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26 April, 2006 - 18:24 By Staff Reporter

Level 5 Networks set to merge with Californian peers

Cambridge start-up Level 5 Networks has agreed a merger with fellow ethernet specialist – California-based Solarflare Communications.Cambridge start-up Level 5 Networks has agreed a merger with fellow ethernet specialist – California-based Solarflare Communications.

The two component makers plan to join forces in a deal that will see no shares or cash changing hands, but will be cemented by a further injection of funding from the pair’s VC backers.

Exact figures are not being released, but the new company has revealed that its cash balances have been increased to over £28m ($50m).

Level 5 was formed in 2002 and has raised a total of £21.8m ($39m) in two rounds, the last of which was in June 2005. Meanwhile Solarflare has raised £43.5m ($77.8m) in three rounds, February last year being the most recent of them.

Level 5, which started out life as the less than catchy Cambridge Internetworking, is developing chips network interface cards capable of pinging data from computer to computer at the mighty speed of 10 Gigabits per second.

Solarflare operates in the same space, also tilting at 10GB transfer, making chips to achieve the same feat across copper wire infrastructure. Level 5’s technology currently relies on fibre connections.

The enlarged entity is to take the Solarflare name, but the companies say that this is not reflective of an unequal union, more to do with the fact that Level 5 Networks lost its CEO, Dan Karr, last year.

Solarflare will retain Level 5’s operation in Sunnyvale, California and its development centre at the Westbrook Centre.

The CEO of the new Solarflare, Russell Stern, is dismissive of any notion that the merger is being used as a device to ‘prop up’ either of the two parties, a charge levelled by some industry commentators.

He said: “First, our combined products are highly compelling and satisfy end users’ needs for easy-to-use, standards-based, high-performance ethernet solutions. Second, this merger combines two highly distinguished and talented teams of engineers with proven track records in physical layer devices, network systems, and protocol software.

“And finally, we have a proven executive team that can meet the stringent quality and delivery requirements of our OEM and channel customers.”

The chairman of Level 5 Networks, Charles Cotton, declined to comment on whether he would retain his position as chairman of the new company. Cotton is a big name in networking having guided Virata and then the merged GlobespanVirata to a global lead in the DSL chipset market.

Economic development officials will hope that the East of England technology cluster has more to show for its cradling of Level 5 than it did for Virata. Virata’s Cambridge operations, which at one time employed over 200, was pared back and then eventually closed last year following a series of M&A deals which saw it end up in the hands of US-based Conexant Systems.

Both Virata and Level 5 originate from AT&T’s now-closed Cambridge research lab.

Business Weekly first interviewed the Level 5 team in November 2002, at a time when the company described itself as “just two guys sitting in a garage with a Smart award.”

Founder Steve Pope told us “We conducted research within AT&T to create the fastest local area network (LAN) on the planet, which we achieved. However, as the entire project was based on proprietary technology it effectively came to a dead-end.

“After the closure of the lab we decided that we were again going to build the fastest LAN on the planet, but this time make it fully internet compatible. That may sound like a small ‘but’ – however, there are huge ramifications in terms of potential applications.”

For what it is worth, the merger has been blessed by the man credited as the inventor of the ethernet, Bob Metcalfe. He said: “Level 5 Networks and Solarflare Communications have been committed to the ethernet model of standards, performance, and fierce interoperable competition.

“Combining these two companies will help their data centre and enterprise customers to build converged, high-performance networks for storage, network, and compute traffic easily and cost-effectively.”

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