Xtera buys Metro-Optix assets

Long-haul equipment vendor Xtera Communications today announced it has acquired the assets of metro optical equipment vendor Metro-Optix, which ceased operations in June.

Company officials would not disclose details of the transaction other than to say it was part cash and part stock. Xtera, which sells dense wavelength-division multiplexing (DWDM) gear, announced a $30 million financing round August 15, contributed mostly by existing investors. Sources believe the company bought Metro-Optix for far less than $30 million.

Telecom Pragmatics consultant Mark Lutkowitz said the merger could present the opportunity for the two companies to combine switching and cross-connect functionality, a feature he said long-haul carriers have been asking for for some time.

But although Metro-Optix vice president of marketing and business development Kris Shankar acknowledged the possibility of such hybrid products, he said Xtera would sell the Metro-Optix edge device—the CityStream bandwidth manager—essentially as is. The result will be a more diverse product offering that will help Xtera weather the slow 12- to 18-month sales cycles of the long-haul market.

Because Metro-Optix had 15 paying customers when it shut down (all American independent operating carriers such as Brandenburg Telephone and US Signal) and Xtera has yet to announce a single customer, the primary value of the merger may lie in that ready-made customer base.

“The acquisition of Metro-Optix has given [Xtera] 15 customers and a revenue stream that they hope to expand based on this new-found financial strength,” Shankar said.

“When [Metro-Optix was] shut down, the message that was clearly being sent by its customers was, ‘We love your product and everything, but your financial stability concerns us,’” Shankar added. “With this new round of funding, [customers] look at that and say, ‘This is an added measure of confidence,’ and continue to buy the product.”

Lutkowitz, who generally regards Xtera executives as well-grounded and practical, was skeptical of the strategy. “I can’t imagine why they’d want to diversify all of a sudden and get into the metro,” he said. “That’s a very competitive space. When the market comes back, I’m not sure the Metro-Optix box will be considered optimal. Companies will be announcing products with much greater density that are cheaper. It won’t be very long before the Metro-Optix box is going to be looked upon as not being state of the art.”

“Xtera will still need help to get into any of the incumbent [carriers],” Lutkowitz added. “They can’t get in by themselves.”

At the time of Metro-Optix’s demise, a company spokesperson estimated its 2002 revenues in the “low millions.” Its 114 employees were stripped down to a skeletal Dallas-area staff of between 10 and 15 people, some of which will join Xtera.