Former Avici CEO, Panditi heads for what he hopes is another IPO as CEO of softswitch maker Convergent

January 7, 2002

4 Min Read
Panditi Goes Soft

Softswitch maker Convergent Networks Inc. could be positioning itself for a run at the IPO market -- again. Today the company named Surya Panditi, the man who led Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) through its $200 million initial public offering, as its CEO (see Panditi to Helm Convergent and Avici and Corvis Make Stunning Debuts).

Panditi, who officially stepped down as Avici’s CEO in July (see Avici Shuffles Top Execs), will continue as the IP routing company’s chairman of the board while taking on his new responsibilities at Convergent. Panditi says that nothing will change at Avici. Steve Kaufman, who took over the CEO job from him, has slowly taken over the day-to-day functions of running the company as Panditi’s role in those areas has faded.

"I’m still involved with customers to the extent that they want to talk to the chairman,” he said in a telephone interview. “But I’ve slowly been turning over responsibilities to Steve Kaufman.”

As for Convergent, Panditi is ready to take on the challenges ahead, which could include an IPO. This would be the second time that Convergent would shoot for the public market. It pulled its initial registration with the Securities and Exchange Commission last March, citing poor market conditions (see Convergent Pulls IPO ).

“It’s too early to say anything specifially; I just started,” he said. “But I will say that I am very excited about the prospects for the company. And it would be exciting to go through another IPO. Not many people have done two of them, and I’d like to be one of them.”

Analysts following the space, say that Panditi’s joining is positive for the company.

“Convergent gains a few things from Surya,” says Mark Sue, an analyst with Frost Securities Inc.. “He has experience in bringing a startup through an IPO. He also has an institutional following and a good technical background.”

But the road ahead is a bumpy one. Not only is the company competing with other vendors making similar equipment, like Sonus Networks Inc. (Nasdaq: SONS), but it is also competing with the legacy Class 4 and Class 5 voice switches from companies like Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU) that are the fundamental building blocks of the modern voice network.

What’s more, many of the potential early adopters of voice-over-IP technology, such as Level 3 Communications Inc. (Nasdaq: LVLT) and Global Crossing Ventures, are in serious financial trouble and have slashed spending (see What's Next for GX? and Carriers at Risk). As a result, Convergent and others in its sector must now focus on traditional incumbent carriers. One daunting hurdle is the arduous and costly certification process. Sue predicts that the market is still at least a year out, with the majority of spending on softswitches not expected to really kick in until around 2004.

“This is still a very young market,” he says. “No one knows for sure when the market will take off. The question is, do these companies have the balance sheet to wait it out?”

Some, like New Jersey-based Tachion Networks, have already run out of money(see Tachion Trolls for Cash). But Panditi says Convergent is well positioned to weather the storm until the market fully develops. To date, the company has raised $134 million in funding and has spent it sparingly, with its headcount currently capped at around 200 employees. With some products already shipping for revenue, Panditi says the company has enough cash for 2002, and he doesn’t anticipate raising another round this year.

While Panditi’s first IPO was a great success, Avici has by no means flourished since going public. Today, as it struggles to win new contracts, its stock is trading at around $3 a share, far from its first day, which saw prices as high as $94. The bankruptcy of Enron Broadband Services Inc. and the cutbacks at Williams Communications Group (NYSE: WCG), both major customers, have not helped the company either (see Enron's Empty Bandwidth). Despite its claims of over 13 customers worldwide, analysts are still skeptical, as the company continues to report losses (see Avici Losses Increase).

“From an investment perspective, it’s a show-me stock,” says Samuel Wilson, an analyst with Merrill Lynch & Co. Inc. “We have a Neutral on it, and we tell investors not to buy it right now; it’s high risk."

But Wilson adds that Avici’s woes are not a reflection of poor leadership. Instead, he blames the sagging core router business in general. Hopefully, Panditi’s track record will improve for Convergent’s sake.

— Marguerite Reardon, Senior Editor, Light Reading

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