Sycamore to buy maker of fiber-optic equipment

Sirocco Systems' products speed date along urban networks

Telecommunications

June 07, 2000|By BLOOMBERG NEWS

CHELMSFORD, Mass. - Sycamore Networks Inc. agreed yesterday to buy Sirocco Systems Inc. for $2.88 billion in stock, its second effort to snap up a maker of fiber-optic equipment that speeds the flow of data on networks in cities.

Sycamore, whose products now carry and switch data and voice traffic over longer distances, will pay 28 million shares for Sirocco, a closely held, 16-month-old startup with no sales. It expects to complete the purchase in about 60 days.

Demand for equipment to run metropolitan fiber-optic networks is set to explode as traffic floods in from Web-based cell phones and high-speed Internet lines. Sycamore had wanted to buy Chromatis Networks Inc. to extend the reach of its equipment to urban networks, but lost the bidding to Lucent Technologies Inc. Sirocco gives it similar products.

"You have a very smart management team at Sycamore buying one of the best startups," said Paul Johnson, an analyst at Robertson Stephens & Co., who has a "buy" rating on Sycamore. "It's a very smart combination."

Shares of Chelmsford, Mass.-based Sycamore fell 93.75 cents to $102 yesterday.

The stock has surged eightfold since the company went public in October.

Sycamore, which is just emerging from startup mode itself, boasts a market value of about $25 billion.

It reported its first profit in the fiscal third quarter as sales doubled from the fiscal second quarter to $59.2 million.

The acquisition, which Sycamore will account for as a pooling of interests, will cut earnings per share in fiscal 2001 and boost them in fiscal 2002, Chief Executive Officer Dan Smith said in a conference call.

Sycamore is joining an industry consolidation in fiber optics led by Nortel Networks Corp. and Cisco Systems Inc.

Nortel was the first to buy a startup with products for metro networks when it acquired Cambrian Systems Corp. in December 1998 for $300 million. Cisco agreed last month to purchase Sweden's Qeyton Systems AB for $800 million to add similar gear, and Lucent followed last week, agreeing to buy Chromatis for $4.65 billion.

Among them, Nortel, Cisco, Redback Networks Inc. and Linthicum-based Ciena Corp. have spent at least $18.1 billion in the past 18 months to buy makers of fiber-optic equipment.

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