A $25 million round of funding doesn't go as far as it used to. That's what two-year-old startup Ellacoya Networks Inc. is realizing. Yesterday, the company cut another 30 jobs, reducing its headcount to about 70 employees.

This is the third time in the last year that the company has laid off workers. At one time, the company employed over 200 people. The last round of layoffs was in November, just before the company announced it had closed a $25 million round of funding (see Boston Area Startups Slash Jobs and Ellacoya Snags Third Round).

At that time, CEO Ron Sege said even with the new cash, he still had to reduce the company’s staff by about 50 percent to make sure it was sized accurately. Five months later, it appears that size is about 30 percent smaller than he anticipated. Sege previously said that the latest round would last until the middle of 2003. In total, Ellacoya has raised $111 million.

Sege wasn’t available for comment, but Matt Burke, a company spokesperson, stepped in to toe the company line.

"We’re still seeing a slump in demand," he says. "And we needed to cut our head count again in order to ride out the storm. We need as much run room as we can get now."

To date, the company still has not named customers for its flagship product, the SGS 44000. Back in November, Sege said he expected revenues to begin trickling in from the six beta customers that were testing the product, but these revenues don't seem to have materialized.

In fact, it looks as though the company is not getting much traction among its original customer targets. Burke says the company is now developing a new product to address the cable access market. He wouldn’t divulge details, but he did say the new product would be smaller and less expensive than the SGS 44000 and would help cable providers deal with the problem of "bandwidth hogging."

It is interesting that the company is developing another scaled-down version of its product, considering it had already released a smaller version, the SGS 6000, prior to the flagship product's debut. However, Burke insists the new product will have features specific to the cable market.

This isn’t the first time Ellacoya has changed its marketing focus. Originally, the SGS 44000 was geared toward CLECs and Internet service providers that wanted to bundle new IP services like VPNs and video on demand. Then the marketing team started emphasizing the product’s self-provisioning features. Now the company seems to be abandoning its old product and re-marketing a scaled-down version to act as a bandwidth cop for the cable market.

Is Ellacoya on its last legs? It certainly looks that way. With three rounds of layoffs under its belt, no customers to name, and a new product in development, Ellacoya seems to be grasping at straws.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com