Nokia is acquiring U.S.-based silicon photonics technology company Elenion in a move that analysts expect will boosts its position in an increasingly verticalized market segment.

New York-based and privately held, Elenion designs system-on-chip (SoC) silicon photonics technology targeted at telecom operators, data centers, and networking platforms. It claims that its design process allows it to use standard manufacturing equipment to construct more powerful chips that can “manipulate light, in addition to electrons.” The chips are designed for “short-reach and high-performance optical interfaces” like those typically seen in a data center or shorter networking link environment.

“Using this technology, we can build silicon photonic chips that move light through optical fibers, dramatically improving the performance and reducing the cost of moving data around a data center and around the world,” the company states.

Elenion was founded in 2014, with a leadership team stocked with former Bell Labs executives. Nokia acquired Bell Labs as part of its $17 billion acquisition of Alcatel-Lucent that closed in early 2016.

Nokia said that ownership of this technology can help lower product costs by simplifying and helping to better scale the optical supply chain. It will also sidle up next to Nokia’s current optical networking business.

Kyle Hollasch, director of optical networking product marketing at Nokia, explained in an email to SDxCentral that the Elenion employees will join Nokia's Optical Networking unit, which is part of its ION Business Group. He added that the deal was in line with Nokia's formation of a subsystem team within its optical networking group last year that is focused on providing "subsystems internally to Nokia as well as explore other paths to market."

Nokia in early 2018 launched a new chipset to power its Photonic Service Engine platform that is targeted at telecom providers and webscale networks. The company at that time said the chip included probabilistic constellation shaping (PCS) that pushes optical fiber transmission capacity to very near the Shannon limit, which is the maximum theoretical capacity of a communications channel. The idea was defined by Bell Labs researcher Claude Shannon in 1948.

Hollasch said that Elenion's technology won't directly help with pushing toward the Shannon limit, and instead will support improving the power, density, cost, and scale of "electro-optic systems and subsystems. As applications continue to demand smaller form-factor pluggable optics and potentially on-board optics, silicon photonics is a technology critical to making that happen."

“I think it’s a great move for Nokia,” noted Jimmy Yu, VP at Dell’Oro Group, who added that the market has been moving toward greater vertical integration of platforms and that Elenion brings that aspect to Nokia’s optical business. “If you look at Huawei, Ciena, and Cisco once they close on its Acacia deal, there is more vertical integration happening for optical vendors. They are making their own DSPs [digital signal processors], their own modulators, and other components. This brings Nokia along that vertical integration track and is in line with what’s happening in the space.”

Heidi Adams, executive director at IHS Markit, concurred on the vertical integration path, adding that "this becomes increasingly important as we look at strong industry interest in pluggable optics both for telecom and data center applications."

Dell’Oro’s most recent data points showed Nokia as the No. 4 player in the wavelength division multiplexing (WDM) space with about 12% market share worldwide. The bigger players in the space include Huawei, Ciena, and ZTE.

“Nokia is definitely sizeable in the space and has been growing,” Yu said. “This helps them to keep pace among the top vendors.”

Yu also noted that Elenion had done work in the past with Coriant, which was acquired by rival Infinera for $430 million in late 2018. Marlin Equity Partners was an investor in both Elenion and Coriant. “Elenion is not coming into this space cold, which also makes it a good move for Nokia,” he added.