Axiowave Stung by Rent

Trapped in a lease from the year 2000, Axiowave Networks Inc. now has a late rent payment added to its list of troubles.

The core router vendor has defaulted on the rent to its 100,000-square-foot facility in Marlborough, Mass., according to landlord Glenborough Realty Trust Inc. (NYSE: GLB). In a release earlier this month, the real estate group noted its quarterly earnings would take a $1.4 million hit, or 4 cents per share, due to Axiowave's default.

All Axiowave really needs is 30,000 square feet. But CEO Mukesh Chatter says the company is stuck paying for three times as much space at more than double the going rate. By his estimate, Axiowave could be occupying a space for $400,000 per year as opposed to its $2.9 million yearly rent bill to Glenborough.

The problem is that Axiowave was created during the dot-com bubble, when real estate prices were sky high.

"We were paying two-and-a-half times the market rate because the lease was [signed in] the year 2000 -- and they refused to negotiate," Chatter says. Glenborough, which claims to have initiated legal action against Axiowave, did not return calls for comment.

The imbroglio is interfering with Axiowave's attempts to secure new financing (see Headcount: Cutting the Fat (Really)). Already the company has cut employees to 25 from 156, but the albatross of that rent payment is keeping prospective investors away. "Investors demanded that rent be at market rate," Chatter says.

Founded by Chatter and Analog Devices Inc. (NYSE: ADI) chairman Ray Stata, Axiowave raised $120 million to develop its XCR128 core router (see Axiowave Queues in the Core). Unfortunately, the need for core routers has diminished since the company was founded in 2000, and the market is dominated by Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR). And this year, each of them released a next-generation core router -- the CRS-1 and TX Matrix, respectively (see Cisco Unveils the HFR and Juniper Unveils the TX).

Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) remains in the low single digits of market share despite years of trying. Procket Networks was the next great hope among core-router startups, but the company faltered, and some of its technology and people wound up with Cisco (see Cisco to Pay $89M for Procket Assets).

Axiowave was the second Chatter-Stata attempt at a core router. The first, Nexabit Networks, was acquired by Lucent Technologies Inc. (NYSE: LU) in 1999 and eventually shuttered. Chatter left shortly after the acquisition to start Axiowave, reportedly taking some of the Nexabit staff with him (see Lucent Faces "Exodus of Nexabit Staff").

"We're just negotiating right now and exploring ways to restructure," Chatter says.

Glenborough isn't the only Axiowave creditor crying for attention. The MetroWest Daily News recently tracked down Axiowave's caterer, too. Craig's Catering of Northborough, Mass., claims it's owed $18,300 for seven weeks of delivering food to the nightshift, according to the MetroWest report.

— Craig "Not a Caterer" Matsumoto, Senior Editor, Light Reading

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Upside_again 12/5/2012 | 12:57:37 AM
re: Axiowave Stung by Rent Those companies are long gone. Crescent is Marconi, Ennovate wasted alot of money and crapped out really badly with scrub mngt team, Allegro was bought. Gotham?

Who's left?

cyber_techy 12/5/2012 | 12:57:59 AM
re: Axiowave Stung by Rent
Nice thread.... How about edge router startups?
Who is closing down lately?

Gotham, Crescent, Ennovate, Allegro,
spelurker 12/5/2012 | 12:58:07 AM
re: Axiowave Stung by Rent > One of the vaiables I look at is this team HAD to
> pick same business park as former Nexabit/Lucent.
> Why? To get even for Lucent failing the Nexabit
> products and the CEO's public drubbing?

Nope. Lucent hadn't really dropped the ball yet on the Nexabit box, and there really was no "public drubbing" (Though there were certainly many folks at the time who wished that were the case).

The reason that park was picked was because the CEO had confidence in the Nexabit staff, and wanted to lure as many of them to Axiowave as possible, as quickly as possible. (It was literally right across the street)
Amusingly, they moved back to the old Nexabit offices when they outgrew the old space. (the remains of the nexabit folks had moved to an empty Lucent bldg across town by this time) This was very likely because it was the only way out of the OLD lease (rent with the same landlords, bigger space, same rate per sq foot.)
flush_meat 12/5/2012 | 12:58:08 AM
re: Axiowave Stung by Rent Nice thread.... How about edge router startups?
Who is closing down lately?
Majid Alghaslan 12/5/2012 | 12:58:08 AM
re: Axiowave Stung by Rent Close shop!
Upside_again 12/5/2012 | 12:58:15 AM
re: Axiowave Stung by Rent One of the vaiables I look at is this team HAD to pick same business park as former Nexabit/Lucent.
Why? To get even for Lucent failing the Nexabit
products and the CEO's public drubbing?

You can go a 1/2 mile away and there are many less than extraodinary business parks or buildings and they would have been just as close and 1/2 the price. If foolish pride, ego and bad business did not play here, the lease would not be an issue now.
douggreen 12/5/2012 | 12:58:19 AM
re: Axiowave Stung by Rent "That wasn't my experience.."

I guess it depends on where you are trying to get space, what type of space you wanted, how soon you need it, etc. Once you have a significant staff, you can't afford to take space in an area that your people will not commute to. Timing is an issue also. If you are willing to wait 6-12 months, you have more leverage as well.

Our experience was certainly different than yours.

graceful_restart 12/5/2012 | 12:58:20 AM
re: Axiowave Stung by Rent as dumb as the president
>Once again, better to be lucky than good.
>How stupid could the investors be?
Upside_again 12/5/2012 | 12:58:20 AM
re: Axiowave Stung by Rent Heard the new web-site already has a new logo.

DoTheMath 12/5/2012 | 12:58:27 AM
re: Axiowave Stung by Rent I agree with Doug. I was with a company looking for space in fall of 2000 in silicon valley. It was a nightmare. Asking rents were crazy (going up to $4-5 per sqft/month in some locations) and landlords also wanted to lock in long leases.

We ended up moving to east bay, for much lower rent (around $2 at that time), but the landlord was able to push through a 7 year lease. Today, the space is worth about 40% less than in 2000, but since the tenant is finacially healthy, the landlord has no reason to renegotiate. The only prudent option in 2000 was to move out of the valley, but even then it proved costly. I know companies that have gone bust due to this real estate issue.

Real estate bubbles like the silicon valley office bubble in 2000 are very costly to business. Even prudent companies get snagged, and in this case, it is not clear Axiowave was all that prudent to begin with.
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