Ex-Lucent Group Starts Anew

Internet Photonics is out of stealth mode, raising cash and about to beta test its first product

December 13, 2001

4 Min Read
Ex-Lucent Group Starts Anew

A group of ex-Lucent employees has found new life in the form of a startup called Internet Photonics Inc.. The company, which officially came out of stealth mode today and announced that it has raised $31 million in two rounds of financing (see Optical Ethernet Startup Launches), first began as a division of Lucent Technologies Inc.'s (NYSE: LU) optical group.

But the story of Internet Photonics is really the story of a clash between internal product development and Lucent's acquisitions.

It all started back in the Spring of 2000. Lucent had just announced the biggest acquisition of its history, acquiring Chromatis Networks for $4.5 billion. The company was working on a transport platform that combined dense wavelength-division multiplexing (DWDM), time-division multiplexing (TDM), and asynchronous transfer mode (ATM) into one box. At the same time Lucent had just completed spinning in another startup, Ignitus, which also had an ATM-based DWDM platform (see Lucent Ignites ATM).

Meanwhile, at Lucent's Research division, Bell Laboratories, Martin Nuss, the director of the optical data networks research department, was leading a group of engineers in the development of yet another metro transport product. Unlike the technology of the two startups that Lucent had just bought, Nuss’s group was developing an optical transport platform focused specifically on the transport of Ethernet traffic.

After the Chromatis deal was signed and sealed, Lucent was thrown into a state of chaos. In August of 2000, the company announced a massive restructuring of its optical group, breaking it into two parts: an optical division headed up by Jeong Kim and a metropolitan area group headed up by Chromatis’s ex-CEO Bob Barron (see Lucent Shakes Up Optical Group).

As work progressed on the three main metro optical initiatives, it became clear that Lucent had a big problem on its hands. It had too many products with similar functionality.

“There were a lot uncoordinated initiatives in the company, and some poorly thought out decisions were made,” says Gregory Koss, president and CEO of Internet Photonics. “The business environment was very different back then. Their decisions seemed more reactionary.”

Lucent decided to officially combine the technologies of Chromatis and Ignitus. This left the metro Ethernet transport project in the lurch. With Lucent’s full support, Nuss, the Ethernet group’s leader, left to found Internet Photonics.

The company’s initial $12 million round of funding, which closed last October, and its latest round of $19 million, which closed just last week, were both led by the Sprout Group, the venture capital affiliate of Credit Suisse First Boston. AT&T Corp. (NYSE: T), which is also a technology partner, along with several smaller investors, also took equity in the company. Lucent has an equity interest in Internet Photonics stemming fromtechnology transfer at the spinoff. From the beginning Internet Photonics has licensed some of its core technology from Lucent. But Lucent has not, infused any cash into the company.

“To Lucent’s credit, Jeong Kim saw the merit of our technology,” says Koss. “But also to his credit, he let us know that it would be hard to get commercial interest within Lucent right after the Chromatis deal. It made more sense for them to let the technology go than to stifle this group.”

Lucent, which reorganized its optical division and then reorganized it again six months later, eventually canned both the Chromatis and Ignitus projects. All told, the company spent roughly $5 billion on two startups with little to show for their efforts (see Lucent, Chromatis & Ignitus: A True Tale? and Lucent Ditches Chromatis).

Meanwhile, Internet Photonics has worked quietly out of the spotlight building its company. Currently, it has 105 employees, most of whom are engineers. It has also filed several patents for its technology. The company has not released details of its product, but Koss says it will allow pure Ethernet transport over DWDM to coexist with already installed Sonet rings in the same network.

At the same time, the market has shifted away from ATM-based boxes like those that Chromatis and Ignitus were developing. Optical Ethernet is now the buzz. Still, Lucent seems to be sticking to its guns and expresses little regret over letting Internet Photonics go.

“I don’t see the technology of Chromatis and Internet Photonics as similar,” says Wendy Zajack, spokeswoman for Lucent. “When Lucent purchased Chromatis, a multiservice box was what the market was demanding. Now things are different and we’ve had to look at our portfolio and streamline our strategy. That’s meant refocusing our products and discontinuing some to fit the new needs of the market.

"We fully support the efforts of the folks at Internet Photonics,” she continues. "And we plan to work with them as we would with any other startup."

Internet Photonics is about to enter beta tests with an unnamed carrier in the next few weeks, says Koss. And it plans to release more detailed product information in the first quarter of next year. It will likely be going head to head with incumbent providers like Nortel Networks Corp. (NYSE/Toronto: NT), ONI Systems Inc. (Nasdaq: ONIS), and Ciena Corp. (Nasdaq: CIEN).

— Marguerite Reardon, Senior Editor, Light Reading

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