Is World Wide Packets Inc. preparing for a fire sale? This week the company, which is focused on providing 10-gigabit Ethernet switching in the metropolitan area network, laid off most of its marketing team, including the vice president of that group along with the vice president of sales.

So far, the list of casualties is a short one: only about seven employees out of approximately 200. But it isn’t the number that is troubling about these layoffs -- rather it's who has been laid off.

Octavio J. Morales, vice president of marketing, was let go along with two directors of marketing, Steve Thieme director of outbound marketing and Robin Thoth, director of marketing programs, along with three others in marketing and public relations. Only a few positions in marketing still remain, including a trade show and marketing coordinator and a customer marketing person. Those left behind will now report to Tom Johns, vice president of market development.

Bill Galvin, vice president of sales was also laid off on Monday, signaling to some left behind that more cuts in sales could be on the way. The company currently employs about 17 sales people worldwide. Eileen DeArmon, director of external affairs for World Wide Packets confirmed that layoffs had occurred, but she refused to discuss details. As for further cuts, she also wouldn’t comment on specifics.

“Everyone has been affected by the downturn,” says DeArmon. “We are making the rational decisions that are necessary to survive in this environment. We will continue to respond to the market and the requirements of our current business plan.”

Despite a spate of other startup layoffs recently, at least one worker from World Wide Packets says she was taken completely by surprise. She says that management had continually reassured employees during company meetings and in employee newsletters that the company was in fine fiscal fettle.

“They said that even though the market has been down, customers are still coming and investors were still very interested in us,” says Nancy Goodspeed, who was public relations manager for World Wide Packets before she was laid off on Monday. “Then on Monday Dave Curry [president] brought me into his office and the story completely changed. He said they were having a horrible time raising money and had to take drastic measures.”

World Wide Packets had raised an initial investor round of $20 million back in July of 2000 and a venture-backed round for $44 million in January 2001. With a $3 million-a-month burn rate, the company is fast approaching the end of its cash stream, say sources close to the company. Some have even speculated that World Wide Packets could be out of money by the end of October.

What’s next for World Wide Packets? Considering that marketing has almost been eliminated and the sales team has lost its vice president, it looks as though management is preparing to sell the company, say sources.

This would make sense, given its founders’ past experiences. Bernard Daines, co-founder, CEO, and CTO, has led two companies through acquisitions. First, he sold Grand Junction to Cisco Systems Inc. (Nasdaq: CSCO) back in 1995 for about $345 million; and then in 1998 he sold Packet Engines, a gigabit Ethernet switching company to Alcatel SA (NYSE: ALA; Paris: CGEP:PA) for $315 million. Alcatel has actually discontinued work on the Packet Engines project, and Daines has just settled a lawsuit with the company over issues associated with that acquisition (see Alcatel Settles with Daines). And Dave Curry, another founder and the president of the firm, sold his company, Architel, to Nortel Networks Corp. (NYSE/Toronto: NT) last year for $395 million.

But times are different now, and most large public companies aren’t interested even in fire sales. Nortel is definitely out of the acquisition game, given its most recent bloody earnings pre-announcement (see Nortel: Can This Company Be Saved?). Lucent Technologies Inc. (NYSE: LU) and Alcatel have also been struggling through the capital spending crunch and don’t appear to be looking to acquire startups at the moment.

That leaves Cisco, which has said it plans to start acquisitions again. But World Wide Packets is not a likely candidate given that Cisco has just rolled out a series of additions to its current routing product line to address the metro Ethernet market (see Cisco Storms the Metro Edge). What’s more, just this week it announced products specifically addressing the 10-gigabit Ethernet market for the metro, the same market World Wide Packets is targeting.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com