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Catena's Picking a New Top Dog

Access equipment maker Catena Networks Inc. and its CEO, Bob Machlin, have agreed to part ways, the company confirmed today.

Machlin and the board of directors have set no final departure date for Machlin, according to Steve Bauer, Catena's VP of corporate communications. "Discussions are ongoing," Bauer says.

The CEO switch is likely part of a larger shift at the top levels of the board. The move comes just a couple of weeks after Joseph Costello was elected chairman of Catena's board (see Costello Chairs Catena). "The number one thing a board of directors does is decide whether a company has the right CEO and management team," Costello told Light Reading on April 2.

Catena is building a set of access products designed to make broadband deployments more economical for telecom carriers. In short, the company is building chips that would allow both POTS lines and DSL services to be condensed into one line card, allowing carriers to upgrade the DLC boxes and deploy DSL in one move.

The promise of such a product is considered a very hot opportunity in the VC community. Catena has raised $192 million to date, and it employs more than 300 people (see Ka-Ching for Catena Networks).

Catena's board most recently met on Wednesday. The board now consists of Catena chairman Joseph B. Costello, Catena founder Jim Hjartarson, Morgenthaler General Partner Gary Morgenthaler, and Menlo Ventures Managing Director John W. Jarve. Catena will likely make another board appointment in the next few days, a source close to the company says.

Though Catena's board hasn't named Machlin's permanent successor yet, Jim Hjartarson will assume the president and CEO roles for now. This change makes Hjartarson a veritable one-man management band, with the titles of president, CEO, director, executive VP of engineering, and chief technical officer.

The company had no comment on the rumor that Jim Hjartarson has five reserved spaces in the company parking lot, one for each title.

Location may have something to do with Catena's CEO change. On paper, Catena is based in Redwood Shores, Calif., but more than 90 percent of its workforce -- including Hjartarson -- are based in Kanata, Ontario, at the company's 63,000 square-foot research and development center.

Machlin, who works in Redwood Shores, has been with Catena since 1999; Catena was his first stint as CEO of a venture-backed company. Prior to Catena, Machlin was VP of marketing at Ascend Communications, which was acquired by Lucent Technologies Inc. (NYSE: LU). From 1994 to 1997, he was VP of marketing at Cascade Communications.

One of Machlin's former Cascade coworkers, Catena VP of sales and business development Rick DeGabrielle, is based in Redwood Shores, as is Catena's CFO, Kenton Chow.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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eieio 12/4/2012 | 10:33:53 PM
re: Catena's Picking a New Top Dog Phil,

"From 1994 to 1997, he was VP of marketing at Cascade Communications, which was acquired by Cisco Systems Inc."

I think Cascade was purchased by Ascend which was then purchased by Lucent which then had a merger talk with Alcatel and then broke off and is now lost in its ways.

Ol'Mac
rbkoontz 12/4/2012 | 10:33:48 PM
re: Catena's Picking a New Top Dog Another promising start-up in trouble? Sounds like the VC's are feeling the short end of the stick from Machlin - as in "what the hell did we invest (another) $75M in less than 3 months ago?" They no doubt feel misled by him.

1. The access/BBDLC market, while stable during this terrible teleconomy, is also not growing - stagnant at best and dominated by Alcatel.

2. Catena's only prospect for success seem to be with the RBOC installed base of SLC5. There have been several independent confirmations that Catena has been thrown out of several RBOC labs due to operational issues with their retrofit solution. This kills any chance at meaningful revenue - even in 2003.

I am not sure how this company can construct a solid business plan - in spite of some "neat" technology. Most importantly, how will Catena create a revenue ramp? How many start-ups have EVER successfully penetrated the RBOCs and built a business?
stuartb 12/4/2012 | 10:33:41 PM
re: Catena's Picking a New Top Dog Phil- Cascade was acquired by Ascend, not Cisco. Cisco bought Stratacom.

-Stu
cruiser 12/4/2012 | 10:33:21 PM
re: Catena's Picking a New Top Dog i don't think this news means catena is in trouble. actually i think it's a good sign. machlin was basically thrown out of ascend right before the merger because no one could get along with him. now, granted, the cascade folks never mixed well with the ascend folks (legend has it, sycamore, founded and run by ex-cascade people, is not named after a tree but rather, means "sick-of-mory"). but machlin is a bostonian, east coast, abrasive guy who is in no way cut out to lead a company to greatness. probably a good vp mktg but cascade was built on good engineering and take-no-prisoners sales, not mktg. they were the new england patriots of networking.

summary: they are better off without machlin running the joint.
heydidileeho 12/4/2012 | 10:33:07 PM
re: Catena's Picking a New Top Dog Realistically, Catena needs to pull in $30M/year (conservatively) just pay the inflated salaries of the 300 people still working there. This does not take into account the additional expenses these guys have in trying to bring their technology to market (fab, manufacturing, etc.). Their technology may be interesting, but service providers aren't likely to pay more than several hundred dollars per sub. for their integrated line-card technology under current market pressures. And DSL roll-out is slowing down to a snail's pace, with demand effectively flattening over the last few months.

Taking all this into account, Catena's VCs must be starting to wonder how they can possibly recoup their $72M investment, let alone walk away with a gain, before Catena goes the way of the dinosaur. Cuts at the top are often a sign of VC unhappiness in the performance of their investment....expect more heads to roll at this example of another over-capitalized telecom startup. This company MAY be sustainable with a headcount of 100 or so...
mahalingam 12/4/2012 | 10:31:57 PM
re: Catena's Picking a New Top Dog Catena has excellent technology in the form of a chipset that converges POTS and DSL. It also has an excellent ASIC team and an excellent access technology team.

I believe that Machlin's departure is a signal of a change in direction. Machlin wanted to IPO, but today's reality seems to say that the investors want to unload the technology on a company that has a long history of selling into ILECs, and who can turn Catena's technology into a network element that will fit well into the operations of the ILECs.

For this, the company will have to be gutted down to 100 people so that it can withstand the (longer than expected) CapEx spending slowdown (until 4Q03 in my opinion). By then, Nortel and Lucent will be able to afford acquisitions :) Remember that Catena started out as a DSL chip company, and it may just be returning to its roots.

Lucent would be a good candidate for a suitor because of the SLC-5 connection. Nortel would be a good suitor because of the connections of the management team into Nortel, and also because doing SLC-5 upgrades would be a good way for Nortel to get back into the access business. Also, the Catena products would line up well with Nortel's VoP network solutions.



OSPGuy 12/4/2012 | 10:31:49 PM
re: Catena's Picking a New Top Dog hey-diddle-diddle makes some interesting observations about "DSL roll-out is slowing down to a snails pace" and "demand effectively flattening." Might I repectfully suggest LASIK surgery?

Just checking the latest RBOC quarterly earnings releases, I gleaned the following nuggets:

Verizon: 150,000 additional DSL lines in Q1,2002, equates to 88% annual growth
BellSouth: 108,000 additional DSL lines in Q1, 2002, equates to 141% annual growth
SBC: 183,000 additional DSL lines in Q1, 2002, equates to 59% annual growth
Qwest: 43,000 additional DSL lines in Q4,2001, equates to 74% annual growth.

Factoring in the smaller players, the grand total is well over 500,000 ports per quarter and rising. Haven't seen that kind of growth in anything since the good ole days of the new economy.

heydidileeho 12/4/2012 | 10:31:45 PM
re: Catena's Picking a New Top Dog Look at the stock performance of CMTN and PDYN for a snapshot of the DSL market -not exactly superlative or anything - pretty crappy in fact...

OSPGuy 12/4/2012 | 10:31:41 PM
re: Catena's Picking a New Top Dog If your competitors (Alcatel, et al) are selling 500,000+ ports of DSL per quarter and you (CMTN, PDYN) are selling none, then yes, your stock performance would not be "superlative or anything". It would be, in fact, "pretty crappy".

Look, you didn't check the empirical data behind DSL demand. DSL demand has not abated. DSL line growth remains strong and is a growth area for the RBOCs and the small handful of vendors that supply them. POTS line volume is declining across the board for the RBOCs, and they are focused on DSL to keep revenues up.

Don't try and wiggle out of your oversight by pointing fingers at a couple of rusted-out "new economy" leftovers.
heydidileeho 12/4/2012 | 10:31:39 PM
re: Catena's Picking a New Top Dog There may be some demand for DSL, but the margins are very thin, the carriers' payback on DSL installations is typically 5-10 years, and the large vendors (not small startups in their infancy like Catena) are getting what little business there is. Its not that that CMTN and PDYN don't have technology that works (and yeah, I've heard the story of how Catena's technology revolutionized the DSL business case...blah, blah, blah - just point to some real customer deployments other than CT Tel, and it might be more convincing!) - it's just that the business case for DSL is so crappy right now and there are too many vendors chasing the limited amount of business. If there was a lot of money to be made by carriers in the DSL business, there wouldn't be such a delay in rolling it out...the reality is, it only gets rolled out where there is enough demand density to justify the deployment.

Catena's technology may be advanced, nifty, etc., but they can't sell enough of it at high enough margins to support their current corporate structure on an ongoing basis. Their only real options are to try to IPO to get more cash to keep them afloat for another year or so (tough sell for the rest of 2002), or to severely slash headcount and dress themselves up for a sale to the likes of Alcatel (in fact, that would be their smartest move, with ALA being the DSL leader and all!). Then again, I haven't heard of Alcatel making many acquistions lately....maybe that won't work either...
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