There’s a new executive in the CEO suite at CoSine Communications Inc. (Nasdaq: COSN). Today the company announced that its founder, chairman, and CEO Dean Hamilton has resigned. Steve Goggiano, the company’s president and COO, is replacing him as CEO.

Hamilton has also given up his seat as chairman of the board. Donald Green, who served as chairman and chief executive officer of Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) from 1992 until his retirement in 1997, has been named chairman. Goggiano, who previously served as a senior vice president at Silicon Graphics, was also named to the board of directors.

"Dean is a fantastic visionary," says Goggiano. "But at this stage the company needs execution in a different mode. I’m an operating guy, and I offer a different skill set."

Hamilton, who had sold his previous startup to Ascend Communications -- later bought by Lucent Technologies Inc. (NYSE: LU) -- founded CoSine in 1998, when emerging competitive local exchange carriers (CLECs) were expected to provide a windfall of opportunity to new equipment companies. During the summer of 2000 before the telecom bubble burst, CoSine dazzled Wall Street with a highly profitable initial public offering (see CoSine Soars On Debut). Its stock soared to more than $63 on its first day of trading on the Nasdaq.

But the good times were short-lived, as CLECs began to go out of business. Today, the company was trading down $0.10 (7.16%) to $1.30.

“CoSine along with others in this space designed products for CLECs,” says Kevin Mitchell, an analyst with Infonetics Research Inc.. “CLECs were going to be the ones offering all kinds of new services, but now they’ve evaporated.”

To CoSine’s credit it has begun to sign up some tier-one players like Cable & Wireless PLC (NYSE: CWP), NTT Corp., and Sprint Corp. (NYSE: FON).

“I think that Steve [Goggiano] was the catalyst behind most of these recent wins,” says Curtis Price, program director at market research firm, Stratecast Partners.

IP service switches are purpose-built boxes that provide network-based services like virtual private networks (VPNs) and firewalls. Nortel Networks Corp. (NYSE/Toronto: NT) and CoSine were the first companies to ship products and have held the number one and two positions in market share over the past year, according to Infonetics. Network Equipment Technologies Inc. (net.com) (NYSE: NWK), whose platformscombine aggregation, subscriber management, IP services and routing, andmultiservice switching, figures to be a strong competitor; and several new ones are expected to enter the scene this year, including Celox Networks, Corona Networks Inc., Ellacoya Networks Inc., and Quarry Technologies Inc.

But the IP service-switch/router market looks to be a tight one -- with not much room for multiple players. According to Infonetics Research, in the fourth quarter of 2001, the IP service-switch market totaled $60 million. CoSine reported revenues of only $11.2 million for that same period (see CoSine Issues Q4cast, Names CFO). By comparison, the IP edge-router market generated $515 million in revenue in the fourth quarter of 2001. The yearly revenue numbers look even worse. IP service-switch/routers generated $177 million in 2001, while the edge-router market generated $1.5 billion.

“There’s no way that six companies can survive in this market,” says Mitchell. “I’d say it would be more like two or three. But some companies are still in product development, so it’s hard to say which ones will make it.”

To make matters worse, edge router players like Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks Inc. (Nasdaq: JNPR), and Unisphere Networks Inc. (Nasdaq: UNSP) are starting to encroach on the IP service router market by incorporating VPN capabilities and other IP services into their products. Just today, Cisco announced new VPN functionality across its edge routing platform via its IOS software (see Cisco Announces New Unified VPN Suite). Juniper also recently announced IPsec support in its product. And Unisphere has announced a whole new edge router product that will offer network-based IP services (see Unisphere Cutting the Edge).

In response, CoSine has tried to incorporate more edge routing functionality into its latest product, the IPSX 9500 (see CoSine Takes Another Tack). It has added frame relay support and Multiprotocol Label Switching (MPLS) as well.

"What worries me about Cisco, Nortel and Lucent is their ability to bundle products," says Goggiano. "We are company with a single focus at this point. But we believe that we have the most scalable product with the most manageability. And we feel pretty confident that we can stand up against these other companies in trials."

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com