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Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth E. Phillipps who wrote (5285)	4/11/2000 8:12:00 AM
From: Paul Lee	Respond to of 14638

thetelecommanalyst.com Networks Illuminated By a Northern Light By Pimm Fox So much attention recently has been focused on European and Asian telecoms ? DEUTSCHE TELEKOM's (DT) abortive attempts at taking over QWEST COMMUNICATIONS INTERNATIONAL (Q) and Century Pacific's acquisition of CABLE & WIRELESS's (HKT) Hong Kong operations ? that it is easy to forget an aggressive player to the north: NORTEL NETWORKS (NT). Brampton, Ontario-based NORTEL is set on advancing a variety of designs and services for telephony and Internet Protocol networks. First and foremost, it is intent on being a leader in optical switching. Optical switching is designed to supplant digital switching, which was first applied in 1977. Today, almost all telephone calls originate and terminate within digital switching systems. These systems use time-division multiplexing (TDM) technology as the digital switching and routing mechanism. New optical-switching networks using silicon-based micro-mirror technology allow data to be switched through large-scale optical networks entirely in the form of light. Industry lingo refers to these machines as micro-electromechanical machines, or MEMS, and they are the reason NORTEL gobbled up privately held XROS for $3.25 billion in stock. Sunnyvale, Calif.-based XROS, with just 90 employees, is at the center of a $540 million market for optical switching, which is expected to grow to $15 billion by 2004. The reason behind this surge in growth is greater demand for bandwidth. Indeed, the first commercialized fully optical-switching technology machines will be available for trial from NORTEL (with the acquisition of XROS) and competitor LUCENT TECHNOLOGIES (LU) by the end of the year. MEMS technology competes with other solutions, such as the bubble inkjet announced by AGILENT TECHNOLOGIES (A), the HEWLETT-PACKARD (HWP) spin-off. Another recent acquisition by NORTEL was Wilmington, Mass.-based CoreTek, a maker of optical components such as tunable lasers. The purchase price of $1.07 billion ? all in stock ? marks the 120-employee CoreTek as another high flier in a hot networking market where valuations are based on future products and technologies. CoreTek's products employ tiny, moveable mirrors to alter the wavelength of light emitted by semiconductor lasers. These moves complement last year's takeover by NORTEL of Qtera, another pioneer in the optical networking market. NORTEL already has a solid position in other areas of optical networking ? mainly SONET and DWDM. SONET stands for synchronous optical network. SONET allows different types of formats to be transmitted on one line. DWDM stands for dense wavelength division multiplexing, which is a fiber-optic transmission technique that employs light wavelengths to transmit data. NORTEL recently purchased Cambrian for its DWDM technology. In addition, NORTEL, along with JDS UNIPHASE (JDSU) and LUCENT, has rolled out test versions of new higher-speed TDM systems, a digital transmission technology that allows a number of users to access a single radio frequency channel without interference by allocating unique time slots to each user within each channel. The devices allow analog voice and data to work through an integrated services digital network, or ISDN, a system that provides simultaneous voice and high-speed data transmission through a single channel. NORTEL's aggressive acquisition strategy and the possibility that sales may double in the high-margin optical networking market, mean that the company has a competitive advantage over its peers. Currently, gross margins for optical networking products are estimated to be between 43% and 44%. NORTEL is also poised to take advantage of European network upgrades, which management is specifically targeting. With NORTEL in the right place at the right time, it may not matter that it is not based in Silicon Valley. And for investors, the company may offer an attractive way to participate in the explosion of the optical networking market. Turning light into lucre may be a better path to success, and NORTEL seems determined to be a leader.