Time seen running out on Equipe

Promising young core-switch vendor misread market, analysts say.

Observers say the sun is setting on privately held Equipe Communications after a four-year run beset by lack of demand for its ATM/MPLS core switches.

Equipe's business proposition - to gradually migrate carrier core networks from ATM to MPLS to support new services over a converged infrastructure - was lauded by analysts when the company debuted in 1999. Analysts viewed Equipe's strategy as the most prudent and cost-efficient for carriers worried about cutting off the cash cow as they embark upon a necessary technology evolution.

Yet that was before the telecom industry went into its prolonged slump marked by drastically reduced capital spending on the part of Equipe's target customers. Moreover, if there was demand for ATM/MPLS core switches three or four years ago, that demand shifted to edge switches that aggregate and service-stamp frame relay and ATM access traffic before sending it on to a multiservice core.

Two such edge switch makers were recently scooped up by larger vendors. Ciena, which invested a reported $5 million in Equipe and is reselling the company's products, acquired frame/ATM/MPLS edge switch maker WaveSmith Networks two months ago after WaveSmith landed a big deal with SBC.

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Observers say the sun is setting on privately held Equipe Communications after a four-year run beset by lack of demand for its ATM/MPLS core switches.

Equipe's business proposition - to gradually migrate carrier core networks from ATM to MPLS to support new services over a converged infrastructure - was lauded by analysts when the company debuted in 1999. Analysts viewed Equipe's strategy as the most prudent and cost-efficient for carriers worried about cutting off the cash cow as they embark upon a necessary technology evolution.

Yet that was before the telecom industry went into its prolonged slump marked by drastically reduced capital spending on the part of Equipe's target customers. Moreover, if there was demand for ATM/MPLS core switches three or four years ago, that demand shifted to edge switches that aggregate and service-stamp frame relay and ATM access traffic before sending it on to a multiservice core.

Two such edge switch makers were recently scooped up by larger vendors. Ciena, which invested a reported $5 million in Equipe and is reselling the company's products, acquired frame/ATM/MPLS edge switch maker WaveSmith Networks two months ago after WaveSmith landed a big deal with SBC.

Ciena also was an investor in WaveSmith and resold the company's switches.

Another recent deal that bypassed Equipe is Tellabs' acquisition of Vivace Networks. Vivace makes edge IP/MPLS switches and has sold some to MCI, formerly WorldCom, sources say.

Also, Lucent's alliance with router vendor Juniper for MPLS core application opportunities is another bad sign for Equipe.

Meanwhile, Equipe says its E3200 switches are still in carrier trials. The company has enough money to last through 2004 after undergoing at least its third round of layoffs two weeks ago, a 30% workforce reduction that brings Equipe's head count to 68 - less than half of what it was two years ago.

"They probably need to get acquired or get a very big partner, and it's very unlikely at this stage of the game," says Kevin Mitchell, an analyst at Infonetics Research. "I don't think [the Ciena deal] will amount to much. The edge was the right bet. Unless Equipe finds a buyer, which I don't think they will, they're not going to make it on their own."

"Their future is very much in doubt," says Mark Bieberich, an analyst at The Yankee Group. "Carriers are not demanding core switches nearly as much as Equipe thought they would. . . . My suspicion is that their recent downsizing is the first step toward selling their intellectual property or dismantling the company."