Raton, Florida, startup had no sales.
Some purchases are paying off. Cisco said orders for Cerent's box, which combines streams of data for transmission on fiber- optic networks, rose 60 percent in the fiscal third quarter and sales soon could rise to $1 billion.
Metropolis, as its name suggests, is designed specifically for metropolitan networks, where demand for capacity is set to increase as more traffic comes in from Web-based cell phones and high-speed Internet lines. It blends asynchronous transfer mode, or ATM, digital cross-connect and dense wave-division multiplexing, or DWDM, technologies.
Piecyk estimates that sales of DWDM equipment to boost the capacity of metropolitan fiber-optic networks will swell to $2 billion in 2003 from almost nothing last year.
``The demand for optical products is so strong, you can just about sell anything,'' he said.
Chromatis said on Friday that it completed the first phase of equipment trials at Qwest Communications International Inc.
Rival Acquisitions
Lucent unveiled a metro DWDM product of its own in February 1999 and said it expected to begin selling the WaveStar AllMetro OLS in the fourth quarter of last year. It hasn't yet announced any contracts for the device.
Rivals have targeted DWDM technology for metro networks as well. Nortel acquired Cambrian Systems Corp. in December 1998 for $300 million and Cisco agreed two weeks ago to buy Sweden's Qeyton Systems AB for $800 million.
Lucent concentrated its acquisition efforts in the past two years on data networking, buying Ascend Communications Inc. for $25.2 billion and Nexabit Networks for $1.1 billion last year.
Shares of Murray Hill, New Jersey-based Lucent rose 3 1/4 to 55 3/4 on Friday. They've fallen 26 percent this year.
Published by Israel's Business Arena on May 29, 2000.