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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cyber_techy 12/5/2012 | 12:58:34 AM
re: Axiowave Stung by Rent
Yet now they whine pubically like babies about rent that they negotiated? Looks like they're defaulting like trailer trash. Demonstrated once again, these are not good businessmen. If they did'nt think they were so smart and over-proud of themselves (thier reputation preceeds and follows them) they might have some decent respect and ablitly to negotiate. I guess no one trusts them and thier getting what they deserve.

I think the bigger issue might be that they are paying too much for electricity, water, heat, paper, pens coffee etc. Expect Chatter to whine about that next year.
keelhaul42 12/5/2012 | 12:58:33 AM
re: Axiowave Stung by Rent Sigint:
Are companies required to lease properties for, like, a decade or something? Aren't 1 year or 2 year leases offered?

Sure, all kinds of terms (rate, duration) are available. Generally speaking you'll get a better rate if you commit for a longer period but the short terms are available if you want them.

Landlords can also be flexible if you find yourself stuck with a high rate and little money to pay. They do expect something in return such as a longer term, move to a less desireable property under their mgt, etc.

The only sticking point in my experience was when I [we] started a new company a few years back.
The landlord demanded that I sign as an individual meaning I was personally liable for the rent. Talk about putting your own neck on the line! Perhaps this wouldn't be factor for a larger, better capitalized startup?

hrdhtr 12/5/2012 | 12:58:32 AM
re: Axiowave Stung by Rent It's a wonder that it went this long. This thing had wobbly legs from day one. They had 150 employees on roll real early. The market they desired was disintegrating and the area they opted to was locked up tighter than a bullGÇÖs behind. The ability to sell an idea is a core competency of this group and thatGÇÖs what may have kept them afloat this long.

Burn rate victim IMHO

deer_in_the_light 12/5/2012 | 12:58:30 AM
re: Axiowave Stung by Rent Once again, better to be lucky than good.
How stupid could the investors be?
douggreen 12/5/2012 | 12:58:29 AM
re: Axiowave Stung by Rent Back in 1999-2000, it was not at all uncommon for a landlord to demand a 10 year lease in any of the high tech markets (even Northern Virginia). It was not a matter of better terms, it was a non-negotiable. Since the demand for space exceeded the supply, the landlords held all the cards.

To be sure, some startups over-extended themselves at the time because money was so easy to get. Some got too much space. Some got space that was a bit too "plush." However, the sinking tide grounded all boats just the same, and even the more responsible companies were stuck with bubble-era leases in a post-bubble world.
keelhaul42 12/5/2012 | 12:58:28 AM
re: Axiowave Stung by Rent douggreen:
Back in 1999-2000, it was not at all uncommon for a landlord to demand a 10 year lease in any of the high tech markets (even Northern Virginia). It was not a matter of better terms, it was a non-negotiable. Since the demand for space exceeded the supply, the landlords held all the cards.
That wasn't my experience for a company I co-founded in 1998, nor for three other companies I advised during that time (1998 - 2000). (All in Silicon Valley)
All got leases of 3-5 year duration at rates between $2 and $3 per foot. There was space available for less - as low as $1.20 per foot - but the facilities were older and in less desireable locations. (Desireable having many dimensions.)

I think you're correct about startups overextending themselves owing to easy money though. Live and learn ...

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.
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.

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.

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