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Sycamore strikes $420 million pact with 360networks

The optical equipment maker will supply the telecommunications network operator with up to $420 million worth of gear over the next several years.

Optical equipment maker Sycamore Networks saw its stock surge after the company disclosed a new pact today to supply telecommunications network operator 360networks with up to $420 million worth of gear over the next several years, its largest contract to date.

Shares of the company were up $16.75, or 15 percent, to close at $126.94.

The deal is significant for Sycamore as it looks to expand its customer base in competition with larger firms such as Nortel Networks, Lucent Technologies, Ciena and Cisco Systems, among others.

Sycamore is one of several firms reaping the spoils of a telecommunications industry in flux. New network operator entrants, such as 360networks, Global Crossing and Level 3 Communications, among others, are building networks based on new technology. As a result, they are expected to eat at the market share of entrenched players such as AT&T and WorldCom and to take advantage of the growth in communications traffic from the Internet and voice calls.

The most important aspect of the deal, said Chris Nicoll, an analyst with market watcher Current Analysis, is 360networks' use of Sycamore's recently introduced 16000 switch, an important addition to the company's technology. "The importance to Sycamore is the proof point of delivery of the 16000," he said.

360networks plans to use Sycamore's 16000 hardware and software technology across all of its 100 "nodes," or network connection points, which are scheduled to be completed by March of next year, according to Harminder Gill, director of engineering and planning for the company.

Also included in the deal are Sycamore's 8000 switches and its network management software system.

Gill said half of the company's U.S. network and half of the company's European layout will be equipped with the 16000 by the end of the year.

Sycamore has eight customers, according to executives, including Williams Communications, the Enron Broadband Services division of Enron, and Storm Communications. Some questioned the company's prospects when Sycamore went public last October with one revenue-generating customer, Williams, which also held a stake in the firm.

But Sycamore has since won several contracts. 360networks executives said they looked at similar equipment from other players, such as Ciena, Cisco Systems and start-up Tellium. "We talked to almost everybody making an intelligent optical switch," Gill said.

Sycamore also recently agreed to purchase Sirocco Systems last month for nearly $3 billion to extend the reach of its products to metropolitan areas.

Company executives said the 360networks deal underscores the trend among network operators to build networks based on fiber-optic technology while using new equipment and software that can make that network more useful, or "intelligent," in terms of the way the network handles specific traffic.

"This is a validation of this whole approach of building a next-generation optical network," said Jeff Kiel, vice president of switching for Sycamore.