Is the Bloom off Jasmine?

Jasmine Networks could be wilting as fast as it blossomed. The company has already lost its CEO and laid off about 25 percent of its workers; now it's about to lose a key vice president. It's put out a press release to clarify some of the changes (see Jasmine Retrenches).

Light Reading confirmed earlier this week that Venkata V. Chalam, vice president of engineering, is leaving his post as of April 1st. Before going to Jasmine, Chalam had been vice president of engineering at Inrange Technologies Corp., and he also held positions at DSC Communications Corp. and Texas Instruments Inc..

Srinivasarao Neelamraju (also known as N.S. Rao), the current CTO, will now wear two hats as he takes over as acting VP of engineering, replacing Chalam, according to the release.

But Chalam isn’t the only one bailing out on Jasmine. Sources close to the company told Light Reading that Jasmine had laid off about 40 percent of its work force last Friday. In the press release, the company said the figure is closer to 25 percent. The Richardson, Texas, office was hit the hardest, as the company reduced the workforce there to “only critical job functions." After the restructuring and consolidation, Jasmine now has approximately 180 employees, according to the release.

Ravi Dattatreya, Jasmine’s chief executive officer, was asked to step down from his position about two weeks ago, say sources. Allan Tessler, chairman and CEO of JNet Enterprises, a venture investor in Jasmine, has been named interim CEO. Dattatreya, who is a founder of the company, is now the vice chairman of the board of directors, according to the release.

Officials at Jasmine say the reduction in staffing is a response to the overall market slowdown in capital expenditures from prospective customers.

“While we believe that the ultimate demand for our products remains strong, we expect that the sales cycles may be pushed out into the first half of 2002,” said Chandra Mouli Ramani, vice president of business development, in the prepared statement.

But a source close to the company says that Chalam’s departure, the firing of Dattatreya, and the massive layoff are all the result of an OEM deal the company cut with Nortel Networks Corp. (NYSE/Toronto: NT) back in July 2000.

According to the source, Jasmine put aside its initial plan to build a next-generation Sonet and IP switch to rival those from Cyras (now Ciena Corp. [Nasdaq: CIEN]), Cisco Systems Inc. (Nasdaq: CSCO), and Redback Networks Inc. (Nasdaq: RBAK), when it was approached by Nortel to build an OC48/OC192 multiplexer to fit into the optical transport product portfolio that Nortel had acquired from Qtera.

The $90 million in venture money, which was originally raised for the development of a next-generation Sonet product, was instead used to develop the Nortel multiplexer.

“The product that has been developed is simply a dumb OC48/OC192 multiplexer,” says the source. “It has nothing to do with the original product plan. There’s no add-drop muxing capability, no production schemes. It takes OC48 in and it comes out at OC192, that’s it."

The multiplexer, which is expected to begin shipping under the Nortel label by the end of next month, was supposed to provide Jasmine with a lucrative revenue stream that could be used to help fund the development of other, more cutting-edge projects. But back in late November, Nortel first reported that it was experiencing a slowdown in its optical business (see Nortel's Fright Night). With each Nortel warning since then, it became apparent to Jasmine’s investors that Nortel would not be buying as many products as Jasmine had initially hoped for, says the source.

“They spent too much money building this product,” he explains. “And the board was unhappy that the revenue expectation wouldn’t be fulfilled, so they asked Dattatreya to leave. Someone had to take the blame, I guess.”

Investors are reluctant to finance another round, and the company is being forced to cut back, hence the reduction in workforce. As for Chalam’s departure, the source says that he has become disillusioned by Jasmine’s lack of focus and is currently looking for another job.

A Jasmine spokesperson said that the company could not comment on the reseller aggreement with Nortel, because it has signed non-disclosure agreements with all of its potential customers. But he did say that the company has not changed its product vision.

At first, Jasmine seemed to have the right mix of technical expertise and Wall Street ties (see Jasmine: Wall Street's Way to San Jose). Before founding the startup, Jasmine’s chairman and director of the board, E.S.P. Das, was vice-chairman of investment banking at Merrill Lynch & Co. Inc. (NYSE: MER). Dattatreya had previous stints as senior vice president at Sumitomo Bank Capital Markets, as well as with Prudential Securities and Goldman Sachs & Co. (NYSE: GS). On the technical side, N. S. Rao worked at Cerent (now Cisco) and Cyras (now Ciena). And Mouli Ramani worked at Nortel for eight years, where he rose through the ranks to VP of strategic marketing for optical Internet products.

The common criticism of Jasmine was that it was a financing play coming late to the market to capitalize on the success of startups such as Cerent, Siara, and Cyras, all of which were sold to larger companies for multiple billions of dollars. Now that the stock market has cooled, the prospects for a quick sale -- or IPO -- have evaporated.

-- Marguerite Reardon, senior editor, Light Reading http://www.lightreading.com