Time seen running out on Equipe

Beset by lack of demand for and revenue from its ATM/MPLS core switches, observers say the sun is setting on four-year-old, privately held Equipe Communications.

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. They viewed Equipe’s strategy as the most prudent, pragmatic and cost-efficient for carriers concerned about cutting off the cash cow as they embarked 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 ever 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 on to a multiservice core.

Indeed, two such edge switch makers were recently scooped up by larger vendors — one of which is an investor in Equipe. 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 was also 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.

Other ominous signs are the death of Tenor Networks, another young switch company targeting the multiservice core; Lucent’s cancellation of its TMX 880 MPLS core switch and subsequent alliance with router vendor Juniper Networks for MPLS core application opportunities; and the market opting to go with routers instead of switches for next-generation core applications.

Meanwhile, Equipe says its E3200 switches are still in carrier trials. It 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 headcount 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 in Woburn, MA. “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 at this point,” says Mark Bieberich, an analyst at the Yankee Group in Boston. “Carriers are not demanding core switches nearly as much as Equipe thought they would. I talk to carriers all the time and Equipe’s name never comes up. My suspicion is that their recent downsizing is the first step towards selling their intellectual property or dismantling the company.”

Equipe remains steadfast and determined. The company says the moves by Ciena, Tellabs, Lucent and Juniper only validate its vision and strategy.

“The lab participation (of potential customers) is significant enough to have us believe in this space,” says Bob Sullebarger, Equipe’s vice president of marketing. “We’re positioned as Ciena’s core solution. It will take Lucent/Juniper 12-24 months to make a deployable product. We have a window of time here. I think we can get to revenue before the tank runs dry. If our board saw no hope they would clearly shut us down. But we have support from them and from Ciena.”

Ciena says the company is still committed to its distribution arrangement with Equipe.

“We continue to work the core initiative,” says Beth Perry, senior vice president of business development at Ciena. “There definitely is demand. The issue with the core is that it is a longer sales cycle” than the edge.