New Wave of Startup Layoffs

Caspian, Allegro, Movaz, and Centerpoint have all made cuts in the last two weeks. When will the bleeding stop?

July 31, 2002

5 Min Read
New Wave of Startup Layoffs

July has been a tough month for employees working for telecom equipment startups. In the past two weeks, Light Reading has confirmed reductions by at least four startups: Caspian Networks, Allegro Networks Inc., Movaz Networks Inc., and Centerpoint Broadband Technologies Inc.

The root causes appear to be obvious: The overall telecom industry continues to struggle, and venture capitalists appear to have lost their enthusiasm for the space (see Telecom VC Slump Continues).

The companies cutting back aren't concentrated in any one particular area. Everyone from core IP routing vendors to those focused on the supposedly hot metro access markets have all found it necessary to cut back on spending.

Most of the companies claim that the layoffs are not a sign of trouble, but are simply a prudent way to manage their businesses as the telecom sector continues to fall victim to sinking stock prices and carrier cutbacks in capital spending. In fact, three out of the four startups making cuts this month have closed funding rounds this calendar year.Here's a wrapup of the latest cutbacks:

  • Caspian Networks, which makes core IP routers, reduced its workforce by 16 percent last Thursday. The company currently has a headcount of about 220. Caspian had raised $120 million in its fourth round of funding back in February, bringing its total to $262 million (see Caspian Starts Fresh With $120M). That round, a down round that sources say diluted the equity of many early investors, was supposed to fund the company through 2004. For the past few months, the company has told press and analysts that it is on the brink of several deals with large incumbent carriers. So far, nothing has materialized.

    Like Caspian, Pluris Inc. had been through several rounds of funding, the last of which was a washout (see Washout Rains $53M on Pluris). Earlier this month the company closed its doors for good (see Pluris Shutdown Confirmed).

    “We are still very much in business," said Caspian spokesman Dallas Kachan. “We have the money, and we’re still engaged with customers. Things just seem to be getting pushed out as customers delay their spending.”

  • Allegro Networks, a maker of edge routing gear, also laid off about one third of its staff a couple of weeks ago. The company, headed by former Nortel Networks Corp. (NYSE/Toronto: NT) president David House, now has 100 people on staff. Last February, the company closed a second round of funding for $60 million (see Allegro Networks Nets $60M). Even though House told Light Reading in an interview two weeks ago that the company hasn’t been looking for more money, he admitted that it will eventually need a third round.

    “Right now we have the money, but we need as long of a runway as we can possibly get out of it,” he said.

    Allegro’s product is still in the final stages of development. It will be moving into beta testing in the next few weeks, according to House.

  • Movaz Networks, a startup specializing in optical networking gear for metro networks, reduced its staff by about 10 percent a couple of weeks ago. The company’s current headcount is now around 200, according to Sophia Fang, a spokeswoman for Movaz. Some sources close to the company claim the layoffs went deeper, but Fang denies this. She says that many of the people laid off included contract workers.

    “We did reduce staff, but it wasn’t anything significant,” she says. “Some of the people let go were contractors. And when their projects are done, we let them go.”

    Movaz, which already has products commercially available, closed a large round of funding in May 2002 for $60 million (see Movaz Scores $60M More). This brought its total raised to about $160 million. The latest round included funding from Telus Ventures, the venture capital arm of Telus Corp. (NYSE: TU; Toronto: T), one of the top two carriers in Canada.

  • Centerpoint, a maker of metro optical gear, also confirmed that it has laid off workers in the last couple of weeks. The company had about 100 employees after its last round of layoffs back in May of this year (see Centerpoint Lays Off and Spins Out).

    Centerpoint confirmed the layoffs but refused to give further details. Sources close to the company say there are only about 10 people working in the San Jose office now. Company officials also refused to talk directly to Light Reading and instead communicated through its public relations agency.

    "Centerpoint is continuing operations and remains optimistic about the prospects for the company,” according to a statement issued by an anonymous Centerpoint executive through Fusion Public Relations. “Although the company did recently reduce head count, Centerpoint refutes the figure Light Reading cited, and would like to clarify that the current head count is much higher than your publication has been led to believe."

    Centerpoint, which had raised about $200 million in funding since its founding in 1999, used some of that cash to buy metro optical player Zaffire, last summer (see Centerpoint Scoops Up Zaffire). At the time the merger was announced, 435 people worked for both Centerpoint and Zaffire. By May of this year, the headcount had been reduced to about a quarter of that. The company sold off its wireless business in May to Fresnel Microwave Systems in an effort to focus more of its attention on its optical business (see Centerpoint Sells Wireless Division).

But startups aren’t the only ones continuing to lay off workers. A slew of public companies also announced during their earnings calls this month that they’d be reducing staff. Some of the most notable ones were:

— Marguerite Reardon, Senior Editor, Light Reading

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