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Intel Buys Deeply into Optical Networking
By Deborah Durham-Vichr, www.NewsFactor.com
In a move to become a major player in the optical networking field, Intel Corp. (Nasdaq: INTC - news) announced Tuesday that it would purchase three California-based companies with key technologies for producing opto-electronic components.
It is a strategy that analysts say began two years ago with Intel's US$2.2 billion purchase of Level One, and that continues despite an economic downturn.
It has taken Intel only a year to become a leading provider of components for communications equipment that hurls data at 10 gigabits per second (Gbps) -- a speed known in the telecommunications industry as OC192.
Indeed, Mike Ricci, vice president of Intel's Optical Products Group, said in a statement: "Despite the current slowdown in sales of networking and communications gear, we believe that the investments we're making to add key opto-electronic capabilities ... will enable Intel to lead in this industry when the inevitable recovery occurs."
10 Gigabit Ethernet
But first, Intel must put all the pieces in place in a field that is very competitive and costly for the company.
"The linking factor [in the current acquisitions] is 10 gigabit ethernet capability," William Giles, an Intel spokesperson, told NewsFactor Network. "These three [purchases] happened to be lined up closely in time and related to each other, so we wrapped them up … at the same time."
The first company, LightLogic, Inc. of Newark, California, for which Intel will reportedly pay $400 million, designs and manufactures integrated opto-electronic components.
Another firm being purchased, nSerial, develops high-speed physical layer components, such as serializer/deserializer(SerDes) transceivers and is located in Santa Clara, California. Press reports put nSerial's selling price at $66 million.
No price was stated for Los Angeles, California-based Cognet, which develops electronic components for use in the 10 gigabit ethernet modules.
"If you wanted to do the math on Cognet, my guess is that it went for between $80 million and $120 million," Jeremey Donovan, principal analyst at Gartner Dataquest, told NewsFactor.
Committed to the Market
The three purchases are widely seen as part of Intel's long-term strategy in the communications semiconductor market.
"A couple of years ago, Intel started to ramp strategy in communications semi-conductors. Most people still think of Intel as a microprocessor maker," Donovan added. "They committed themselves to the semiconductor space, and are filling out a strategy to address the demand for high speed."
"This sequence of these three acquisitions boosts their 10 Gpbs capabilities. That's where the explosive growth is. It's early still, not super-early, but we're at the cutting edge," Donovan told NewsFactor.
Need for Speed
Multiple sources estimate the market growth for opto-electronic components alone to skyrocket from $16.2 billion in 2000 to $47.7 billion in 2004, Intel's spokesperson said.
Intel has made no bones about its designs on the burgeoning market, which were confirmed by its purchase of Danish company Giga A/S last year.
"Optical networking in general has become an increased focus [for Intel]. We've stepped up our efforts in the last two to three years; acquiring Giga out of Denmark was our first foray," Giles said.
"Over the last year alone, there has been such an increase in demand for bandwidth, and there's so much capacity in a single [optical] fiber, it's the only way to handle it."
Offering Complete
The purchase of these three companies now, especially LightLogic, makes Intel's network offerings complete, according to both Intel and analysts.
"There are a number of other companies that don't have the module piece -- that's LightLogic," said Donovan. "That's a new thing for [Intel]. It's a good direction for them."
"The alternative would have been to purchase Nortel's optical component business, which is reportedly for sale, or to acquire Agear from Lucent," Donovan noted.
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