Cortina acquires assets of Intel's optical components business

SEPTEMBER 12, 2006 By Meghan Fuller -- Cortina Systems (search Cortina Systems) has acquired certain assets of Intel's optical network components business (search Intel) for $115 million, which consists of a minority investment position and an undisclosed amount of cash.

Included in the sale is a selection of Intel's Ethernet media access controllers (MACs) and physical layer devices (PHYs), as well as its entire portfolio of transport and service framers, optical transport forward error correction (FEC) framers, and T1/E1 line interface products, confirms Amir Nayyerhabibi, CEO of Cortina Systems.

As for its optical modules and transceiver lines, Intel will retain ownership of those businesses, Nayyerhabibi reports.

"We picked pieces that really are aligned with our business," he contends. "If look at how our product portfolio aligns with theirs, in terms of the infrastructure piece, which is the SONET/RPR/Gigabit Ethernet, we [combined] the data market, which is our strength, with their TDM and optical. We brought two adjacent markets together, which makes us the largest player today in the infrastructure space. We essentially own the lion's share of the market there in terms of new generation or infrastructure chips," he asserts.

Intel also retains ownership of its electronic dispersion compensation (EDC) products, says Nayyerhabibi, who explains that Cortina did not purchase those products because "we have our own. We lead the market in 10 Gig, especially on the analog side, with the technology that we have built into Milan." He confirms that the company also is working on "technology to clean up the fiber," for release sometime next year.

According to Cortina, this acquisition is a major step forward in its strategy of becoming the new leader in components for the infrastructure routing, transport, and enterprise markets, making it the top provider of Ethernet Framers, Ethernet PHYs, Optical Transport FEC framers, Ethernet over SONET service framers, and T1/E1 Line Interface Units. As part of the acquisition, Cortina will add key Intel employees in engineering, product testing/validation, operations, marketing, and application engineering as well as new facilities in Folsom, CA; Raleigh, NC; and Asia.

Cortina and Intel have closely collaborated to ensure that the transfer of the acquired product lines will not disrupt supplies to customers. In fact, reports Nayyerhabibi, that was one of the key reasons why Intel approached Cortina with the deal in the first place. "Intel was very much in favor of keeping customer service in tact," he recalls. Thanks to an already established collaboration between the companies--primarily in Asia--Intel knew that Cortina would "keep customers happy and whole and create a very good home for its employees," says Nayyerhabibi.

Cortina also announced the completion of a new $132-million funding round led by new investor Institutional Venture Partners (IVP) as well as existing investors Canaan Partners and Morgenthaler Ventures. Additional investors providing funding include new investors Alloy Ventures, Bridgescale Partners, Doll Capital Management, and Sofinnova Ventures, along with all of Cortina's existing venture investors. The transaction closed on September 8, 2006.

"As the market for 10 gigabit communications becomes mainstream, makers of switches, routers, and other infrastructure gear need better and more cost-effective ways to deliver a higher level of throughput," explains Drew Lanza, general partner at Morgenthaler Ventures, one of Cortina's founding investors in 2001. "At the time we invested, we predicted the need to marry high-speed network interfaces, low-layer processing and high speed interfaces on a single chip. Cortina's success in achieving this has made it one of the stars of our portfolio."

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