Can Sycamore MIX it Up?
Sycamore, whose stock is now trading at roughly $8 and whose valuation has fallen from a high of about $30 billion to the more recent $2.4 billion, has been beaten up badly in the recent telecom slowdown. In the last quarter, Sycamore reported a disastrous loss, and it continues to seek customers as some of its originals slip away (see Sycamore Completes Shaky Q3). One of its largest customers to date, 360networks Inc. (Nasdaq: TSIX; Toronto: TSX.TO), has drastically cut back on expenditures and is struggling to stay afloat, while Williams Communications Group (NYSE: WCG), Sycamore's first customer, is nearing the end of its contract with the optical switch vendor and hasn't shown much interest in renewing.
Then there's the industry scuttlebutt. Several sources, including those at Williams, have said that they have been frustrated by the company delivering equipment that's not ready for deployment. The widely anticipated new switch, the SN16000, now represents Sycamore's hope for a comeback (see Sycamore Awaits Savior in SN16000)
So the MIX project is the grand new test. In addition to Cisco Systems Inc. (Nasdaq: CSCO), Sycamore is the main equipment vendor BellSouth selected for the MIX project. BellSouth is using Cisco's StrataCom BPX ATM switches, along with Sycamore's SN8000 and SN16000 optical switches. Sycamore's SN16000 box has the capacity to carry 19 million simultaneous phone calls, says Jeff Kiel, vice president and general manager of Sycamore's Core Switching Business Unit.
Neither BellSouth nor Sycamore would discuss financial details of the MIX equipment purchase, but BellSouth says it was done with cash and no vendor financing.
The SN16000 now has five customers, including Vodafone Group PLC. Like all equipment vendors, Sycamore needs to show its gear is valuable to the few big carriers that control most of the spending in the telecom equipment business.
Sycamore is still working toward completing its OSMINE (Operations Systems Modification of Intelligent Network Elements) compliance testing for all its gear, according to a spokesperson. The OSMINE tests make sure Sycamore's gear works well with the software operating systems made by Telcordia Technologies Inc., the firm that makes 80 percent of the operating systems used by RBOCs (regional Bell operating companies). The OSMINE compliance process can run into the double-digit millions and take as long as 18 months, according to a recent report by Merrill Lynch & Co. Inc.
This is important because, also like other vendors, Sycamore won’t be as appealing to the big-spending RBOCs without OSMINE testing (see Telcordia's Osmine Goldmine).
BellSouth says it is “modeling” Sycamore's technology in other parts of its network, according to Ralph de la Vega, BellSouth's president of Broadband and Internet Services, who notes, "[The MIX] is not designed to handle only data, but some of the value-added services apply more to data than voice traffic."
The big question left hanging is: How big an impact on Sycamore’s financial situation will the BellSouth deal be? The company has already predicted that in the coming quarter it expects to pull in between $50 and $60 million in revenues, between 33 and 44 percent below its numbers from the year-ago period.
BellSouth's MIX is the first interexchange point to be spread over four nodes -- in Miami-Dade, Broward, and Palm Beach Counties -- instead of one central location. And each node in the BellSouth MIX is housed in a building BellSouth doesn't own.
Spreading the MIX out makes sense for two reasons, according to Susan Campbell, president of BellSouth's Internet Exchange. First, South Florida is often hit by hurricanes and tropical storms. For that reason, BellSouth says the whole shebang could remain functional with only one network node, if necessary. Second, spreading out the nodes helps BellSouth reach more businesses, and the businesses themselves don’t have to spend as much on fiber to reach the MIX.
- Phil Harvey, Senior Editor, Light Reading