Nortel Folk Float to Seaway

Another chip startup has just bobbed to the surface. Earlier this week Seaway Networks Inc. announced it has locked down CDN$18 million (US$11.8 million) in its first round of funding (see Nortel Team Forms Seaway Networks).

Seaway (formerly Camelot Content Technologies) was founded in January 2001, when a group of Nortel Networks Corp. (NYSE/Toronto: NT) employees realized that the project they were working on was in jeopardy. All 13 members of the project team quit on the same day and got down to business in the living room of one of the company's founders.

Project leader David Lapp became Seaway's CTO. Kit Yung, who was formerly the VP of research and development for Nortel's Passport multiservice switch product line, also joined Seaway as president.

The project they revived was a "content processor" -- a microchip that can look deep into data packets from Layers 4-7 and manage their content without slowing down the network. Such a chip could be deployed in a variety of Web-based switches and security platforms, such as firewalls, made by companies such as Nokia Corp. (NYSE: NOK), Foundry Networks Inc., (Nasdaq: FDRY), and Extreme Networks Inc. (Nasdaq: EXTR).

Shortly after the split from Nortel, Seaway's executives managed to negotiate a technology license in return for a minority shareholding in the startup.

Nortel's decision to pull the plug on the project reflects less on the worth of the project and more on the fact that the company was on the verge of meltdown, says Steven Goodman, Seaway's VP of marketing and business development. "At some point Nortel simply stopped all development and had to hunker down and generate revenues from existing product lines," he says.

Nortel laid off about 50,000 employees globally during the course of 2001 and cancelled numerous projects, including the Xros optical switch that it had spent $1.4 billion to acquire (see Nortel Shuts Optical Switch Effort).

In contrast to Nortel's predicament, Goodman maintains that Seaway is in a good position, security being one of the few growth areas in the industry (see Security Going Strong).

In addition, he claims that Seaway has a headstart on the competition. The content processor had been under development at Nortel for over a year before the team set up on its own, and it's now getting close to being a product. The startup expects to have working silicon by the end of the year and general availability in early Q1 2003.

It's hard to tell if Seaway really is ahead of others, however, because the startup is certainly not first in the market. Established chip makers like Broadcom Corp. (Nasdaq: BRCM) and Motorola Inc. (NYSE: MOT) are the incumbents, selling security products based on general purpose CPUs, although these likely won't be as high performance as an application-specific coprocessor.

There are also plenty of startups in the same space. Some, like Corrent Corp., Hifn Inc., and NetOctave Inc. say they are already sampling chips to customers (see Gigabit Security's in the Chips). Others, including Astute Networks Inc., Cavium Networks, and Layer N Networks Inc. appear to be more early-stage.

Seaway provides more product information here: http://www.seawaynetworks.ca/app/public/architecture.cfm.

Seaway's main investors are JK&B Capital, Novacap, and seed investor Venture Coaches.

— Pauline Rigby, Senior Editor, Light Reading
http://www.lightreading.com