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Cable/Video

Calix Comes Out

Finally, after three years in stealth mode, Calix is coming out -- with a bang.

On Monday the company plans to reveal details of its C7 access platform, name a handful of live customers, and announce a fifth round of funding worth $50 million, bringing the total amount it's raised to $260 million.

Calix added two new investors to this round. TeleSoft Partners and Kinetic Ventures joined a long list of existing investors including, Azure Capital Partners, MSD Capital Partners, Redpoint Ventures, Integral Capital Partners, and Meritech Capital Partners. All previous investors except MSD Capital invested in the series E round.

It's a flashy debut that fits with Calix's newly named CEO, the famed optical networking entrepreneur Carl Russo, late of Cisco Systems Inc. (Nasdaq: CSCO) (see Russo Returns).

According to Russo, Calix has deployed nearly 500 boxes in over 50 networks, with many customers returning for repeat orders.

The momentum's helped push the funding envelope: “Raising 50 cents today is an interesting proposition, and we were able to get $50 million," Russo quips.

The Calix C7 collapses the functionality of several pieces of equipment -- a digital loop carrier (DLC), DSLAM, next-generation Sonet add/drop multiplexer, IP router, Ethernet switch, ATM switch, optical access platform, and digital crossconnect -- into one platform. The end result is meant to simplify networks and cut costs on maintenance and management, particularly for independent phone companies who don't have a lot to spend on buying and managing multiple products.

The tack seems to be working. “It’s so cumbersome to install and manage all those boxes,” says Frankie Cagle, central office manager for Randolph Telephone Member Corporation, an independent carrier servicing 15,000 customers in North Carolina. His company has deployed 14 Calix C7 nodes in the past nine months, and he is in the process of installing seven more.

Cagle says his company bought the C7 to offer DSL service in addition to its existing telephone service. He also needed to replace his existing Nortel optical transport gear. The C7 allowed him to combine all three functions into a single box.

Milton Alford, director of network operations for MBO Corp., a wholesale bandwidth provider in Oklahoma, says his company was interested in using ATM to deliver video services to its wholesale customers. He says the C7 reduced the need for other ATM edge switching gear. The carrier has deployed 54 nodes since June, and now some of its independent telephone company affiliates are deploying the C7 to offer video over ADSL.

With 20 slots of 200-Gbit/s capacity, the C7 easily fits into a central office or a large point of presence in a metropolitan area network. Calix also has built an environmentally hardened remote access terminal, so that the box can be deployed out in the field.

Calix has tried to think of everything: It's even designed its remote terminal with built-in coffee cup holders and sends free cups with every shipment.

At least one analyst is impressed. Rick Thompson, principal analyst at PointEast Research LLC, says the Calix C7 is on par with the ONS 15454 from Cisco Systems Inc. (Nasdaq: CSCO) and the CoreDirector from Ciena Corp. (Nasdaq: CIEN) in being a landmark product, albeit aimed at a different problem: “The Calix C7 solves a problem of similar magnitude in the access portion of the network,” he says.

Calix's strategy of focusing on independent phone companies seems to be helping build volume, even though it may prove to be a limited approach. While many of these carriers are small rural providers with only a few hundred access lines, other customers include Alltel Communications Products Inc. (NYSE: AT), CenturyTel Inc. (NYSE: CTL), and SureWest Communications (Nasdaq: SURW), each of which serves hundreds of thousands of customers.

Still, Calix can't survive on independent phone companies alone. The yearly capital expenditure of these carriers is between $2 billion and $3 billion per year, a mere fraction of the $25 billion spent by regional Bell operators on a yearly basis, according to David Gross, an analyst with Communications Industry Researchers Inc.

Russo admits that Calix will eventually need to win RBOC accounts. The company has already achieved Telcordia Technologies Inc. Osmine certification and NEBS compliance. Nevertheless, he says Calix will bide its time.

“You’d better bring a compelling value and lots of customers if you’re going to address the RBOC market,” says Russo. “We’ve been very disciplined about not going to them first.”

The RBOC market could bring another potential downside of Calix to the fore -- namely, its potential to be labeled a "god box." Indeed, when it comes to RBOCs, the startup is lining itself up, function-wise at least, against the major players in the industry, many of which have longstanding RBOC connections.

Another potential downside is that doing a lot of things at once may mean foregoing extra features that standalone products might offer. Michael Hatfield, the founder and chief strategy officer of Calix, acknowledges that the C7 can't be all things to all people: “We can replace an ATM switch, but it doesn’t mean that we will match it feature-for-feature,” says Hatfield. “We only want to do what’s necessary at that point in the network.”

For its present constituency, the minimalist approach is good enough: “We looked at lots of gear from other companies,” says Alford of MBO. “Some of them offered a piece here and there. We really wanted to consolidate functionality, but none of them offered all we needed in one box.”

— Marguerite Reardon, Senior Editor, Light Reading
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metamucil 12/5/2012 | 12:44:22 AM
re: Calix Comes Out
Of course they have now washed the employees, who have stopped working day and night. They also have ASIC issues and fired the vast bulk of the ASIC driver team. The ultimate in God Boxes.

metamucil
smell_the_coffee 12/5/2012 | 12:44:21 AM
re: Calix Comes Out Calix forgot to talk about how many paying customers they have. All the IOC's I've talked with have said they've been given a box or two. If they have 500 boxes out there - actually generating revenue - they wouldn't need to raise more cash... now would they?
green 12/5/2012 | 12:44:21 AM
re: Calix Comes Out Good point smell_the_coffee. what was their revenue so far ? how healthy are their customers ?

all the companies I heard of struggle to do a good job even with a narrow focus. it's hard to believe that they could be deployably-good in so many different interfaces.

either someone finally designed the God-box (unlikely) or it is just more smoke...
rbfishing 12/5/2012 | 12:44:21 AM
re: Calix Comes Out Execellent point. These claims do sound pretty hard to believe given that they just started in 1999. 500 is an extrodinary number of boxes for a start-up to claim in this environment. Maybe they hired some ex-Enron guys to set up an off shore company to accept all those deliveries.
rbkoontz 12/5/2012 | 12:44:21 AM
re: Calix Comes Out Anyone hear what the pre-money valuation is for such a super product and company?

Word I hear is moral is in the dumps at Calix. Most employees were Hatfield disciples and have had enough Kool-aid and life commitment. Russo does not have many supporters among the team that remains.

We are hearing Hatfield is being squeezed out completely (deja-vu all over again). With some good LR sources, we could have another entertaining Tachion story on our hands. Media moguls, please indulge us - inquiring minds want to know...
optigirl 12/5/2012 | 12:44:19 AM
re: Calix Comes Out of course we have to have the obligatory analyst plug in order to make it official.


How much stock did PointEast get for their PR work on this deal? Another Cisco 15454???

spare us.

Amused 12/5/2012 | 12:44:19 AM
re: Calix Comes Out Methinks you know not about finance my boy. Companies do not become profitable overnight - especially companies that just sunk hundreds of millions into product development.

--------
If they have 500 boxes out there - actually generating revenue - they wouldn't need to raise more cash... now would they?
rbkoontz 12/5/2012 | 12:44:18 AM
re: Calix Comes Out I agree with optigirl.

Similar to the theives and deception on wall street, press and industry analysts are also known to be "on the take" for stock or options in private companies. I believe all press and analysts should have to disclose their financial dealings with private company stock and options relative to their publications.

Would someone from Light Reading care to comment?
Lightmare 12/5/2012 | 12:44:18 AM
re: Calix Comes Out funny how press releases are always on the wire when new funding is sought :) those dumb vc's will believe anything- especially if the news is authenticated by an industry analyst.
Scott Clavenna 12/5/2012 | 12:44:16 AM
re: Calix Comes Out No stock, options, nothing "on the take" for a quote in a press release. Access modernization is of significant importance to the ongoing development of the telecom market. Calix, from our impression (take it or dismiss it), will be an important player in that market. Not the only one, but the private company we would put at the top of our list today.

Scott Clavenna
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