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Nortel Lands JDS Subsidiary

[Ottawa, ONTARIO] Nortel Networks' aggressive race to create an all-optical Internet was given an additional boost with this morning's announcement that the company is moving to acquire the Zurich-based subsidiary of optical equipment manufacturer JDS Uniphase.

Nortel will also be picking up related JDS assets in Poughkeepsie, New York. Under the agreement, Nortel will pay $2.5-billion (U.S.) on closing, and up to $500-million (U.S.) in its common shares after December 31, 2003, if the company fails to live up to specific commitments to JDS Uniphase.

The Zurich company currently oversees the sale of 980 nanometer pump-laser chips to a number of global optical component manufacturers. With this acquisition, Nortel hopes to accelerate its ability to integrate this and related technology into Nortel's optical amplifier modules, which boost and amplify light in dense wave division multiplexing (DWDM) networks.

"The acquisition will drive our goal of leading the industry evolution from discrete optical components to high-growth, high-value optical modules that will lead the future of the high-performance optical components market," said Clarence Chandran, chief operating officer of Nortel. "That is where the next opportunity is -- in the integration, manufacturing and packaging of components into high-performance modules for volume, automated manufacturing. These components and modules will be pervasive throughout the all-optical Internet."

For JDS, the sale might solve a potential antitrust problem. Last spring, shortly after Josev Straus replaced Kevin Kalkhoven as the company's chief executive officer, JDS announced a proposed merger between the company and competitor SDL Inc. worth $41-billion (U.S.). U.S. regulators are still examining the deal, citing antitrust concerns. The sale of the Zurich subsidiary might be just the thing to eliminate those worries, since, according to industry watchers, the facility presents the most apparent similarity between JDS and SDL.

The link between JDS and Nortel dates back to the days when Nortel was still known as Northern Telecom. Straus, then a physics grad, worked for Northern before branching out to form JDS Fitel, a fiber optics technology developer that he founded along with several colleagues. In 1999, JDS Fitel merged with California's Uniphase Corp, forming JDS Uniphase.

This latest deal will see the JDS Zurich subsidiary become a wholly owned subsidiary of Nortel, and is expected to close during the first quarter of this year. The boards of directors for both companies have already approved the acquisition.

"JDS Uniphase's Zurich-based subsidiary will be a valuable and very complementary addition to Nortel Networks' current portfolio of optical components and modules," said Stephen Reilly, general manager of JDS' Zurich subsidiary. "We have a highly-talented group of engineers and manufacturing employees here in Zurich and in Poughkeepsie, New York. We are pioneers in this field and are excited about joining forces with the industry leader in optical networking."