IPOptical Fades, Hyperchip Feasts

One startup’s loss is another’s gain.

Last Friday, IPOptical Inc. shed its employees and closed up shop. Within days, competitor Hyperchip Inc. had hired about 20 percent of IPOptical's software engineers and announced the opening of a U.S. division, which just happens to be right up the street from IPOptical's former office in Dulles, Va.

”We’ve probably increased our bench by 30 percent, which is pretty amazing in this business," says Richard Norman, president and CTO of Hyperchip "We hate to call it ‘cherry picking’, but that’s what it was. We hired people who were heavily involved with customers that were high up on our list."

Most of Hyperchip’s new hires are software engineers, says one IPOptical source. This looks to be a good move for Hyperchip, which has strong hardware expertise but has been criticized for basing its routing software on open-source code (see Hyperchip Hypes Its Hardware).

“Hyperchip seems to have the hardware nailed down,” says a former IPOptical employee, who didn’t want his name used. “But I know for a fact that they are weak in software. That’s why they’ve come to us.”

Hyperchip originally started out developing a high-speed packet forwarding processor. It is now building a core IP router that it claims scales to petabits of capacity. The company showed off a prototype at the Supercomm tradeshow in Atlanta last month (see Hyperchip to Unveil Core Router).

IPOptical’s story is a familiar one these days. The company was formed back in the spring of 2000, when Alex Mondrus, the company’s CEO, left Alcatel SA (NYSE: ALA; Paris: CGEP:PA). It raised $14 million in its first round of funding and was burning through its cash at the modest rate of $1.1 million a month. Back in December it settled a long legal battle with Alcatel over intellectual property (see Alcatel Settles Suit for a Chunk of Startup).

The company was able to attract well known service provider executives like Mike O’Dell and Kevin Boyne from UUNet. Supposedly, the company already had $25 million lined up from a few investors, but it couldn’t find a lead investor (see IPOptical Races the Clock). By mid-June it became apparent that it was too late to salvage the company. Finally, last Friday, executives laid off all 90 employees and shut the doors for good.

“We just ran out of time,” says Sasmith Reddi, former director of marketing for IPOptical. “Everyone was sure that the funding was going to come through.”

IPOptical isn’t the only core routing company to go out of business in the last nine months. IronBridge Networks, based in Massachusetts, had been working on its core router for two years when it was forced to close its doors due to funding issues (see IronBridge Has Fallen Down).

The big question now is whether Hyperchip will succumb to the same fate. Stephen Kamman of CIBC World Markets says that Hyperchip is in good shape. Its architecture is different enough to battle incumbent equipment providers like Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), he says. And with over $100 million in funding, the company should have plenty of cash to complete product development.

“They’ve gone from being dismissed as pure fiction just a few months ago, to people criticizing their software development,” he says. “They’ve had a lot of movement in the last few months.”

Kamman says traffic demands are continuing to grow, with traffic at the edge pushing the need for more capacity in the core. This is good news for Hyperchip and other startups like Caspian Networks, Pluris Inc., and Procket Networks Inc., that have already been funded. But newer startups will likely have a tough time finding cash, just as IPOptical did.

“Timing is absolutely fundamental here,” says Kamman. “Providers will really be looking to upgrade their backbones in late 2002. And if you want to play in that market you need to have a working product ready. If not, you’ll miss the window of opportunity.”

Want to know more? The big cheeses of the optical networking industry will be discussing this very topic in a session at Opticon 2001, Light Reading's annual conference, being held in San Jose, California, August 13-16. Check it out at Opticon2001.

-- Marguerite Reardon, Senior Editor, and Phil Harvey, Senior Editor,
Light Reading
http://www.lightreading.com