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Another long-haul vendor may be taking the long walk this week, sources say

August 6, 2003

3 Min Read

After failing to nail down business with the U.S. government for its Global Information Grid Bandwidth Expansion (GIG-BE) project, PhotonEx Corp. may now be forced to wind down operations, say sources close to the company. A final closure date hasn't been set, but they tell us company managers are now trying to work out severance packages and other items needed to put the company to rest.

Of course, PhotonEx isn't alone in feeling the pain in the frigid long-haul market. It doesn't help that the segment was overfunded and rife with competition -- PhotonEx, OptiMight Communications, Ceyba Inc., Xtera Communications Inc., and Innovance Networks collectively represent more than $623 million in venture capital put to work in long-haul networking startups (see OptiMight Be Shutting Down and Ceyba Shuts Down).

Even Corvis Corp. (Nasdaq: CORV), which has outlived several companies in the long-haul space, has switched gears, relying on its indirect ownership of Broadwing Communications for 99 percent of its revenues for its most recent quarter (see Corvis Narrows Q2 Loss).

"The government was their last chance," says one former PhotonEx employee, asserting that PhotonEx CEO Kristin Rauschenbach was persistent in trying to convince the government to use PhotonEx's gear, even after the Feds had made up their "mind." And "she could talk a starving dog off a meat truck," says the ex-PhotonExer.

Nothing has been officially made public regarding what vendors are in the running for the GIG-BE deal. Corvis remains the only vendor to publicly tip its hand as to how it's done in the bakeoff so far, but none of the analysts handicapping the race listed PhotonEx among the winners.

PhotonEx's eagerness -- or desperation -- to win some GIG-BE business became apparent in recent weeks when it announced two executive appointments related to supporting its efforts (see PhotonEx Hires NA Customer Chief and PhotonEx Hires Government Guru).

The company was founded in September 1999 and had claimed more than $88 million in funding and 140 employees by November 2000. In January 2001, it added CFO Patrick Scannell to its management team; Scannell left the company earlier this year.

By April 2001, PhotonEx boasted more than 190 employees as it moved into a 150,000-square-foot facility in Maynard, Mass. The company announced that it had landed $90 million in additional funding by October 2001 (see Photonex Scores Huge 3rd Round). That financing round, the company said then, would support the company's operations until late 2003.

In January 2002, PhotonEx helped form the 40G Collaborative, a consortium of components vendors and systems vendors that included LaserComm Inc., which is now closed, Lightwave Microsystems, which sold for cheap, and New Focus Inc. (Nasdaq: NUFO), which got out of the business [ed. note: Now that's collaboration!]. (See NeoPhotonics Buys Lightwave Micro, New Focus Gets New Focus, and Headcount: Such Language!.)

In June 2002, PhotonEx announced that Deutsche Telekom AG (NYSE: DT) had completed a successful field trial using PhotonEx's equipment. By then the company's headcount had dropped to about 60. A big contract from the carrier never materialized (see Core Optical Startups Chill Out ).

By December, when it was apparent that telecom carriers weren't going to buy its gear, the company had opened a Washington office, in the hopes of homing in on opportunities with the U.S. government (see PhotonEx Goes to Washington).

PhotonEx officials did not return calls seeking comment.

— Phil Harvey, Senior Editor, Light Reading

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