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April 09, 2008

Who is Xtera and Why is it Buying Metro Optical Vendor Meriton?

By Paula Bernier - exchange Magazine

April 9, 2008 -- You may not be familiar with Xtera Communications Inc. But the company, which began life in 1998 as an optical subcomponent supplier, is working to change all that.

Xtera aims to be a leading provider of end-to-end IP, Ethernet and optical solutions to tier 1 and 2 service providers. The privately-held company’s announcement this week that it is acquiring Meriton Networks is Xtera’s latest move to establish itself in that position.

“As with our previous acquisitions, Meriton brings advanced technologies, additional customers, and geographical diversity, along with improved economies of scale, across our business,” said Xtera CEO Jon Hopper. “With this acquisition, Xtera Communications has moved significantly closer toward our goal of being a leading provider of converged Ethernet/IP and Optical Transport solutions.”

The Meriton deal, for which the financial terms were not disclosed, expands Xtera’s optical portfolio into the metro networking space. Meriton has an optical cross-connect system with ROADM capabilities that it’s had success selling into the tier 1 international (Meriton is providing ROADM gear for BT’s 21st Century Network through Fujitsu) and North American CLEC markets. But Ken Davison, Xtera’s vice president of marketing, told xchange that Meriton and Xtera have little customer overlap given that Xtera to date has been focused on long-haul and ultra-long-haul opportunities.

Hopper joined Xtera as CEO to help get it on a solid financial footing at a time when the optical sector was out of favor and to transform the Raman amplifier supplier into a systems company with an initial focus on providing WDM gear for long-haul and ultra-long-haul carrier applications. In August of 2007 Xtera closed on $52 million in funding, co-lead by existing investors New Enterprise Associates (NEA) and ARCH Venture Partners and by new investor Wellcome Trust of London, used to drive “strategic growth.”

The first acquisition Hopper helped engineer to move in that direction, Davison said, was the purchase of Azea Networks, a United Kingdom-based company that provided ultra-long haul optical gear to sit at the landing point of submarine cables. Xtera then bought a service installation and project engineering firm that was an arm of the U.K.-based outfit AlanDick Group.

Following the acquisition, Xtera renamed the professional services group Traxe Global Services, which is now a subsidiary of Xtera based on Allen, Texas. Xtera then loosened its pursue strings to grab AscenVision, a Taiwan-based provider of IP enterprise networking and WAN traffic management solutions. And now comes the Meriton deal, Xtera’s largest acquisition to date, said Davison.

With Meriton, added Davison, Xtera will be able to offer its customers like Flag, an international carrier’s carrier, end-to-end solutions.

Xtera’s interest in expanding its position in the optical space is not surprising given sales of optical network hardware are up for the forth consecutive year, nearing $13.9 billion worldwide in 2007, according to Infonetics Research.

“2007 marks the highest revenue year for the optical network hardware market since 2001. Increases in all kinds of consumer and business voice, video, data, and mobile traffic continue to drive service providers to launch IP transformation projects and invest in optical networking gear. The burgeoning packet optical transport systems market, driven by these IP transformation projects, is already close to a one billion dollar annual market in 2007,” said Michael Howard, principal analyst at Infonetics Research.


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