Massachusetts-Based Optical-Networking Firm to Buy Connecticut Company.(Knight Ridder/Tribune Business News)

Jun. 7--Following the playbook of larger rivals including Lucent Technologies and Cisco Systems, Chelmsford-based optical networking start-up Sycamore Networks Inc. moved yesterday to use some of its richly appreciated stock to take over a smaller company to bolster its product lines and engineering talent.

Sycamore announced plans to buy Sirocco Systems Inc. of Wallingford, Conn., for Sycamore stock valued at $2.86 billion. Sixteen-month-old Sirocco is developing devices that bring high-capacity fiber-optic connections to cities and neighborhoods, but has yet to record a sale.

While an eye-popping sum - measured one way it values each of Sirocco's 90 engineers at nearly $32 million a head - many industry analysts now look at deals like this according to how much of its market capitalization the acquiring company is spending, given the huge run-up in telecom stocks.

By that standard, Sycamore is giving away about one-ninth of its $24.9 billion market value to add some valuable products to its arsenal, which is now aimed more at long-haul optical networking and systems to manage big networks than in bringing vast optical capacity close to customers.

Bolstered by the soaring value Wall Street has attached to their stocks, telecom giants such as Lucent, Cisco, Nortel Networks Inc., Redback Networks Inc., and Ciena Corp. have spent more than $18 billion in the last 18 months grabbing start-ups, almost always in stock swaps.

"In this day and age, money is relatively easy to get access to, but intellectual capital is not," said Sycamore president and chief executive Dan Smith.

Sycamore's stock value has increased eightfold since it went public last fall, giving it a huge war chest for stock-swap acquisitions. After announcing the deal, Sycamore stock dropped only 93.75 cents to $102 in Nasdaq trading.

Sirocco's devices and human talent will add to "Sycamore's product line and vision and help us develop the most formidable offerings in the business for metropolitan access," Smith said.

With Sirocco products in its line, Sycamore can offer "an economical, high-performance `on ramp"' to the optical core network, Smith said, with features allowing telecom carriers to offer profitable services to customers.

Analysts applauded the deal. "You have a very smart management team at Sycamore buying one of the best start-ups," said Paul Johnson, an analyst at Robertson Stephens & Co. "It's a very smart combination."

Brian Blair, an analyst with Credit Suisse First Boston, called the deal a good move for Sycamore because "it expands Sycamore's offering is complementary to Sycamore's product family."

In the last year, Greater Boston has emerged as a hotbed for companies working to vastly increase the carrying capacity of fiber-optic networks to handle explosively growing Internet traffic and to help businesses - and someday homeowners - tap directly into the "fat pipes" of optical networks.

Many of the area's optical start-ups, such as Astral Point in Chelmsford, Equipe Communications and Tenor Networks in Acton, and Quantum Bridge Communications in North Andover, have been seen as ripe for a takeover by larger players.

Already, Nortel has spent $1.3 billion snapping up Coretek in Wilmington, and Corning Inc. has emerged as a major Massachusetts optical player with its acquisitions of NetOptix in Natick and Oak Industries/Lasertron in Waltham and Bedford.

Smith would not comment on whether Sycamore has its eyes on any local companies. But he said it is interested in broadening its optical product line to serve wireless carriers and upgraded cable franchises as well as submarine fiber lines and Internet protocol switching and routing.

Pioneer Consulting LLC of Cambridge has estimated that sales of optical devices for the so-called metropolitan market, the focus of Sirocco as well as Astral Point, Equipe, and Tenor, will grow from $1.5 billion this year to $17.3 billion in 2004.

Sycamore will account for the acquisition as a pooling of interests. It said it will dilute earnings in 2001 but increase profits in 2002. Sycamore will acquire all outstanding Sirocco stock and options with 28 million shares of its stock, with no "collar" setting a floor or ceiling on the deal's value.

Sycamore said it is confident it can easily integrate Sirocco because its cofounders, Smith and Gururaj (Desh) Deshpande, have already bought a company from Sirocco president Jonathan Reeves.

Cascade Communications Corp., then led by Smith and Deshpande, bought Reeves's Sahara Networks Inc. for $216.5 million in 1997. Cascade is now part of Lucent. After the deal's expected close this summer, Reeves will become vice president and general manager of Sycamore's new optical access division.

Sirocco will begin testing its products with potential customers this summer and expects to record sales by Christmas.

Material from Globe wire services was used in this report.

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