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Startups Make More CutsStartups Make More Cuts

As the telecom industry sinks deeper into trouble, AcceLight, Allegro, and DigiLens trim their workforces

October 22, 2002

6 Min Read
Startups Make More Cuts

The third quarter of 2002 has drawn to a close, and the telecom downturn seems to have no end in sight. As startups struggle to wait out the storm, they are being forced to make even more headcount reductions. For many startups this is a last ditch effort to stretch their funds to the limit as they hope for a recovery.

“Our latest cuts were part of a broad cost reduction program across the organization,” says Kevin Thompson, chief financial officer for DigiLens Inc. "We are just trying to do more with less over the next 18 months."

Here is an update on the latest casaulties:

  • AcceLight Networks Inc., a core optical switching startup, is "realigning" its business, according to a news release the company issued in the beginning of October.

    During the first week of October, the company laid off 26 of its 40 employees in its Pittsburgh office. Another 100 were cut from its Ottawa operation, according to workers. The company is now down to about 89 employees in both facilities.

    Word is buzzing among workers that recently appointed chief executive officer Jim Fultz, who sold his previous two startups after only months of being at each company, is at it again. They speculate that Fultz, who has been at AcceLight less than two months, is positioning it for an acquisition (see Fultz Joins AcceLight as CEO). The company last received funding of $60 million in November 2001 and is reportedly looking for additional funding now. Employees at the company say Fultz was unable to secure a new investor on his recent trip to Asia. As a result, the company has been forced to cut its headcount until it can find a buyer.

    AcceLight would not comment on the specifics of the layoff nor the potential sale of the company.

    • Allegro Networks Inc., an edge routing startup, let go roughly 25 percent of its staff during the second week of October, reducing its headcount to about 78 employees. This is the second round of cuts in the past six months for the company. In July, it cut 50 employees. The company has also “downsized” its Fairfax, Va., facility, confirms David Ginsburg, vice president of marketing.

      These recent cuts will supposedly reduce the company’s burn rate to about $1.0 million from $1.8 million per month, says one source. The company has been rumored to be in hibernation mode, meaning that it is not engaging in any customer activity or product development in the hopes of conserving its cash until the market recovers. But Ginsburg says that talk of hibernation is unfounded. He claims the company is already in two customer trials at the moment and is about to start a third one. He admits that the current service provider scene is grim.

      “We aren’t wearing any rose-colored glasses,” he insists. “We don’t see any sort of recovery until at least the second half of 2003 or even 2004. But we still have to work with customers today, even if those customers tell us their coffers are empty and even if they are in bankruptcy.”

      Allegro has raised a total of $86 million in two rounds. The company expects to be looking for more funding in early 2003, says Ginsburg. The big question is whether or not it will be able to get a new investor to lead the round. Without it, Allegro faces the possibility of no funding at all or a washout round, which would greatly dilute current shareholder holdings.

      • DigiLens Inc., which makes dynamic gain equalizers, also laid off 25 percent of its staff earlier this month, bringing its total headcount down to 40 people, says CFO Kevin Thompson. The current layoffs are not expected to curtail the manufacture or development of the company’s product, he adds. The company has raised about $68 million in four rounds of funding. With its last round closing in September 2000, the company, like others that are laying off this season, finds itself looking for more cash. But there is a big question mark as to whether it will be able to secure that funding in time. This latest round of layoffs comes almost exactly one year after its last round. The company says it doesn’t anticipate any more cuts in the near future.

        • Hyperchip Inc., a core IP routing startup, cut 87 jobs back in September taking its headcount down to 193 employees, says a company spokesperson (see Black Friday: More Layoffs Loom). The company has raised a total of $136 million. It's last round of funding closed in January 2002 (see Hyperchip Lands $43M in Financing). Other core IP routing startups have tred a similar path and have failed. IronBridge died an early 2001 (see IronBridge Has Fallen Down). IPOptical faded away in July 2001 (see IPOptical Fades, Hyperchip Feasts ). And Pluris, which had secured five rounds of funding, closed its doors this summer (see Pluris Shutdown Confirmed).

          • Chiaro Networks, which is also supposedly developing a core IP router, has been rumored to have cut about 15 percent of its workforce at the end of September. The total headcount is around 240 people, say sources. The company, which has been around since 1997, still hasn't announced a product and has been tight-lipped about its product plans. At first, it was rumored to be building an optical switch. But now it's believed to be developing a core router with integrated optical switching. The company announced a round of funding back in February of this year worth $80 million (see Chiaro Lands an $80 Million Round). In total it has raised $210 million in four rounds.

          Startups aren’t the only ones cutting back. Public companies are also reducing headcounts.

          Spirent plc (NYSE: SPM; London: SPT), the test equipment provider, announced on October 9th that due to continued spending cuts by its major customers, it expects profits to be significantly lower in the second half of 2002 compared with the first half of 2002 (see Spirent Sees Falling Figures). In consequence, the company initiated cost reductions. Exactly how many people will be cut from the roster is unknown, but Spirent officials say it expects annualized savings of £24 million (US$37 million) starting in November 2002.

          Earlier this month, Lucent Technologies Inc. (NYSE: LU) also announced it was cutting another 10,000 employees to bring its headcount down to 35,000 by the end of the year (see Lucent to Cut Headcount, Products). Extreme Networks Inc. (Nasdaq: EXTR), an Ethernet switching vendor, announced a 10 percent workforce reduction (see In Search of... Enterprise Rebound). And finally, Broadcom Corp. (Nasdaq: BRCM), which makes high-speed chipsets, says it will be reducing its headcount to cut costs (see Broadcom Reports Q3).

          — Marguerite Reardon, Senior Editor, Light Reading

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