Ovum on: LG-Nortel's Novera Optics Acquisition

By: Lynn Hutcheson, VP, Ovum
(Business News & Technology News, 7 Aug 2008)

On 4 August 2008, Novera Optics was purchased by South Korean company LG-Nortel, a joint venture between Nortel and LG Electronics. Novera, originally founded in 1999 to develop acousto-optic tunable filters (AOTF) for reconfigurable optical add-drop multiplexers, changed direction in 2004 to develop WDM-PON products just as the fiber optic broadband access market started to take off. The company raised around $80 million, of which slightly more than half was invested in its AOTF technology and the remaining in WDM-PON technology. The company's headquarters is located in Santa Clara, California but it also has a subsidiary in South Korea where the bulk of the R&D is located. This WDM-PON product was developed to address the FTTx market—fiber to the home (FTTH), building (FTTB), curb (FTTC) and node (FTTN). WDM-PON technology suffered from being more expensive than competing technologies like BPON, EPON, GPON and point-to-point switched Ethernet. WDM-PON has many distinct advantages over its competing technologies, such as higher data rates to the end customer and higher symmetrical bandwidth. A number of service providers have either evaluated WDM-PON in their laboratories or studied it in detail. They say that it is a good technology but it is not ready for prime time as it is too expensive.

While FTTx deployments didn't start to take off until 2004, Novera persevered with its product development and finally secured its first customer in early 2006 with Korea Telecom (KT). While today worldwide there are 33 million FTTx subscribers, only about 150,000 of them are connected with WDM-PON and all of those are in South Korea. KT announced in mid-2007 that it was going to significantly curtail WDM-PON installations as it was just too expensive. While there is still a very small amount being deployed by KT, this left Novera scrambling for new customers.

Other companies claim to be developing WDM-PON products, but Novera is the only company with a proven product line. About a year ago Novera signed a strategic partnership agreement with ADC to market and sell its WDM-PON products. There have been no announcements regarding field trials or contracts with any service providers.

Is this a good deal for either Novera or Nortel?
It most definitely is a good deal for Novera as this acquisition couldn't have come at a better time, with the company approaching an end to its funding and with no significant customer orders in sight. Nortel, on the other hand, abandoned the access market in 2000 as the downturn in the telecommunications market was just beginning. This will be a small step back into the broadband access market. At the Executive Forum as part of the Optical Fiber Communications Conference, Michael Adams, Nortel's VP of Strategy and Architecture for Metro Ethernet Solutions, said that WDM-PON was going to play a major role in its broadband access strategy. At best it will provide a few bragging rights for Nortel as it will be the only broadband access player with a WDM-PON product, but that is all as the market for this product is still a few years away.

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