Start-ups succumb to carrier spending freeze

The market for next-generation networking gear this year turned into a combination of consolidation and siege.

Even in the best of times, companies trying to sell carriers new equipment that bridges the gap between circuit and packet networks with the goal of all-packet networks someday would have a tough time. They’d have to convince incumbent carriers to buy their products, go after start-up carriers that might be more receptive and fight off other vendors trying to wheel out similar equipment.

This, of course, was not the best of years. Incumbent carriers put the brakes on spending, and competitive carriers struggled, filed Chapter 11 or folded in large numbers.

Such a hostile environment was harsh for start-ups making equipment for this area. A partial list shows that Oresis, Tachion and Sedona all shuttered their operations. Unisphere, which made a range of gear, split up its technology and sold it off. NexVerse, which made softswitches, and ECI-NGTS, which made media gateways, merged, hoping the combined entity, Chorale Networks, will be able to survive.

The long-term prospects for the industry seem good, according to analysts. Just two segments of this market – gateways and media servers – are projected to grow steadily and pull in $3.18 billion worldwide in 2008, according to Insight Research. In North America, the sales numbers for next-generation local phone switches is projected to grow from $44.5 million to $875.5 million by 2006, according to Infonetics Research.

But for the start-ups that in many ways trailblazed this technology, the recovery may not be quick enough. The big service provider switch vendors – Nortel, Lucent, Siemens, Alcatel – all have diverse products and better wherewithal to wait out the carrier spending slump. So as this market consolidates, we can expect to see more perfectly good young companies wither on the vine than might be expected in better times.