Procket Plows On
The company has completed its core routing product and is trying to compete with Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) in what continues to be a sluggish carrier spending environment.
But an outrageously high cash burn-rate and internal turmoil at the executive level are dark clouds, as Procket tries to win new business (see Procket Faces Tough CEO Search). For now, insiders say, there's progress.
For one thing, the money situation looks tenable. Procket still has over $40 million of the $272 million it has raised since its founding. While it’s not yet desperate for cash, interim CEO Paul Matteucci, a partner with one of Procket’s investors, U.S. Venture Partners, is trying to raise another round of funding to secure the company’s future.
While the term sheet hasn't been finalized and the amount isn't yet known, current investors have already committed to pouring enough cash into Procket to fund it for at least the next year, says one source.
"They're definitely not closing down anytime soon," the source says. "Matteucci has assessed the situation and made some changes, but the investors are committed to moving forward."
Meanwhile, Matteucci's focused on getting costs down. As acting CEO of the company since Randall Kruepp left back in June (see Procket CEO Resigns), his top priority -- besides helping find a permanent CEO -- is slashing the current $5 million to $6 million per month burn rate, say sources close to the company.
So far, Matteucci has kept the 250-person headcount relatively steady. Still, the mood at Procket is a nervous one, say insiders. Silicon Valley recruiters and Procket competitors report an increased volume of Procket employees looking for work over the past few weeks.
At least one top executive (besides Kruepp) has already left the company. Deborah Ablahat-Cipriano, formerly vice president of sales and marketing, is now at Proxim Corp. (Nasdaq: PROX), a wireless LAN equipment maker. The publicly traded company, headed up by ex-Nortel executive Frank Plastina, announced on its quarterly earnings call back in July that Ablahat-Cipriano had joined the team.
In the meantime, Procket continues to get good sales traction overseas, especially in Asia, say sources. The company has supposedly been generating about $5 million per quarter for the past two quarters, with sales mostly in Asia. Procket has been working with three Japanese integrators: Net One Systems Co. Ltd., NTTPC Communications Inc., and Tokyo Electron Ltd. (see Procket Makes a Splash in Japan). And it’s reportedly addressing government and university opportunities in Japan as well.
In the U.S. prospects have been less rosy. While it’s still focused on the service provider market, Procket also is starting to explore opportunities in government, namely (where else?) the U.S. Defense Information Systems Agency’s Global Information Grid Bandwidth Expansion (GIG-BE) request for proposal (see DISA Deal D-Day Approaches). But even though its router is well positioned to meet the needs of the RFP, without a partnership Procket has little chance of winning this business, say industry observers.
"It's difficult for a small startup to win a contract like this," says Erik Suppiger, an analyst with Pacific Growth Equities Inc. "The government requires its suppliers to have substantial financial resources, which is difficult for a startup." The company had been rumored to be in partnership talks with Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Siemens AG (NYSE: SI; Frankfurt: SIE) at various points, but so far no deal has been struck with any of them (see Will Nortel Pick Procket? ).
— Marguerite Reardon, Senior Editor, Light Reading