Service Provider Networks / (none) / View from the Edge:

Tenor, Gotham 'rightsize'

Make deep cuts, sell pieces to adjust to dismal market

By Jim Duffy
The Edge, 06/19/02

Multiservice switch start-up Tenor Networks last week laid off 49 people, or 41% of its staff, in an effort to conserve cash during the current telecom slump.

Also, multiservice edge switch start-up Gotham Networks recently had a 30% reduction in staff by slashing 30 of its 100 positions, according to sources and published reports. The 70 people Gotham now employs are less than half of the 150 it had a year ago.

In addition to cutting staff to "rightsize" in a depressed environment of sharply reduced spending among carrier customers, these two companies are also selling off pieces of themselves to raise and save money, and to gain channels into carriers once spending resumes. Ciena is said to be taking a stake in Gotham not to exceed $5 million, and will resell the start-up's switches. Ciena has a similar arrangement with multiservice core switch start-up Equipe Communications.

Tenor, meanwhile, sold some packet processing intellectual property and transferred some ASIC engineers to semiconductor maker Mindspeed in order to save $2 million on product development.

Start-ups are allying with bigger, more established vendors for funding, product development, and sales and support in an effort to survive until spending resumes. Carriers are accustomed to bartering with larger, more stable vendors.

After last week's downsizing, Tenor now employs 71 people vs. 120 two weeks ago. Tenor attributed the cuts to a market that never developed for its Multi-protocol Label Switching core switch and the need to conserve cash into 2004/2005 without requiring sales or additional funding.

The company doesn't expect carrier spending to pick up again until that time. Tenor has raised more than $120 million to date since November 1998, $93 million of it coming from its third round almost two years ago.

Tenor has not yet taken revenue on its TN250G core switch even though the product has been generally available for a year. It continues to be involved in a number of carrier trials.

Tenor is also looking to repackage its hardware and software technology for a new market: Ethernet service provisioning products that provide access to a core packet network and promise to "disrupt" the economics of frame relay.