Centerpoint Lays Off and Spins Out

Embattled startup has slashed its headcount and is spinning off its wireless business

May 3, 2002

4 Min Read
Centerpoint Lays Off and Spins Out

The ghost of Zaffire continues to haunt. Things don't look so groovy over at Centerpoint Broadband Technologies Inc., the startup that acquired Zaffire.

Centerpoint confirms that it has recently cut staff and plans to spin off its broadband wireless business. But there are more clues that things aren't going so well at the San Jose-based company. For one, Near Margalit, a technical leader and founder of Zaffire, has left (see MRV Gets Another Margalit).

Margalit was one of the last of the Zaffire managers to shut (or slam?) the door. Many of the original Zaffire employees have been laid off. Margalit says he left of his own accord.

Centerpoint officials say the company's just following the same path as the rest of the troubled telecom equipment companies.

"We did do a round of layoffs recently, just following suit with everyone else in the industry," says Catherine Cook, a company spokeswoman. "We're in the process of spinning off the wireless division, so we can't comment on it right now. Our focus going forward, however, will be on optical."

Centerpoint was founded in 1999 and has raised about $200 million in funding to date. The firm says it now employs about 100 people, down significantly from the approximately 435 that worked at both Centerpoint and Zaffire when the companies first announced that they were combining, back in July 2001. The company had 210 employees as of February 2002, according to information it provided to D&B, a business information service.

Just a few months ago, the company entertained several Wall Street heavy hitters, going on a mini investment roadshow to drum up support. Several sources said they viewed the presentation as comic relief (see Centerpoint 's Appeal: Sooo 1999?). The company was seeking up to $90 million in new funds by selling Series E convertible preferred shares. At that time, the company teased investors with the idea that it may consider spinning off or selling its broadband wireless unit sometime in the near future.

Centerpoint told potential investors in February that its stated revenue goals for 2002 were $25 million for its optical networking business and $45 million for its broadband wireless division. However, with only two named customers and no talk of trials with large carriers, those presented with the opportunity to invest were skeptical -- and, judging by its most recent downsizing, it's not clear that Centerpoint raised all the money it was seeking.

The company's two announced customers are Fujitsu Ltd. (KLS: FUJI.KL), which buys its broadband wireless gear; and FLAG Telecom (Nasdaq: FTHL; LSE: FTL), which is using Centerpoint's Celerity DWDM system (see FLAG Flies Into Bankruptcy). FLAG filed for bankruptcy earlier this year.

The company's most recent funding -- a $130 million round -- was announced in October 2000 (see Centerpoint Closes $130M Round). It used some of that money to acquire Zaffire, the company that developed the Celerity product after raising more than $100 million of its own venture funds (see Centerpoint Scoops Up Zaffire).

Centerpoint has long been one of the most interesting companies in the telecom equipment space, primarily because its merger with Zaffire brought together several rival investment banks, venture capital firms, and corporate investors and diluted them all to kingdom come. Now that it is getting out of broadband wireless gear, Centerpoint is walking away from the very business that got it funded in the first place.

Zaffire's investors included:

Centerpoint's backers include:

William H. Berkman, managing partner of Associated Group LLC, and William Hearst III, a partner with Kleiner Perkins, are on Centerpoint's board of directors, according to published reports. Centerpoint refused to name its other board members.

Soon to be a one-product shop, Centerpoint says it will show its Celerity metro DWDM systems at the Supercomm 2002 trade show in June.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.comFor more information on Supercomm 2002, pleasevisit: Supercomm Special

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