News | December 18, 1998

Rapid Entry Into Metro DWDM Space Drives Nortel to Buy Cambrian for $300 Million

By Erik Kreifeldt

Time-to-market is the driving force behind Nortel Networks' acquisition of Newbridge's Cambrian Systems for at least $240 million in cash—up to $300 million if revenue and market share numbers are met.

Citing a 67% share of the long distance equipment market, Nortel sees the acquisition of Cambrian as a quick way to beef up its presence in the metropolitan area network with a dense wavelength division multiplexing (DWDM) platform. After crusading to establish "mind share" and network trials for its OPTera metro DWDM product since the company's founding in 1996, Cambrian looks forward to leveraging Nortel's brand recognition, global presence, and network integration skills to get the product deployed.

"Technology by itself is not the weapon any more," says Nortel Networks vice chairman and CEO John Roth. "Time to market is the issue."

Winning in the metro DWDM market space is about being first to market and leveraging resources to maintain a strong market share, says Cambrian Systems president Don Smith. In addition to Nortel's support infrastructure, he says Nortel's network management expertise will enhance the OPTera platform and accelerate acceptance of the product.

"It's not just a matter of using network elements out there," Smith surmises, adding that Nortel's network management portfolio was a key factor that began the dialog between Cambrian and Nortel.

"I think its good for Cambrian, to say the least," says Trans-Formation optical networking analyst Mark Lutkowitz of the acquisition. "It's difficult to go it alone," he says, because large companies can squeeze small ones out of the market with price pressure. As for Nortel, "I think if you had to pick a supplier, that's the one to go for," he continues, explaining that Cambrian seems to be furthest along with DWDM survivable ring capability.

Initially, Nortel considered a strategic alliance with Cambrian in lieu of an acquisition. But buying Cambrian outright became the most attractive proposition, due in part to a shorter chain of command offered by owning the company versus a partnership. "If you really want to go fast, you've got to have it all," Roth says, explaining that design teams work faster with fewer people from whom to ask permission.

Nortel intends to maintain Cambrian's 170 employees, and will also send 40 design engineers to Cambrian's Kanata, Ontario headquarters to work on the product line.

Nortel's VP and general manager of Optical Network Applications, Brian McFadden, characterizes the OPTera platform as a "new optical networking paradigm" that will ease the communications bottleneck between enterprise networks and core carrier networks. Over the next two years, he predicts the products will penetrate service provider markets and lure non-traditional DWDM customers such as large corporate network users. Cambrian is conducting lab trials with both service providers and enterprise network customers, adds Smith.

The OPTera sports survivable ring capability and 32-channel bit-rate independence from 100 Mpbs to 2.5 Gbps per channel. "To make an offering in the metro environment, you have to prove in at less than OC-48," McFadden says.

Headquartered in Kanata, Ontario, Cambrian Systems was founded in 1996 and became a Newbridge affiliate in March 1997. While Newbridge gives up its 40% stake in Cambrian, it maintains its Cambrian OEM relationship via Nortel. Newbridge recently launched a system that integrates Cambrian's DWDM technology with its MainStreetXpress ATM switch. Newbridge markets the switching platform in alliance with Siemens.