Avici throws in the towel

Looks like Avici has finally thrown in the towel.

In what many had been predicting for years, the maker of core routers said it would slash its workforce by 45% and pursue “strategic alternatives to maximize shareholder value” – i.e., look to court a buyer – after years of losing money and attempting to be the third horse in a two horse race. Avici barely registered a blip in high-end service provider router market share vs. the likes of Cisco and Juniper, which together own over 90% of the market.

Officially, Avici said it would restructure its business and realign its cost structure to improve performance and reduce costs by more closely focusing development efforts on a core set of features and functionalities. A major part of the transition is expected to be completed by mid-year, the company said.

The fine tuning is intended to drive Avici towards profitability and positive cash flow by concentrating the company’s energies on those opportunities that provide “optimum return for each dollar invested,” stated CEO Bill Leighton. But at the same time, Avici will evaluate other strategic alternatives to maximize shareholder value – a strategy that usually spells the beginning of the end of a company.

Technically, Avici had a handful of customers, including AT&T, Qwest, WilTel, Nortel and Huawei. But the only meaningful customer was AT&T, and one Tier 1 customer simply cannot buy enough core routers to sustain an entire company. Plus, AT&T is now SBC, and SBC is a huge Cisco shop.

But give Avici credit for introducing the first scalable multi-chassis core router to the market, and for managing its cash to stay afloat this long – 10 years since its incorporation in 1996. The company did offer up some intriguing technological nuances but in the end, they just didn’t sell.

Who might buy Avici’s assets in whole or in part? Well, reseller Nortel has landed a few deals with Avici; but Nortel has bungled several attempts to offer IP routing, and is in its second relationship with Avici. The company’s track record in routing is not good – see the Bay Networks acquisition of 1998.

Huawei? This could be the Huawei’s chance to land a coveted North American service provider router base. But look for North American competitors to step in and make sure this deal does not happen.

AT&T? Fifty million dollars – Avici’s market cap – might be cheap enough for maintenance of and spares for an existing installation.