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Optical/IP

Cisco/Procket Deal Imminent

Today's the big day for news on whether Procket will be acquired, say several sources.

Two sources close to Procket Networks Inc. have told Light Reading that the company's fate will be made today. As ever, there's intrigue here because only one of the two sources would name the acquiring party -- and that source says its Cisco Systems Inc. (Nasdaq: CSCO). Foundry Networks Inc. (Nasdaq: FDRY) has also been mentioned as a suitor, but that now appears less likely -- and Cisco certainly has the deeper wallet to make the deal happen.

The deal, reportedly worth $80 million, has been expected this week since a flurry of reports detailing a potential deal dropped last week (see Cisco May Pocket Procket).

Cisco has since put forth that, while it would never buy a competing product, it doesn't mind acquiring the talent that built the competing product. "I'm not going to buy another router company for a router," Chambers told a Bear Stearns investment conference yesterday, according to reports by Reuters and The Wall Street Journal. "I could not be more comfortable with our routing strategy...

"Fifty really sharp engineers can bring a product to market quicker than 500 can, so if ever there is a talent acquisition that makes sense to me in the market, I don't hesitate," Chambers added, according the Reuters report.

However it's sliced, Cisco is about to purchase one of the routing upstarts that, if nothing else, provided a catalyst for Cisco to get its own next-generation core router, the CRS-1, built and released after several years of fits and starts (see Cisco Unveils the HFR).

While it will be interesting to see what Cisco will do with the technology, it will be more interesting to watch the marketing story unfold. Never before has a routing market leader announced its own next-generation product, then purchased a competitor solely for staffing reasons.

Calls to Cisco were not returned in time for this article.

— Phil Harvey, News Editor, Light Reading

bobcat 12/5/2012 | 1:32:24 AM
re: Cisco/Procket Deal Imminent Oooops!, Astral Point was a success too. Wasn't it?
bobcat 12/5/2012 | 1:32:24 AM
re: Cisco/Procket Deal Imminent Give it a rest..
Compared to all the companies that tried and failed (Gotham, Celox, Coriolis, Beacon, Ironbridge, Astral Point, PhotonEx, Tachyon, Crescent, Cratos, Photuris, Nanovation, jasmine, Cyras, etc.)
I'd say they faired better than alot of us (majority of us) did. I'm not being callous but. Contract telecom/datacom jobs are far and few between meals. Hold on, I gotta nail down another course of shingles..
I din't think Cisco would buy them.
I was way wrong. Point is, it aint pretty but it is a success, given this market. Time to start thinking about the next big thing.
Truelight1 12/5/2012 | 1:32:28 AM
re: Cisco/Procket Deal Imminent Procket was a failure - big time - troll that Li
Tony Li 12/5/2012 | 1:32:31 AM
re: Cisco/Procket Deal Imminent Before I answer that, you need to understand that I have the engineer's perspective on things:

- There is no software that has no bugs.
- There is no hardware that could not be better.
- All of the testing in the world cannot begin to replicate or prevent Murphy.

That said, I believe that the Procket products were more solid than any other new product that I've seen shipped in this space.

Tony
Belzebutt 12/5/2012 | 1:32:32 AM
re: Cisco/Procket Deal Imminent Out of curiosity, how "ready" was the Procket software/hardware? Was it still in a beta stage, or was it rock solid?
Tony Li 12/5/2012 | 1:32:34 AM
re: Cisco/Procket Deal Imminent
Basically, no one was willing to go first. Some major customer would have needed to actually buy some non-trivial number of machines and put them in production. However, before anyone would buy, the company had to be reasonably financially stable. The board couldn't manage to do that, so here we are.

While not everything is peaches and cream, Procket's products performed as advertised and were very technically competitive with C & J, with strengths in a number of areas (and weaknesses too). The real hurdle that we failed to cross was managing to rope in a key customer. Certainly the market was extremely challenging, with our customer base going bankrupt about as fast as we could involve them, but we failed to convert on our remaining opportunities.

Tony
maximuscomehome 12/5/2012 | 1:32:37 AM
re: Cisco/Procket Deal Imminent Reading all the quarterbacker posts here - it is apparent there is a big group here that has already determined that -

a. the procket box works better than EVERYTHING Cisco and other companies built

b. the VCs involved in the deal were absolute shysters with no experience in building companies(past records notwithstanding)

c. the management team was worthless (past records notwithstanding)

So why is that not a single relevant customer bought the router? (beyond the Aussies and the Tillamooks?)

What am I missing?

I thought that the list of "friends and family" investors in Procket read like a who's-who of all the major service providers and was over 100 long. Don't tell me they stopped buying - just look at the Cisco, Junper and even Avici's shipments during the same period.

Oh well.

Mr. Li - how about writing a book? Shouldn't the rest of the world know the story?
This can be the modern version of "Soul of a new machine". Heck - I can almost imagine a Hollywood release - perhaps the LR readers will come up which actors can best portray the players...

-- Massimo

Tony Li 12/5/2012 | 1:32:41 AM
re: Cisco/Procket Deal Imminent You make it sound like all Cisco has to do is
wave a magic wand to integrate Procket technology
into Cisco's current products. Its not that
easy at all. In fact, it sounds downright
impossible to me.


Definitely not impossible. We intentionally architected the Procket software with "platform independent" and "platform dependent" layers. It would not be unthinkably hard to take the platform dependent bits and merge them with ENA/CRS-1os/whatever assuming that they did likewise. Yes, there would be some sledgehammer work, but it could be done...

Tony
gotman 12/5/2012 | 1:33:41 AM
re: Cisco/Procket Deal Imminent >it sounds downright impossible to me.

Why?
tsat 12/5/2012 | 1:33:52 AM
re: Cisco/Procket Deal Imminent
You make it sound like all Cisco has to do is
wave a magic wand to integrate Procket technology
into Cisco's current products. Its not that
easy at all. In fact, it sounds downright
impossible to me.

My money is on Cisco letting Procket's technology
die.

-tsat
romeo-foxtrot 12/5/2012 | 1:33:59 AM
re: Cisco/Procket Deal Imminent The number of people that will be retained is not announced, but a 2003 LR story pegged the number of employees at 250.

Assuming....

1) Cisco doesn't need the execs (Cisco has these)
2) 50 or so were removed to cut burn
3) 50 or so are support, admin, manufacturing, test, etc... and therefore not required
4) 25 or so are not "top talent"

...that would leave 100-125 employees that will be kept by Cisco. Probably the number is still high, but let's be optimistic.

So here's a different twist on these numbers.

Cisco is acquiring the intellectual property, namely some "best in class" silicon and routing engineers. Therefore the only thing they are really buying is the people they will keep.

The $89M of cash being spent is therefore worth between $700,000 to $900,000 per "top" employee.

Do you think these people will see anything like this kind of money themselves? NOT!!!

So the twisted math here would lead one to conclude that if you are a top employee, at a dying company, and can get a solid majority of your "top" peers to band together with you, you would be much better off to sell yoursleves personally.

Otherwise it is the last VCs in with the highest liquidation preferences, and the lousy senior management, that get all the returns.

That is some #$&*#@ twisted math!
brahmos 12/5/2012 | 1:34:04 AM
re: Cisco/Procket Deal Imminent a question - is there another network processor based edge router in market that matches what the csco 10000 PRE2 (PXF) does? just wondering if PXF has a future or it needs a better replacement?
diag_eng 12/5/2012 | 1:34:09 AM
re: Cisco/Procket Deal Imminent Tony,

You should sell your Procket stock certifates on EBay. You'll probably make more money.


gotman 12/5/2012 | 1:34:10 AM
re: Cisco/Procket Deal Imminent 1. Enable new features on the 7000/12000 series?

You will see the 7xxx to 12000 product line streamlined. I can see the PR technology on some
of the new mid range routers hitting the streets near you.

2. As the new 'toaster' chip on the routers

More or less...You will see less focus on PXF :)

3. Give routing functionality to the Catalyst line

That will be down the track, the switching products are very solid.

4. Counter the 'embedded Netscreen' threat from Juniper

Nah, you will see something else which will loosen the filling out of Juniper pretty soon.

5. Give honest-to-goodness IPv6 functionality across the product line

Sure you will see that.

This will have very little impact on HFR. Two years from now it might be different. The PSE on the HFR LC is pretty advanced in its own right. It would be a good test to see them up against each other.
smpte 12/5/2012 | 1:34:11 AM
re: Cisco/Procket Deal Imminent http://newsroom.cisco.com/dlls...
xbar 12/5/2012 | 1:34:14 AM
re: Cisco/Procket Deal Imminent If the news are accurate, Acra leaves CSCO for Procket 4 months ago. Acra fires Li. CSCO buys Procket and Acra back. Weird
Tony Li 12/5/2012 | 1:34:14 AM
re: Cisco/Procket Deal Imminent I think that's not up to me and it's more of a product management decision than a technology decision.

Despite what John says, I'm sure that they will assimilate the technology somehow.

Tony
Tony Li 12/5/2012 | 1:34:15 AM
re: Cisco/Procket Deal Imminent This specific deal is (rumored to be) between Cisco and Procket. I have no connection to it other than being a stockholder in both.

Tony
maximuscomehome 12/5/2012 | 1:34:15 AM
re: Cisco/Procket Deal Imminent So Mr. Li:

Where in your minds will the procket technology fit best in the Cisco line-up

1. Enable new features on the 7000/12000 series?
2. As the new 'toaster' chip on the routers
3. Give routing functionality to the Catalyst line
4. Counter the 'embedded Netscreen' threat from Juniper
5. Give honest-to-goodness IPv6 functionality across the product line

..... come on now - it's not for the CRS-1, is it? Those guys - including the jocks still left over from the Stratum-1 acquisition - are pretty good engineers. They got that stuff under control.

It's really the non-CRS-1 router line from Cisco that needs this steriod shot.

- Massimo
SillyValleyGuy 12/5/2012 | 1:34:16 AM
re: Cisco/Procket Deal Imminent Hi Tony,
Are you going to be part of the deal?
Tony Li 12/5/2012 | 1:34:16 AM
re: Cisco/Procket Deal Imminent What OS and what processors are used in procket boxes?

Procket uses LynxOS (www.lynuxworks.com) on PPC and x86 processors.

Tony
santalk2000 12/5/2012 | 1:34:17 AM
re: Cisco/Procket Deal Imminent Now three sources ;)
http://biz.yahoo.com/rb/040616...
readingsbelieving 12/5/2012 | 1:34:18 AM
re: Cisco/Procket Deal Imminent
First it's 3:00, then it's "tonight," then it doesn't happen all night.

LR keeps us well-informed (of what, I have no idea).
edgecore 12/5/2012 | 1:34:19 AM
re: Cisco/Procket Deal Imminent What OS and what processors are used in procket boxes?

With CSCO core boxes you have a mix of MIPS and PowerPC with classic IOS on the GSR, combined with QNX based modular IOS or IOX on SMP PowerPC's for HFR.

If Cisco plans to merge any of that technology with Procket's, it could get interesting...or are the product irrelevant and it is purely a talent hunt!

EC
see_the 12/5/2012 | 1:34:20 AM
re: Cisco/Procket Deal Imminent It is 5 O'Clock somewhere (courtesy of Jimmy Buffet and Alan Jackson)

Lightreading,

You may be a dupe (or a dope)... Certainly, the 3 O'Clock was missed.... Now, is there a deal at all?? Enquiring minds want to know!?!?!!

Alpine 12/5/2012 | 1:34:20 AM
re: Cisco/Procket Deal Imminent Coreghost,

Procket raised $300m since inception including the round closed last december. The terms of that round restructured previous rounds and according to employee presentations the terms contained employee carveouts in the event of an acquisition so the employees got something. How csco treats the employees remains to be seen.

At an $80M buy out only Series D investors would probably get anything based on the december financing since the round had liquidation preferences which favored Series D. All other preferred and common would likely get nothing. Even former employees that excercised there options are likely to get zip.

Of course this is all speculation since the buyer has a big role in the term sheet of any deal.
icenine 12/5/2012 | 1:34:20 AM
re: Cisco/Procket Deal Imminent Don't know the procket specifics, but know some of the VCs. Some observations.

The paid in capital is mostly preferred. So, common has no value. And has had no value for some time. There are 2 ways people are taken care of.

One is a carve out. 10% to 15% of the purchase price may be set aside to be allocated to the people still on-board. Dooled out per the discression of the BOD / mgmt. The other way is if part of the carve out is reserved to give a few cents per share to common. This will happen if big holders of common (not options) are on the BOD. Then all common can enjoy some return.

Those very early folks who bought their common may actually get their money back. Anyone who bought after the value began to be managed up by the BOD will remain underwater.

No one will get what they planned on, but some may get a few $$.

gotman 12/5/2012 | 1:34:20 AM
re: Cisco/Procket Deal Imminent signmeup keep reading those gartner reports.
2% of what?? show me the press releases? 12 routers sold to an NRN in Australia is 2%?

Its easy to tell your not one of those talaneted people at procket.
liang 12/5/2012 | 1:34:21 AM
re: Cisco/Procket Deal Imminent Somehow I got the impression what Chambers said just put HFR's couple of hundred engineers into the "untalented" category.
maximuscomehome 12/5/2012 | 1:34:21 AM
re: Cisco/Procket Deal Imminent --" the message will be announced at 3pm today"


Do you know where your (Procket) kids are?

Massimo
chechaco 12/5/2012 | 1:34:22 AM
re: Cisco/Procket Deal Imminent Procket is selling routers - they have 2% of the market share according to gartner.
-------------
Of all routers being sold on a given month - perhaps. Of all installed base of Internet core routers - laughable.
signmeup 12/5/2012 | 1:34:23 AM
re: Cisco/Procket Deal Imminent Procket is selling routers - they have 2% of the market share according to gartner. And no, I am not being facetious, this actually is a compliment given the current core router market.

As I stated in an earlier post, there just isn't room for another core router vendor at this point. If this acquistion happens, it just reinforces the point. Good luck to the remaining core router startups and those VC's who have invested in them.

Since a good portion of the engineering talent originally came from Cisco, I'm sure they know how things work from the inside. The reason they left in the first place was to have the opportunity to build bigger and better than everything else. I don't think they need your advice on how to be successful inside of Cisco :)
gotman 12/5/2012 | 1:34:24 AM
re: Cisco/Procket Deal Imminent >>finally being slapped around by Cisco...

Slapped around? I mean what other option do they have when Procket isn't selling routers?

You make this sound like an ambush, isnG«÷t really there proactive to work at Cisco or leave and find another job? They should be thankful to Cisco if the deal falls through. Its a life line. IG«÷m sure Cisco will reward those who it sees talent in, don't you worry about that. As for those no so smart people at Cisco, well they will just be managed out. I donG«÷t think that has ever stopped. :)
signmeup 12/5/2012 | 1:34:25 AM
re: Cisco/Procket Deal Imminent Let's be absolutely clear - $80M for a company that took close to $300M means that NO ONE will be making money.

As far as those 'untalented' engineers back at Cisco, I would almost guarentee that they made MUCH more money between the employee stock plans, 401k matching, yearly bonuses, ect. than their fellows at Procket who endured layoffs, pay cuts, botched management, and finally being slapped around by Cisco...

networking_legend 12/5/2012 | 1:34:26 AM
re: Cisco/Procket Deal Imminent Needless to say, this will be closely watched
inside cisco by the "untalented" employees
who will get to do the b-team tasks suited
to those who didn't work at procket


It will be very interesting to see what Chambers does to sweeten the pot for the Procket employees (many of whom are ex-Cisco to begin with) in order to encourage them to stick around.

And what kind of message does this send to these "untalented" engineers, many of whom may have chosen to stay with Cisco during the bubble, rather than bail on the company, and try to make it rich with Procket, etc.
toonces_has_the_car 12/5/2012 | 1:34:26 AM
re: Cisco/Procket Deal Imminent It is not uncommon for the preferred shareholders to agree to waive the preference, in order to get the deal done. The thinking being "it is better to get a fraction back than nothing at all".

-toonces

coreghost 12/5/2012 | 1:34:27 AM
re: Cisco/Procket Deal Imminent Nobody knows what the stock pool for procket
looks like anymore. They raised a whole lot of
their money based on a valuation at the time of
over a billion dollars. Since then, they have
raised more money quietly and its been speculated
that there had to be substantial adjustments
to the ownership.

The investors are likely to get a fraction of
their investment back. I would guess that to
keep the employees happy, cisco will spread some
cisco stock or money around.

Needless to say, this will be closely watched
inside cisco by the "untalented" employees
who will get to do the b-team tasks suited
to those who didn't work at procket.

And Tony's leaving as far as any of the stories
to come out go had nothing to with stock.

Belzebutt 12/5/2012 | 1:34:28 AM
re: Cisco/Procket Deal Imminent Two sources close to Procket Networks Inc. have told Light Reading

Isn't always sources "close to Procket" that come up with these rumors every time an acquisition comes up? It must be so exciting for them.
Flower 12/5/2012 | 1:34:28 AM
re: Cisco/Procket Deal Imminent Many employees at Procket have bought their stock options in advance. If Procket is sold for $80M that will not be enough to pay back all investors.

If I understood correctly, the preferred stockholders will get their money first. Out of the $285M (or more) how much did the VCs and other preferred shareholders inject ? I expect nothing will be left for the non-preferred shareholders ? So people will have worked 4 or 5 years at Procket, will not get anything out of it, and will even lose the money they have invested themselves.

Might this be the reason why Tony Li left ? Because he didn't want to be responsible for this happening to the employees he helped recruit ?

I'm curious to hear the details once they get announced.
null0 12/5/2012 | 1:34:29 AM
re: Cisco/Procket Deal Imminent If this is true I suspect that the talent at procket will be more concerned about what happens to them.....
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