Hammerhead Nails $25M

Hammerhead Systems Inc. smells blood in the edge services market

The Mountain View, Calif., company today announced that it’s landed a Series B round worth $25 million, money it will use to come to market with a new edge services product designed to replace aging ATM and Frame Relay gear made by incumbents such as Lucent Technologies Inc. (NYSE: LU) and Cisco Systems Inc. (Nasdaq: CSCO). (See Hammerhead Secures $25M.)

The product, which is in carrier trials and currently being referred to as the “Migration Edge Switch” by Hammerhead, connects Frame Relay, Asynchronous Transfer Mode (ATM), and Ethernet services over Multiprotocol Label Switching (MPLS) or ATM backbones. Hammerhead’s betting that service providers will be willing to upgrade to more economical and flexible networking gear for their ATM and Frame Relay networks.

Hammerhead officials claim their product will deliver 10 times to 30 times the density of existing Layer 2 equipment and reduce costs by 30 percent. The product has a particular emphasis on improving density for Frame Relay services.

Hammerhead claims one “Tier 1 RBOC” and a “network service operator” as trial customers but will not name them. Hammerhead may find a captive audience. Major carriers such as Verizon Communications Inc. (NYSE: VZ) and SBC Communications Inc. (NYSE: SBC) have been interested in upgrading their aging ATM and Frame Relay networks, and sources say they’ve been struggling to find the right product. The leading incumbents in this area are Lucent, which got into the market by aquiring Ascend Communications in 1999, and Cisco, which gained a foothold in the ATM and Frame Relay switching market when it acquired Stratacom in 1996.

Many analysts believe this is a golden opportunity for startups -- because they’re stepping into a market that’s being slowly abandoned by the large incumbents.

“If you think of every Lucent CBX customer, one thing they clearly have on their Christmas list is a follow-on product in that market,” says Geoff Bennett, chief technologist of Heavy Reading, Light Reading's paid research division. “If somebody wants to jump in that space, I’m sure the customers would be delighted."

Rob Keil, Hammerhead’s VP of marketing, says the incumbents have left an opening in the market by not having the proper products.

“None of the incumbents invested in Frame Relay, and startups such as Wavesmith did not optimize for it,” says Keil, who believes that Hammerhead’s product has the “killer economics” to become the next-generation box.

Hammerhead’s CEO, Joe Sigrist, was the president of edge access sytems at Lucent and VP of product management for Ascend’s remote access business. Keil was a senior group manager of Cisco’s Multiservice Switching Business unit before becoming VP of marketing at now-defunct optical networking startup Zaffire.

Hammerhead’s investors include Foundation Capital, Mayfield, Enterprise Partners Venture Capital, and Lighthouse Capital Partners, which have Hammerhead board members with experience in the edge services markets. Bill Stensrud, a partner at Enterprise, was formerly a founding VP of marketing and business development for Stratacom; Kevin Fong, from Mayfield, invested in Crescendo (acquired by Cisco) and Redback Networks Inc. (Nasdaq: RBAK).

So is Hammerhead the Frame Relay and ATM version of the Cerent story? (Cerent was a startup that found success by upgrading Sonet networks with a more economical box [see Was Cerent Worth It?]). Some venture capitalists who passed on this deal say the big question is whether incumbents are willing to spend money to upgrade their Frame Relay networks.

Hammerhead will likely need to forge a partnership with a deep-pocketed partner willing to resell the product, if it gains sufficient interest from service providers, which generally don’t like buying from startups.

The answers could come soon. Sources say that Verizon -- which may be one of the “Tier 1” carriers that Hammerhead’s targeting -- is actively looking for a product in Hammerhead’s market, and it’s likely to decide soon whether the startup’s worth hammering out a deal with a reseller.

(Hammerhead System is not related to Hammerhead Networks, an IP software firm acquired by Cisco Systems in may 2002 [see Cisco Buys Hammerhead, Navarro].)

— R. Scott Raynovich, US Editor, Light Reading

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truelight 12/5/2012 | 2:36:10 AM
re: Hammerhead Nails $25M True - Laurel looks good and way ahead.

The founders of Hammerhead came from Zaffire - which is not stellar credentials. Hey but they got the monies - good luck to them.

eieio 12/5/2012 | 2:36:10 AM
re: Hammerhead Nails $25M Yawn ... take a look at the product brochure from Laurel Networks, same product way way way ahead of Hammerhead ... how do you say ... take a look at Level3's L2 offerings ... they are based on Laurel's product.

whyiswhy 12/5/2012 | 2:36:05 AM
re: Hammerhead Nails $25M VC's is stupid, and add desperate these days. It never ceases to amaze me that what amounts to a few FPGA designs can get pitched as "revolutionary technology".

Sort of like Starbucks coming up with the idea of cold coffee drinks and spinning it out as their "new technology base". Wow, they got blenders and an ice machine! Killer!

Hammerhead: aptly named for the hammering they are going to get rolling out their product (with no new technology) against the big (and long established) boys.

A few more like this and we might create some jobs for US engineers. Not long lasting jobs, but jobs. Sorry for the rant, and good luck to the guys at Hammerhead.

rbkoontz 12/5/2012 | 2:36:02 AM
re: Hammerhead Nails $25M Talk about money burning a hole...

In case someone hadn't noticed, the IXCs and CLECs are toast - but they are happy to trial products for free! New data infrastructure opportunity is exclusively an RBOC game. Problem is - RBOCs don't buy from startups any more. That door is closed for a long long time.

H-head's only opportunity is to get a big partner (maybe 5 viable in the world now - LU, NT, ALA, JNPR, CSCO). So, with valuations so low and big vendors with all the leverage in any deal, VC's will be lucky to get their investment back with extreme success here...
silent mariner 12/5/2012 | 2:36:02 AM
re: Hammerhead Nails $25M Laurel makes a router, not a switch. Maybe you need some coffee.
eieio 12/5/2012 | 2:36:02 AM
re: Hammerhead Nails $25M A router can also switch but a switch will never route.
Let's not trip up on "marketing" terms.
silent mariner 12/5/2012 | 2:36:01 AM
re: Hammerhead Nails $25M if a router could be used as a switch in a carrier network, they would be used to do so. They are not. it is more than semantics. There may be a piece of the network where Laurel and a switch would overlap, but in most applications they will not.
silent mariner 12/5/2012 | 2:36:01 AM
re: Hammerhead Nails $25M it seems to me that the some of the incumbants misjudged the market. Lucent had this product area covered, but has cancelled all product development except for one product which is not GA. Some carriers have been displacing LU for this reason with follow-on Newbridge equipment from ALA. It does not look like this company is pitching revolutionary technology but is pitching timely availability of a next-gen version of existing products. seems to me that that is how you sell a product to a carrier. they do need a big brother to invest and to assist. I see no mention of one.
silent mariner 12/5/2012 | 2:36:00 AM
re: Hammerhead Nails $25M vivace, timetra and wavesmith all went for 150+ million early to middle of last year while market capitalizations for the sector were significantly lower. fyi...
truelight 12/5/2012 | 2:35:59 AM
re: Hammerhead Nails $25M The founders of Hammerhead came from Zaffire - which is not stellar credentials.

Lets be brutal they failed in optics and now they are going to try their hands at switching - what a joke. To the VC your "duped" and will regret it and finally see these guys are not background in this space that may help you get some backbone.

Prediction - H-head is toast before they get out the box. Engineers don't work to hard just enought ot keep them off your backs......or you'll get layed off in the downturn as the hamemr falls!.

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