Lucent Ditches Chromatis

Lucent Technologies Inc. (NYSE: LU) has confirmed the closure of Chromatis Networks, the wavelength-division multiplexing startup it purchased in May 2000 for $4.5 billion (see Lucent Catches Chromatis).

The closure involves the layoff of about 150 employees, Lucent says. Most of these are R&D folk located at Chromatis's former headquarters in Petah Tikva, Israel, but a handful of engineers also have been let go at Lucent facilities in Herndon, Va. The company hasn't said whether any closure of buildings or offices will accompany the layoffs.

Lucent plans to discontinue its line of Metropolis MSX gear, which came from Chromatis. The company's other DWDM and next-generation Sonet platforms will continue to be sold under the Metropolis brand.

"This is part of our Phase II restructuring effort. We're resetting our priorities and making difficult decisions in order to focus our efforts on our largest service-provider customers," says Lucent spokesman Frank Briamonte.

The world's largest carriers are still buying telecom products despite the slowdown, but they weren't buying the Chromatis products, Briamonte says.

The news has been greeted by investors as yet another step in the right direction for Lucent, which in the past few weeks has managed to rework its credit agreements, launch a successful bond offer, and garner cautiously positive ratings from influential analysts (see Levy's Lucent Call Boosts Stock, Lucent Boosted by Bond Offering, and Lucent Breaks Through on Covenants). As this went to press, Lucent's shares were trading at $7.48, up 0.15 (2.05%).

Today's news is no surprise to anyone familiar with the long, sad saga of the Lucent/Chromatis relationship. Indeed, the deal has become a textbook example of how mergers and acquisitions were misguided and mismanaged under the executive team led by ousted CEO Rich McGinn.

A variety of sources say Lucent's biggest misstep wasn't buying Chromatis, which already had a metro WDM product ready to hand. The trouble arose when Lucent tried to integrate the box with in-house gear -- and with another recently acquired metro box from Ignitus Communications LLC (see Lucent Ignites ATM).

Months later, the integration effort had yielded little more than questions, arguments, and even lawsuits (see Tales of Lucent: Readers Respond and Lucent, Chromatis & Ignitus: A True Tale?). After awhile, Lucent quietly put the brakes on the Ignitus effort and seemed intent on making a go of the Chromatis wares.

But to little avail. Lucent had already lost significant ground in the metro market, and by early 2001 Lucent folded its Metropolitan Optical Networking unit back into the overall Optical Networking division. Bob Barron, the former CEO of Chromatis, left Lucent in April (see Lucent Metro Boss Leaves) and appears to be heading into a new job soon (see LightCross Taps Former Chromatis CEO).

Other Chromatis veterans say they have no regrets. "It is a very unfortunate situation, but the bottom line is that I understand Lucent's decision from a business perspective," says Doug Green, former VP of marketing at Chromatis and presently VP of marketing at Ocular Networks Inc. "Lucent is trying to restructure to be more efficient, and they had in Chromatis a standalone, single product laboratory in Israel."

He says one could argue a lot of reasons why the Chromatis product never took off, including the many Lucent reorganizations that took place during the product's tenure, as well as Chromatis's dependency on multiple technologies: "The market is moving away from 'god boxes' and the Chromatis product certainly depended a lot on the value of integrating DWDM, ATM, and TDM."

Lucent says it's holding onto the intellectual property it acquired with Chromatis and has no plans to sell it at this point.

— Mary Jander, Senior Editor, Light Reading
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happyone 12/4/2012 | 7:37:28 PM
re: Lucent Ditches Chromatis Not only did their customer get screwed, their employees and the vendors got screwed.

Litigious societies breed people like the current President, who shall remain nameless. The nameless one decided to go after former employees for trying to make a living after Neptec folded (right!).

I for one am waiting for the other shoe to drop on this new incarnation. I will be patient for the President to meet his just rewards.

opticalc 12/4/2012 | 7:51:17 PM
re: Lucent Ditches Chromatis Consider it as a donation of 4.5 Billion to Israel.
lightmaster 12/4/2012 | 7:52:25 PM
re: Lucent Ditches Chromatis
"So why would Alidian and Astral more likely to fail???"

IMO, there are a lot of product reasons I could list, but the obvious problem is that these two companies have been around since before Chromatis and still have not gone anywhere with their products. What VC in their right mind would continue to give them $$$ when they have each spent $100M without getting anywhere?

Then again, there are plenty of VCs that aren't in their right mind. They'll both probably announce new funding shortly ;)
whoknowsnothing 12/4/2012 | 7:52:26 PM
re: Lucent Ditches Chromatis So why would Alidian and Astral more likely to fail???
my2cents 12/4/2012 | 7:52:44 PM
re: Lucent Ditches Chromatis While some of these companies will clearly not make it, however having zero revenue does not mean that they all are worthless.

Cisco would have appeared on such a list a year or two after its founding, and the VCs know that.

It's interesting to get the Silicon Valley (i.e., no carrier experience) take on the supplier market. What are the combined revenues of these companies? Zero?

lightmaster 12/4/2012 | 7:52:44 PM
re: Lucent Ditches Chromatis Flanker,

Your point about companies with no carrier experience in general may be valid, but you have not done your homework on the companies you listed. Get your facts straight if you want them to support your thesis. Based on 1. Silicon Valley 2. No carrier experience :

Chromatis: wrong on both counts: based in Israel, the R&D team was led by individuals from ECI telecom.

Alidian: Right on both points

Astral: Based in Boston, carrier experience from the datacom side (Cascade), which is probably just as bad a no carrier experience if you are selling transport equipment (Tried to use ATM for TDM applications).

Mahi: Silicon valley, correct. But lots of carrier experience from AFC, and largely financed in their second round by carriers.

Atoga: Right on both points

Gotham: (see Astral, ditto). May succeed in selling to the datacom side as an ATM switch replacement if they get the software right.

Ocular: Located in Northern Viginia, leaders from Bell Labs, Alcatel, Tellabs, Ciena.

I do agree with your point in general. In fact, the two with the most carrier experience, Mahi and Ocular, are two I would watch closely over the next 6 months.

lightmaster 12/4/2012 | 7:52:44 PM
re: Lucent Ditches Chromatis my2cnets said: "While some of these companies will clearly not make it, however having zero revenue does not mean that they all are worthless."

IMO, the two companies on the list who have reported some revenue (Astral and Alidian) are lowest on the list in terms of "likely to succeed".
flanker 12/4/2012 | 7:52:51 PM
re: Lucent Ditches Chromatis "Also why the broad brush on Silicon Valley?"

A lot of money went into firms with little or no revenues. Secondly, the mentality that 'we know better than the ILECs' is trademark Sandhill Road.
Were these not the same VCs who going to conquer the world 18 months ago? Finally, someone else on this thread has already said that the carriers are not listening anymore. There is no 'god box' business model.

There is such a thing as service differentiation.

Finally, I've worked both funds and start ups, and the arrogance that was bred during the NASDAQ run up did not serve anyone well. The VCs showed they were more interested in shifting early stage company risk to the public markets than they were in building real companies.

sonet49er 12/4/2012 | 7:52:52 PM
re: Lucent Ditches Chromatis Why are Astral & Mahi listed twice?

Also why the broad brush on Silicon Valley?
I can maybe see why you would not know that Petaluma, CA is not part of Silicon Valley but Chromatis had headquarters in Herndon, VA & a research facility in Tel Aviv. Astral Point is based in Chelmsford, MA & Gotham Networks is based in Acton, MA.
flanker 12/4/2012 | 7:52:54 PM
re: Lucent Ditches Chromatis It's interesting to get the Silicon Valley (i.e., no carrier experience) take on the supplier market. What are the combined revenues of these companies? Zero?

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