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Optical/IP

Chiaro Seeks Its Footing

It's been a long wait, but core-router startup Chiaro Networks Inc. claims it's made the short list for six requests for proposal (RFPs) by major service providers. But company officials admit they won't get far without a big-name partner to sponsor them.

Any of the six RFPs would be a huge win for the Texas company, which has raised $210 million since 2000 but has mostly seen action in research networks rather than telco circles (see CERN Selects Chiaro and Chiaro Debuts a Big, Bad Router).

Five of the six RFPs deal with the migration of legacy networks to an IP/MPLS core, a theme expected to pervade service provider thinking for the next few years (see Incumbents Converge on Convergence). Three of the RFPs are in Europe and two in North America. The sixth, in Asia, also calls for an IP/MPLS network but is focused more on growth than on replacing old networks.

Yes, Chiaro shares its short-list status with others: Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) are vying for all six RFPs. Chiaro's hope isn't to sweep all six, but to win pieces of each.

That's the most realistic goal for Chiaro and fellow core-router startups Hyperchip Inc. and Procket Networks Inc.: "To be the one the common carriers are going to use to play off Cisco" to keep prices in check, says Debra Mielke, principal analyst with Treillage Network Strategies Inc.

"Cisco and Juniper are always No. 1 and No. 2," says Carey Parker, Chiaro vice president of product marketing. "That's not our goal. The market needs a No. 3."

But with no track record at major carriers, Chiaro needs a large OEM as a partner. The partner could win some non-core piece of an RFP and suggest -- more likely, resell -- Chiaro's Enstara router for the core. "What they need is a big brother," says Frank Dzubeck, president of consulting firm Communications Network Architects.

Chiaro's problem is that each major vendor appears to be set with a core router plan. "From an OEM standpoint, there's no one left," Dzubeck says.

Cisco has its HFR, which appears to be readying for launch this year. Juniper is developing the TX, a hub for turning its T640 into a multichassis router. Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) has its BXR-48000. And Alcatel SA (NYSE: ALA; Paris: CGEP:PA) says its TiMetra Networks acquisition gives it an architecture suitable for the core. (See Cisco Sprints Ahead With HFR, Juniper Goes Terabit With the T640, and Alcatel & TiMetra Seal the Deal.)

The rest are piggybacking on others' products. Lucent Technologies Inc. (NYSE: LU), Nortel Networks Ltd. (NYSE/Toronto: NT), and Siemens AG (NYSE: SI; Frankfurt: SIE) have signed up to resell Juniper's routers, and Nortel and Huawei Technologies Co. Ltd. have agreements with Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7). As the Nortel case shows, there may be space for overlap, although Nortel officials say they haven't sold much Juniper into the core. (See Lucent Partners With Juniper, Siemens Jumps for Juniper, Avici, Nortel Get 'Strategic', and Huawei Partnership Boosts Avici .)

Procket is in a similar pickle, having landed no big reseller deal despite several rumors. Finding a partner will fall on the shoulders of CEO Roland Acra, hired from Cisco at the beginning of the year (see Procket Gets Cisco Exec and Will Nortel Pick Procket? ).

Chiaro isn't worried. Parker says the company has lined up a partner for each of the six big RFPs. These are temporary partnerships, tailored for each RFP to help both sides' chances. "It's kind of like dating. No one gets married on the first date. But [you expect] you're going to get married someday," Parker says.

So, the choice of Chiaro's formal strategic partner probably depends on which of the RFPs, if any, Chiaro can win. Chiaro's partner in that RFP will probably then be the Chosen One, and will make an equity investment in Chiaro.

Vendor selections for the six RFPs could come within months, Parker says. That's important, because Chiaro is going to need the investment from that strategic partner. Company officials say their 2002 funding leaves enough cash to last through 2004 (see Chiaro Lands an $80 Million Round). But volume revenues from the RFPs might not arrive until 2006, so Chiaro will need money by next year.

Chiaro's 2002 round -- which totaled $85 million in the end -- was far more than the $20 million or so the company had sought, and with the extra money came the cost of giving up greater share in the company. But it gave Chiaro the cash to survive the waiting period for these RFPs, Parker says.

Even with a strategic partner, survival could be tough. It's going to be difficult for any startup to recoup the costs of developing a core router, analyst Mielke says. Large companies such as Cisco can subsidize the effort with other divisions' revenues; startups can't. "That's what I think about when I look at all these little guys," she says. "Where's the money going to come from?"

— Craig Matsumoto, Senior Editor, Light Reading

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signmeup 12/5/2012 | 1:53:14 AM
re: Chiaro Seeks Its Footing Being in the industry and knowing what's on the street, I can say for certain that Chiaro is NOT a finalist in all of these RFPs. This is just a last gasp by a dying company trying to hype the value one last time before they fade away.

I know of one in particular where they performed so poorly in real life they didn't even make it through the entire test. But hey, I guess when all you have is slideware, you focus all of your attention on that.

I feel sorry for the "partners" who signed up with Chiaro on these RFPs; there's nothing worse than going to a party with an ugly date just to find out that you would have done better to have just gone stag...

Just one more thought on the subject - who can name ONE provider ANYWHERE deploying the product? That's what I thought.

Tony Li 12/5/2012 | 1:53:09 AM
re: Chiaro Seeks Its Footing
Folks might want to note that if the company is already done developing the router based on previous capital, that the ongoing expenses are for sales and support, not for new development.

Tony
Lite Rock 12/5/2012 | 1:52:59 AM
re: Chiaro Seeks Its Footing Sign,

your comments were enlightening until you threw the insults. That is so uneccesary and unfair.

The zeal with which you trash these folks is discouraging at best. I hope you have some kind of conscience and realize that knocking people down is a dead end street.

Regardless of the outcome for Chiaro and it's product, I know and have worked with many of the folks there in a past life and have the utmost respect for their capabilities and integrity.

May U See The Lite

signmeup 12/5/2012 | 1:52:58 AM
re: Chiaro Seeks Its Footing Lite Rock,

You misunderstand my criticism; my comments are directed at the folks who lied about the situation in the article. I have the deepest sympathy for the hard working engineers/developers who have given their best for the company. Misrepresenting the current opportunities doesn't help anyone at this point. It would be better to give the employees time to find new jobs and shut down gracefully rather than fill them with false hopes and inflated estimates. I too have worked with many of the employees and may have even been an employee there myself at some point... Knowing the truth behind the messaging, I would MUCH prefer to be treated as an adult and be told the truth rather than continue keep hanging on to a false hope.

The fact of the matter is that there are better alternatives in the core router space. This is not a ding on the product per se, rather given the post-bubble environment there isn't room for as many startups in this space. I'm sure someone will gobble up the IP in the end, so in some fashion the vision will continue, just not as a startup.

Again, I'm sorry if you took my message in the wrong light; however misrepresenting the facts is wrong and two wrongs don't make it right.

truelight 12/5/2012 | 1:52:53 AM
re: Chiaro Seeks Its Footing Unfortunatley the product and company is in trouble.

If it takes you $210M and you do not have mentionable customer revenue in this market then your gasping for air to survive. This market is going to kill a lot more.


mgillespie 12/5/2012 | 1:52:43 AM
re: Chiaro Seeks Its Footing As a an engineer I shall never be neo. And as a business man I am not Donald Trump, Henry Ford or Montgomery Burns.
However, I have watched various emergences over the past few years.
What I would like to know is: what precisely is required for a company to gain a stronghold in the core router niche of the internet?
I hung with breath abate for three years, waiting for procket to unleash their product line upon the universe. Upon revelation, although far superior to any hardware that I had played with, could not even begin to pursuade any purchasing departments, CTOs, Board members, etc. ad nauseum to even consider it. Although a very charismatic product, to make headway it would have required an elephantine proportion of charm, and come packaged with a selection of victorias secret models.
Layer 4-7 markets, whether security or content switching seem to bounce around, market share changing daily; and any old shlub growing a customer base. Meanwhile the Core of the network is totally unscrewaroundwithable, and directly related the way the market runs - certainly to my untrained eye.
What is required for a company to establish themselves in this constipated market? Are my observations completely wrong? How does it work? Any ideas?
Cheers big ears,
-merlin
Lite Rock 12/5/2012 | 1:52:43 AM
re: Chiaro Seeks Its Footing I appreciate your clarification. Thanks.

I am still not sure if you are refering to Parker or the article Authors or the qouted analysts?

I don't want to be presumtious about what is being communicated within the company. My first inclination is to think that the reality of their situation and the dire shape of the market is known and being communicated.

The marketing message from companies to the outside world is almost always going to be more positive than reality.

I would love to hear from some folks on the inside. Maybe some will pipe up after things are over.

Cheers,

Lite
Neophone 12/5/2012 | 1:52:42 AM
re: Chiaro Seeks Its Footing obviously, there is no ISP/carrier which can meet Tony Li's list...
mgillespie 12/5/2012 | 1:52:42 AM
re: Chiaro Seeks Its Footing Just a projected thought.
The telco market and technology has had 60years+ for their technology to emerge from infancy to adulthood. So much so that a device can be set upon by a group of angry hooligans with bats, and can keep working. The engineer assigned to replace the line cards doesn't need to know how they work just that the card with the red light requires an OIR. Hardware is resilient to the max. IP hardware until recently has looked nothing even remotely similar, and for this reason companies are scared to death to throw their telephony into the hands of a carrier and their shiney new voip network.
I know nothing of chiaro, beyond the fact that their concept capitalizes on principles exploited by existing telcos and carriers.
Surely it is a desirable product to afore mentioned suspects?
Cheers :)~
-merlin
Tony Li 12/5/2012 | 1:52:42 AM
re: Chiaro Seeks Its Footing
M,

First, thanks for the compliment.

I think you hit it dead on: it's a tough market out there right now. For a company such as Chiaro to enter the market, they need to find an ISP with the following qualities:

a) solvent (ok, already we have a short list ;-),
b) in need of a significant build out,
c) known and respected for technical leadership,
d) greatly distressed with current market choices,
e) willing to take a risk on a new vendor,
f) willing to buy (or commit to buying) 100 systems and say so publically, and
g) can be influenced at the executive level, legally.

Obviously, it's a tall order.

Tony


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