A small layoff at Innovance Networks was not an attempt to cut the company's burn rate, the CEO says.

The well financed startup, which is at work on long-haul optical networking gear, laid off 25 of its 335 employees recently, or 7 percent. One-third of the layoffs came at the company's Ottawa and Kanata offices in Ontario and two-thirds came from U.S. headquarters in Piscataway, N.J.

"We hoped to gain some structural efficiencies, rebalance skills, and effect a normal, ongoing organization tuneup," says Innovance CEO Peter Allen. "This action is not something we undertook out of concerns about financing."

Allen says the layoffs don't affect the company's plans to release its product in the second quarter of this year. Indeed, he claims prototypes are already in beta test with unnamed carriers.

The financing question was raised because one of Innovance's key competitors, PhotonEx Corp., recently announced a layoff (see Photonex Scores Huge 3rd Round and PhotonEx Axes Staff ). But in that case, the CEO said the measure was taken in order to ensure the company's cash holds out over a longer period.

Innovance, like PhotonEx, is one of the industry's best-backed startups, having received about $92 million in funding to date from high-profile investors, including Kevin Kalkhoven, the ex-CEO of JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) (see Innovance Scores $75M ).

A third well-funded Ottawa-based rival, Ceyba Inc. (formerly Solinet Systems), denied rumors of layoffs. "No round of layoffs done, no round of layoffs planned," says CEO Scott Marshall (see Solinet Systems Scores $93 Million and Solinet Morphs Into Ceyba).

Sources say Innovance, PhotonEx, and Ceyba have enjoyed big funding because one or more potential carrier customers have expressed interest in what they're developing, giving them a leg up on market entrants that have yet to find interested prospects. It's also important that these startups are working on end-to-end solutions, not just one product.

Despite this support, though, it's evident that ongoing capex woes continue to haunt even the most robust carriers (see What's Behind Qwest's Numbers?). It's also not clear yet that the long-haul equipment market will return as quickly as other parts of the telecom infrastructure, despite recent predictions that the slowdown already has bottomed and that capex will begin to grow again in 2002 (see Sagawa Calls a Bottom).

One reason Innovance claims not to be concerned about funding, despite these rumblings, is that there may be more in the works: Its CFO Wayne Edmunds has hinted at this over the past few months (see Innovance Quietly Raises $17M in Debt). Allen won't comment on this, except to say that financing hasn't been a problem and that when more is approved, it will be announced.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com