For the second time in three months, Nortel Networks is paying billions of dollars in stock for an optical networking start-up that has not sold a single product.
Today's $3.25bn takeover was of Xros, a Silicon Valley company that is about to go into field trials with its X-1000 switch, which redirects beams of light from one piece of glass fibre to another using tiny mirrors.
Xros had reportedly raised a mere $25m in venture capital before Nortel's move, but neither company would discuss the "premium" that the giant equipment maker is paying.
Clarence Chandran, president of Nortel's service provider and carrier group, claimed, however, that Xros was a leading edge manufacturer of optical cross connects, a switching technology that is not yet mainstream.
And the deal will complement the firm's similarly priced takeover of Qtera, which specialises in long-haul optical transport equipment. This acquisition closed at the end of January and Qtera had likewise sold no products prior to Nortel?s swoop.
But established companies are currently falling over themselves in the race to buy optical technology start-ups to try and boost the speed of the internet.
Market leader Cisco has spent $9.8bn on optical companies over the past six months and John Chambers, the company's chief executive, added fuel to the fire by claiming that optical networking was the future.
Nortel and its competitors have justified their huge pay-outs so far by saying it is essential to have products out on the market more quickly than they can produce in their own labs. "Everything we do is about time-to-market," said Don Smith, president of Nortel's optical division.
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