Pooling Technologies

Its midsummer in baseball, and midslump in telecom — time for second-tier teams to acquire talent from cellar dwellers and make a run for the pennant.

Thats what Centerpoint Broadband Technologies did 10 days ago, when it announced an all-stock deal to acquire Zaffire, a company with sturdy Dense Wavelength Division Multiplexing (DWDM) technology, but wobbly financial legs.

"The big guys are already in there getting early market share," Dana Waldman, president and CEO of Centerpoint, said on July 6, the day the acquisition was announced. "If were going to be successful, we have to work in their arena."

Industry observers like Zaffires technology, and say that the acquisition gives Centerpoint a decent chance to compete with the likes of Nortel Networks, ONI Systems and Riverstone Networks in bringing high-speed traffic to the metro area.

Waldman wouldnt reveal the value of the transaction, but the acquisition is likely the biggest "private company buying private company" deal since the equipment vendor industry started slipping last fall. Last October, Centerpoint raised $130 million in financing led by Putnam Investments and OppenheimerFunds, bringing its total financing to $200 million.

Earlier this year, Zaffire received an Investors Choice award at Optix 2001. The Investors Choice awards highlight private optical firms deemed most likely to succeed. Early-generation DWDM was dumb technology, but Zaffires digital wrapper offers the intelligence to manage wavelengths and monitor traffic.

"We really like Zaffire, and we were all praying theyd make it one way or another," says The Yankee Group analyst Marian Stasney. "If someone can afford to buy them and keep them afloat, thats good — as long as their products mesh."

Centerpoints flagship Subcarrier Multiplexing-powered LENS 1220 packs 20 gigabits per second of data onto a single wavelength, and can handle a mix-or-match bag of Synchronous Optical Network, IP or Asynchronous Transfer Mode technologies; LENS stands for Centerpoints Lightwave Efficient Network Solution. With Zaffires DWDM technology, the LENS 1220 can offer customers 20 Gbps multiplied by 32, 64 or 256 wavelengths on a single fiber. That single fiber can carry data for dozens of offices across the region to within a mile or so of the office park.

The platform combining the Centerpoint and Zaffire technologies will rest in the metro core, between the last mile and the backbone.

"Carriers want the ability to turn services up and down rapidly and easily," Waldman says. "An integrated system like ours will combine aggregation coupling with high-capacity transport, so we can do it for our customers. It will give them the benefit of Subcarrier Multiplexing, without them bearing the burden of integrating it themselves."

This spring, San Jose-based Centerpoint was named to the Red Herring 100, a list of 100 public and private companies that represent the latest trends and products. Centerpoint touts its products ability to scale on demand and handle various protocols, so customers dont have to restructure their networks to handle increased bandwidth or new technology.

Zaffire, also based in San Jose, claims to be the first optical company with a purpose-built DWDM system for metro and regional carriers. DWDM combines multiple wavelengths of light onto a single fiber. Zaffires system has 256 channels on a single fiber pair — four times the capacity of most competitors gear.

Zaffire set 15 doctoral-level engineers to the task of creating from scratch a DWDM for the metro market, saying vendors that tried to stuff their long-haul DWDM equipment into metro spaces were putting square pegs into round holes.

"We looked at a brand-new architecture and a dramatically lower price point," says Rob Keil, Zaffires chief technical officer. A typical DWDM system costs $50,000 to $80,000. Zaffire offered its gear for $12,000, yet had trouble finding customers.

Waldman says the timing of the acquisition is perfect. "People need to extend the life of their networks now more than ever. Thats what we help them do. It puts us in a unique stance, offering end-to-end transport systems with flexibility and high capacity," he says.

Centerpoint had DWDM on its roadmap for a while, and had discussions with several companies, Waldman says. "We pursued it with Zaffire, and when we realized their and our customers were complementary, we accelerated it a few weeks ago. And here we are, very excited about the deal," he says.