Nortel to Acquire Tunable Optical Component Start-Up CoreTek for up to $1.43 Billion; Wavelength Conversion to Follow DWDM Applications

Nortel Networks fourth acquisition in as many months, <%=company%> (Brampton, ON) plans to acquire tunable optical component start-up CoreTek (Wilmington, MA) for up to $1.43 billion worth of Nortel stock. In addition to applying CoreTek's tunable lasers and filters as substitutes for arrays of fixed-wavelength dense wavelength division multiplexing (DWDM) devices, Nortel plans to use tunable lasers to perform wavelength conversion, one of the last hurdles to commercially viable all-optical cross-connects.

In the role of wavelength conversion, the CoreTek technology is "absolutely complementary" to Nortel's recent acquisition of Xros, says Greg Mumford, Nortel's president for optical networks (see Nortel to Acquire All-Optical Switching Start-Up Xros for $3.25 Billion). Nortel plans to offer wavelength conversion capability based on the CoreTek technology next year.

The first application of CoreTek's tunable devices will be as substitutes for fixed transmitters and receivers in DWDM systems, such as that of Qtera Corp. (see Nortel Brings 'Disruptive' Long-Haul Optical Technology into the Fold for a review of Nortel's acquisition of Qtera, and OFC 2000: Optical Switching Systems Stir Up Wavelength Management Debate for a look at Qtera's product launch and the merit of wavelength conversion.)

CoreTek uses vertical cavity surface-emitting lasers (VCSELs) and micro-electromechanical systems (MEMs) technology for its tunable devices. Complementing Nortel's equipment platforms, CoreTek's components operate in 10 Gb/s systems, with plans to evolve to 40 Gb/s and 80 Gb/s operation. Mumford's list of features that make CoreTek stand out from the pack of tunable laser players is: Wide tuning range, output power, wavelength stability, and switching speed.

A privately-held company with 120 employees, CoreTek was founded in 1994. Now in pre-production, CoreTek expects to enter pilot production of its components in the fourth quarter of this year, and full production next year. CoreTek's CEO Dr. Parviz Tayebati will drive the development of CoreTek's technology within Nortel. He estimates that his company's progress is at least 18 months ahead of the competition.

"This was an easy decision to make," says Tayebati. "We went with Nortel Networks because we see them as the global leader in the Optical Internet and see this combination as the ideal way to bring our pioneering technology to the global marketplace."

The transaction, which is expected to close in the second quarter of 2000, is subject to customary regulatory approvals and approval by CoreTek's shareholders. It is expected to be marginally dilutive to Nortel Networks earnings per share in calendar year 2000 and accretive in calendar year 2001 (excluding acquisition-related charges). The acquisition will not impact Nortel Networks previously-announced financial guidance. Based upon a Nortel Networks share price of US$119.75, the acquisition will result in Nortel Networks issuing approximately 8.9 million Nortel Networks common shares on a fully diluted basis at closing. Up to an additional US$361 million in common shares would be issued upon CoreTek achieving certain milestones.

By: Erik Kreifeldt