Mory Ejabat, formerly of Lucent Technologies Inc. (NYSE: LU) and Ascend Communications, is chairman, cofounder, and CEO of startup Zhone Technologies Inc. And he doesn't think small. During the telecom turmoil, Zhone has been quietly scarfing up the orts of an industry suffering from indigestion.
Zhone is no small project. To start the company, Ejabat, along with CTO and cofounder Jeanette Symons, raised $500 million in leveraged buyout money and venture capital. Its subsequent acquisition binge has been based on a strategy of buying some legacy technology with revenue streams and combining that with next-generation technology.
Most recently the company acquired Nortel Networks Corp.'s (NYSE/Toronto: NT) DSL access equipment assets (see Zhone Acquires Nortel's Access Gear). Zhone has also bought CAG Technologies, an electronics subsystems maker; Premisys Communications, whose Integrated Multiple Access Communications Server (IMACS) provides most of Zhone’s revenues; Roundview, a group of networking software engineers; OptaPhone Systems, maker of point-to-point wireless systems; and Xybridge Technologies, a softswitch vendor that produces devices designed to replace central office circuit switches with faster packet switches (see Zhone to Acquire Xybridge).
Ejabat is widely known in the industry for his success as CEO at Ascend Communications, which he sold to Lucent in 1999 for $24 billion. He considers Rich McGinn, the former CEO of Lucent who stewarded that massive transaction, as a friend. ($24 billion? We all wish we had friends like that!) Most recently, this famous (or infamous) friendship got McGinn some increased scrutiny after he was ousted from Lucent, when it became public that McGinn had individually invested in Zhone, a Lucent competitor, when he was CEO (see McGinn Backed Lucent Competitor.
Ejabat's name elicits varied reactions in the industry. Some mumble that he's all about the money, rather than the technology. Others, most notably those on Wall Street, are fine with this concept. Mory's heavy-handed management activity following Ascend's merger with Cascade Communications – before Ascend was acquired by Lucent – roiled the Cascade crew, many of whom now reside either at Sycamore Networks Inc. (Nasdaq: SCMR) or among a flotilla of Boston-area startups.
Little is known about Zhone's finances since the spring of 2001, when it pulled its filing for an initial public offering (see Zhone Zhaps IPO ). At the time of the last filing, made in December 2000, the company reported it had revenues of $60.5 million and losses of $129.6 million in 1999. At the time, Zhone still had $140 million in cash left. Ejabat claims the company has been growing revenues quarter-over-quarter since then.
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Zhone's only intereset is making sure that the financial numbers look good so that they can IPO ASAP. They are effectively trying to fool potential investors by showing that they have been cash flow positive for numerous consecutive quarters. They give no concern over their product, the development of their products, supporting the customers or moving forward with the products. With the recent round of layoffs they have lost major areas of expertise in their product lines. They cannot support most of the cards sitting in their Access shelves. At this point they cannot setup their lab facilities, or perform verification, or move forward with new releases. They will not be able to power down, dismantle, move and power up their equipment should they ever need to move to new facilities.
I feel sorry for the investors (except Mory and Jeanette) and future investors that have seen (or will see) their 500M wash down the drain. "At this point we flush". Let's hope the toilet doesn't overflow.
Here's the story of a man named Mory Who feels not the slightest guilt or blame or shames... He will hire, then he'll fire, and it will burst into flames.
Till the one day when his actions became public, and he knew then it was just a matter of time. There are so many more employees cursing his name.... as they grew tired of his game.
- - - - - - - - - - - - - - -
*feel free to add your own verse(s) or try a whole new song* (my apologies to the Brady Bunch)
He's completely up front about not caring whether the product works well or not. Barely is good enough. He's cut almost all the Nortel guys, any IP guys (well, there are two left to work on ZOI's )
Does anyone have a sense of how much money they have left? I expect the strategy in this instance is to either get more financing by getting to profitability by slashing costs or to sell themselves. I can't imagine there is very much hope in an IPO any time soon. There long term prospects seem.... dim? That's the word.
Hey... Where are all the Zhone apologists? Probably been laid off.
Actually, I believe I saw his formula on an episode of South Park. The formula was actually developed by the Underwear Knomes. It goes something like this:
Step 1: Steal Underwear (or steal telecomm company, steal whatever.) Step 2: Question Mark Step 3: Make Profit!!!
He was lucky enought to get through Step 2 with Ascend without anyone noticing and sailed on through to Step 3.
However, with Zhone, the question mark actually requires that he have a plan. Creative financing and funny money aren't going to cut it in this economy. Notel's AccessNode product line are not modems. They require a little more than just turning them off and back on to fix them. Nortel's products are the only thing bringing in revenue right now. And he's gotten rid of a lot of the people who have experience with them. Tsk tsk tsk.
Mory repeatedly said "I'm here to make money" with a little smirk on his face. To me that meant, "if you happen to profit from this, lucky you. But chances are, you're gonna get screwed" I don't believe that he is here to build a company or a product. He's here to make a buck. Look out!
1997: 1) Get a product to market. Do a minimal quality, but focused execution. 2) Get a few major customers to take them, in spite of 30-40 percent failure rate. They're just modems;dial around the smoldering ones... 3) Do a secondary for cash (see #4). Rising market makes this easy as pie. 4) Use cash to finance bad receivables. Issue side letters to customers saying they never have to pay. Book revenue anyhow. 5) Acquire a company every 12 months to cover up bad receivables in "restructuring charges". 6) Push bad inventory onto vendors or into dumpster. Revenues rising, PE rising. Allah Akbar. 7) Cheat Cascade shareholders out of $ 2B with fraudulent claims of next generation dial revenues. 8) Sell combined company to LU after trashing developments of Cascade in progress 9) Start Zhone, 3 years too late, with formula broken.
Has the great and powerful OZ any answers on the horizon? With major customers filing bankruptcy, and now a less than adequate staff to support what products they do sell, can Mory still pull off another Ascend? Or has his ego gotten the better of him?
Around 40% of the ex-Nortelians are gone. Some of the ZMS people have been cut. Who is going to support this stuff? Dunno.... Who will be around to install the next release? Dunno.... Zhone might need a Lucent in shining armor to bail them out of this one.
I heard that as well. Looks like it's just Oakland these days, or a very small MA office and Oakland. They've closed SR, TX, MN and everything but a skeltal crew in Westlake. But it still lists these places as site on their website in the "jobs" section.
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