UTStarcom Sues Passave
On Nov. 17, UTStarcom Inc. (Nasdaq: UTSI) filed a lawsuit asking for $30 million in damages, according to the Silicon Valley/San Jose Business Journal. The suit had also been reported by Israel's Globes in November.
A Passave executive declined to comment on the matter, other than to say the suit is "without merit." UTStarcom did not immediately return a call.
Passave sold EPON chips into UTStarcom, which in turn sold EPON systems to Softbank BB Corp. for the Yahoo! broadband network in Japan. Reports say the suit asks for $30 million in recompense for chips that UTStarcom had to replace, as UTStarcom is alleging there were faults in Passave's early chips.
That trouble started in October 2004, the lawsuit allegedly says. That would be right around the time UTStarcom announced a $60 million deal to build Softbank's Gigabit EPON network. (See UTStarcom Deploys Largest GEPON.)
The lawsuit comes at a sensitive time for Passave, which in August filed for an IPO worth potentially $90 million. (See Profitable Passave Pushes for IPO.) A source familiar with the company says Passave is still behaving as though under the "quiet period" preceding a public offering, which would indicate the lawsuit hasn't caused Passave to cancel the IPO.
UTStarcom, meanwhile, recently docked $40 million from anticipated September-quarter revenues due to problems deploying its mVision IPTV offering to Softbank, an issue unrelated to the Passave chips. The company's stock, which has taken a beating this year, fell even more that day. On top of all that, the SEC has begun an inquiry into the company. (See UTStarcom Stung by Softbank.)
An S-1 filing with the SEC shows UTStarcom was Passave's largest customer in 2004, representing 71 percent of Passave's $21.1 million in revenues for the year. But for the first nine months of 2005, UTStarcom represented just 11 percent of Passave's revenues.
In part, that shift happened because other customers came on strong. For the first nine months of 2005, Passave reported revenues of $30.7 million, 52 percent of that from Mitsubishi Electric & Electronics USA Inc. and 33 percent from Sumitomo Electric Industries Ltd., according to the filing.
As the customer names indicate, Passave has sold primarily into Japan, serving the EPON buildouts there. The startup is trying to expand by providing GPON chips as well. (See Chips Draw PON Plans.)
— Craig Matsumoto, Senior Editor, Light Reading