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Lucent, Chromatis & Ignitus: A True Tale?

Light Reading
News Analysis
Light Reading
11/22/2000
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When Lucent Technologies Inc. (NYSE: LU) bought Chromatis Networks back in May 2000 (see Lucent Catches Chromatis), some folk wondered whether Lucent wasn't shooting itself in the foot. That's because Lucent already had chosen to sponsor a startup -- Ignitus Communications -- that was dedicated to creating a metro access platform for Lucent to sell (see Lucent Ignites ATM).

Typically for Lucent, the question remained unanswered. Chromatis's products began a journey to integration with Lucent gear that still hasn't ended. And Ignitus and its products virtually disappeared from view.

Until now. This morning, Light Reading received the following anonymous message containing an as-yet-unrevealed take on the Lucent/Chromatis/Ignitus odyssey. To say the least, it's a cracking good read. We are presenting it as we found it, unedited, and without our comment.

We have contacted Lucent about the claims made in this letter. We've also interviewed Doug Green, who was VP of marketing at Chromatis when Lucent purchased that company. Their comments are printed at the end of the letter.

We'd like to know what you think of this letter and its claims. Write to us at [email protected].

    The brief history of Ignitus Communications LLC On March 5, 1999, after nearly 6 months of negotiation, Mahesh Ganmukhi and Peter Fetterolf received $15 millions to start Ignitus. The Lucent ONG group led by Harry Bosco and Jerry Butters put up $14.5 million for 58% of the company; individual investors invested the rest. The remainder was available for Mahesh, Peter and the other employees of Ignitus.

    There was one catch from Lucent: For one year they would have a call option. During this time they could purchase Ignitus for a company value of $125 million, which means Lucent would spend about $52 million in cash. There was one catch from Mahesh. If Lucent did not call, then Ignitus could return the Lucent money plus nominal interest. Lucent would then have no ownership in the company.

    For the next few months Peter and Mahesh built Ignitus. They rented offices in Nagog Park, and hired a management staff. They hired engineers and defined the product. The team designed and built the product. In January 2000 Ignitus announced the company and its first product, the ISTN 3500. It showed working alpha ISTN products at Comnet.

    The product was a hybrid ATM and Sonet access node. It contained a 5-Gbit ATM switch based on the Atlanta chip set and a Sonet ring-capable front-end including STS-1 level crossconnect. It could connect to rings at OC12 or OC48 and supported tributaries from DS1 to OC12. The product generated interest from CLEC and ILEC customers because of its low cost, flexibility, small size, and full NEBS compliance.

    Also during this time Mahesh and Lucent renegotiated the call price for Ignitus. In exchange for an increase in the employees' vesting time and Ignitus taking over Lucent's floundering APON program, Lucent raised the call price to $240 million. This change and some other minor adjustments increased the employee share to around $100 million in cash. Ignitus employees had several vesting acceleration schedules based on Lucent call, IPO, or merger. The vesting schedule relevant in the event of a Lucent call now had complete vesting of all employees on September 5, 2001, or about eighteen months after the call.

    On Friday, March 3, 2000, Lucent informed Ignitus it would exercise its call option. About 30 days later, Ignitus became part of the Lucent ONG group.

    For the next several months, work on the ISTN became intense; engineering worked on NEBS testing and SQA. Sales and marketing enlisted three beta customers (KMC, SBC, and France Telecom), and manufacturing geared up the contract manufacturers.

    In June 2000, after dabbling with Astralpoint, Lucent purchased Chromatis for $4.5 billion in stock. Harry Bosco assured Ignitus there was no conflict.

    In a letter dated July 20, 2000, Lucent informs a confused customer that the plan is to combine the product lines. The Ignitus product will work with Chromatis as a low-cost node in their ring and be managed by the Chromatis management system. Ignitus management knows nothing of the letter or the plan.

    In early August the first Ignitus lab trials begin in the France Telecom lab in Lannion. Ignitus engineers turn up a three-node ring of beta systems. After initial analysis, only the ISTN and a similar Alcatel system remain in contention. (Ignitus later learned that they were selected over Alcatel.)

    Also in early August Harry Bosco "retires" and ONG transforms into Jeong Kim's core group; Bob Barron's new metro group moves to Janet Davidson's INS. Ignitus, Data Express, All-Spectra, and All Metro join Chromatis under Bob Barron.

    The co-founder of Chromatis leads a team to visit Ignitus for a technical exchange, an opportunity for Chromatis and Ignitus to understand the other's products. Amazing technical similarities are found; the ISTN is simpler and less costly, but otherwise the architecture is identical.

    Following this trip, a summit convenes of all the technical and marketing leaders from the new metro group. The goal is product rationalization; the result is the cancellation of every product except Chromatis and All Spectra. Ignitus ISTN, Data Express, and All Metro are canned. The rationale is that all the features in all these products will soon be in Chromatis. All the other products will be cancelled and their engineers will contribute to the Chromatis product.

    On Wednesday, August 16, 2000, Bob Barron visits the Ignitus office and officially informs the engineers. He explains that although the Ignitus box is less expensive and further along in development than the small Chromatis box, Ignitus will be cancelled. The small Chromatis box is part of a product family with a common platform and management system. Bob also adds, "Lucent paid $4.5 billion for Chromatis; it would be too embarrassing to cancel a Chromatis product." Bob also announces that most of the Ignitus senior management team would be "excused," fully vested, and allowed to leave. (Actually, three of the seven senior managers were forced to stay.)

    On August 20, 2000, key engineers from Ignitus, All Metro, and Data Express meet at the Chromatis office outside Tel Aviv, Israel. They are there to learn the Chromatis box and bring back work for the idle engineers back in the states. After a tense few days the Chromatis team gives up some work so the other teams can return to the U.S. with work to do.

    During the next weeks and months Chromatis management tries to build a team with the remaining Ignitus managers and the Lucent managers. This team tries to define and design new features for the Chromatis products. The team stalls as the shortcomings of the Chromatis product become apparent. The next big release, planned for February 2001, slips to April, then to June. The June release slips to December. Meanwhile, Ignitus engineers count the days until September 5, 2001, and Lucent engineers flee to startups. Contrary to published reports no one from Chromatis leaves.

    On September 27, 2000, Mahesh Ganmukhi files suit against Lucent for breach of contract. He and the three other "excused" managers are still at Lucent. They come to work every day but have no work to do. They refuse to leave until Lucent pays their share of the Ignitus purchase price. Lucent ignores the requests. Mahesh's contract is clear: He must be vested if his duties are diminished.

    Rumors flew that Lucent was hiding the cancellations until after the end of the fiscal year, but here, weeks into the new fiscal year, and no money yet. And even crazier rumors are flying: Is the $125 million restatement really the Ignitus write-off?


Feedback from Lucent on the above claims:

"We have combined the best of both Ignitus and Chromatis products and we are melding them together to create the best platform for our customers. We can't comment on the issues in litigation or on the $125 million restatement." -- Mary Ward, Lucent media relations

Feedback from Doug Green, formerly of Chromatis:

"While there was some overlap between Chromatis and Ignitus products, the differences were much greater than it seems your sources are saying. For one thing, Chromatis had integrated WDM and Ignitus did not. And it had a higher capacity. I will say that we're still waiting to see the execution and new customers, besides the ones already announced.... Lucent needs to be more proactive and forthcoming in letting the public know what's going on there." -- Doug Green, former VP of marketing at Chromatis; current VP of marketing at Ocular Networks Inc.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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