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Cisco treads lightly after Nortel deal

Rumors of an impending acquisition by Cisco to fill its optical-based networking needs following a recent deal by rival Nortel are unfounded, sources say.

Rumors of an impending acquisition by Cisco Systems to fill its optical-based networking needs following a recent deal by rival Nortel Networks are unfounded, according to industry sources.

Nortel Networks is only the latest company to dip into its coffers to buy an optical networking firm, nabbing Qtera yesterday for $3.25 billion. The high price tag underscores the frenzied demand for optical technology at any cost, as the closely held Boca Raton, Fla.-based firm has no customer base.

On the heels of that deal, rumors continue to swirl that Cisco is considering acquiring Corvis Communications, a firm that specializes in technology that allows traffic to be sent over vast distances, similar to technology made by Qtera. Other firms that specialize in such equipment include high-flying upstart Sycamore Networks.

But sources close to the companies involved dispelled the notion that Cisco would pay as much as might be necessary--reportedly up to $10 billion, according to a USA Today report--to grab a company like Corvis.

Rumors of a possible Cisco-Corvis deal are unfounded, according to sources.

"If you were to put that rumor in the space shuttle, you could test weightlessness on weightlessness," one source close to the companies said.

A Corvis spokesperson declined to comment. A Cisco spokesman said the company would not comment on "rumors and speculation."

With skyrocketing valuations, the two firms could be maneuvering to come to a more amicable set of terms, but Cisco executives said recently they are wary of the price tags associated with some optical start-up companies. The networking giant itself spent $7 billion to acquire Cerent.

Cisco does hold a nearly 10 percent stake in Corvis. In the past, that has been a good indication that Cisco might like to develop closer ties with the company, including a purchase. With Cisco's high-flying stock, another multibillion-dollar deal is certainly not impossible, according to analysts.

The networking frenzy surrounding optical-based network systems centers on the notion that optical technology can best handle the explosive growth in network traffic, largely due to the Internet. Optical technology takes a strand of fiber and expands its capacity as needed, so that a communications carrier can easily upgrade a network as traffic increases.

Companies lately seem to be willing to pay any price to get into the market. Upstart Redback Networks purchased Siara Systems for $4.5 billion last month, another start-up company with no sales yet.

Though Cisco has its own stable of optical-based technology, it is lacking hardware that can send traffic over long distances at high speeds.

Technology from start-ups like Qtera and Corvis allows long-haul traffic to be sent long distances without needing regeneration, or receive an electrical charge to keep the data traveling along the network. That process of regeneration slows the general flow of network traffic.