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Optical/IP

Procket Plows On

Procket Networks Inc. is at a turning point, and it looks as if the next 12 months could determine its survival.

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

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skeptic 12/4/2012 | 11:37:59 PM
re: Procket Plows On
- If they do another round, the entire ownership
of the company is going to have to be revisited.
Short of a washout, I dont see how they raise
more money. But they have to start now and
without a CEO, its likely to be a process
where the investors don't even pretend to listen
to anyone.

- 40 million isn't very much. I would assume
that they are still at or over 5 million a month
burn rate. Even at 4 million, thats ten months.
And because of their COT strategy with ASICs
they have a huge fixed overhead thats going to
be difficult to cut back on without crippling
the company. AND they are still months away
(by their roadmaps) from having all the basic
software features they need.

- Five million a quarter in sales is *unlikely*
to be the real number. And short of customer
announcements (not integrators), its not worth
talking about.

- Procket is not well positioned to meet the
needs of gigbe. There are only two vendors
who are strongly positioned for gigbe. (and
neither is a startup). And even with a partner,
they would have to find a partner with an IP
product line already. The government might
as well have already decided.
drone387 12/4/2012 | 11:37:54 PM
re: Procket Plows On "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 itGÇÖs not yet desperate for cash, interim CEO Paul Matteucci, a partner with one of ProcketGÇÖs investors, U.S. Venture Partners, is trying to raise another round of funding to secure the companyGÇÖs future. "

+

"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. "

=

Big Layoff, 50%+

reoptic 12/4/2012 | 11:37:51 PM
re: Procket Plows On The money is almost gone. The CEO is slashing and burning. The h/w isn't done as most ports are missing. The s/w features aren't there. They have no real competitive advantage.

Many have predicted this would be one of the great overhyped flameouts, and it seems right on schedule. On VC hypesters and LR seem to think these guys have any chance. Procket will follow Pluris to the grave.
awgn 12/4/2012 | 11:37:50 PM
re: Procket Plows On You just don't get it, current evaluation of Cisco is based on it demonstrating revenue (and profit if margins are stable) growth in excess of 15-20%. Clearly that ain't going ot happen.

Do I see a crash landing in Cisco stock.
nbwaite 12/4/2012 | 11:37:50 PM
re: Procket Plows On The article has:

_____The company has completed its core routing product and is
_____trying to compete with Cisco Systems Inc. (Nasdaq: CSCO -
_____message board) and Juniper Networks Inc. (Nasdaq: JNPR -
_____message board) in what continues to be a sluggish carrier
_____spending environment.

For the "sluggish carrier spending environment", I'm trying to
understand the reality, not the passion, pathos, poignancy,
poetry, angst, trajedy, disappointment, agony of defeat, human
experience and emotion -- the reality, just the objective
reality, please.

So for the "sluggish carrier spending environment", do you
have some supporting objective third party numerical data with
references to primary sources that prove your claim?

The article has to do with sales of routers and in particular
in competition with Cisco and Juniper. So, let's look at the
revenue of Cisco. We can use the Internet for this, right?

Then, in the Cisco 10-K report of September 18th, 2002 and in
their 8-K report of August 5th, 2003, both available at the
SEC Edgar Web site, can see:

_________________________________Total_Net_Sales
_____________As_of_Date_______________(Millions)
__________-------------___________--------------
__________July_26,_2003__________________$18,878
__________July_27,_2002__________________$18,915
__________July_28,_2001__________________$22,293
__________July_29,_2000__________________$18,928
__________July_31,_1999__________________$12,173
__________July_25,_1998___________________$8,489

So, this data indicates that Cisco's sales have been quite
steady over the past four years except for a blip up near the
end of the Nasdaq bubble in 2000. No evidence of "sluggish"
here.

For the "sluggish carrier spending environment" beyond just
routers and Cisco, in the UBS Warburg report of June 3rd,
2003, 'Broadband Moving to the Front Burner', there is:

_____Table_4:_Global_Carrier_Capital_Spending_and_Telecom
_____Equipment_Sales_($_millions)
_
__________________________2000_____2001____2002E____2003E____2004E
_____Global_Capex_____$252,387_$240,639_$167,181_$156,130_$153,867
_____Y/Y_Growth______________________5%______31%_______7%_______1%
_
_____Global_Telecom____146.423__119,246___83,012___74,436___73,819
_____Equipment_Sales
_____Y/Y_Growth_____________________19%______31%______10%_______1%
_
_____Note:_Includes_UBS_Warburg_coverage_companies_only.

Here we see a decline from the bubble year of 2000 but still,
in 2003, $156 B (billion) and $74 B, lot of money on any
scale.

Will look forward to the supporting objective third party
numerical data with references to primary sources that prove
your claim.

Strutting and fretting on the stage -- can't use that.
signmeup 12/4/2012 | 11:37:44 PM
re: Procket Plows On >The article has to do with sales of routers and in particular in competition with Cisco and Juniper.

No, this article has to do with the sell of CORE routers, in particular competition with Cisco and Juniper.

If you were to actually look deeper into the numbers you spouted, you would see that Cisco's profits are primarly derived from enterprise customers who don't need core routers. So you are comparing apples to oranges.

Redo you numbers for ONLY the 12xxx series routers sold in the last quarter and you will see a very different number. Don't forget that Cisco is the incumbent here and will continue to generate sales based on its legacy installed base.
signmeup 12/4/2012 | 11:37:43 PM
re: Procket Plows On >The money is almost gone. The CEO is slashing and burning. The h/w isn't done as most ports are missing. The s/w features aren't there. They have no real competitive advantage.


reoptic, this is not the first time nor the last time I suspect that you will throw out dire predictions and observations with nothing to support your position. $40m in the bank with another round on the way does NOT sound to me like the money is almost gone.

Since you appear to have an inside scoop on Procket, please do tell what hw and sw features are missing that are required in order for Procket to win business? While you are at it, please also explain to us as to what a real competitive advantage is in this economy?

mrcasual 12/4/2012 | 11:37:42 PM
re: Procket Plows On $40m in the bank with another round on the way does NOT sound to me like the money is almost gone.


I'm guessing you haven't been through a lot of funding rounds by your comment.

Until the new money is securely in the bank it is not a done deal. Even then there is nothing preventing the investors from taking it back if they feel things aren't going well.
signmeup 12/4/2012 | 11:37:42 PM
re: Procket Plows On Actually I have and nothing about my statement is to the contrary. The article clearly states that the original investors are comfortable going for another round - does that sound like they are about to pull the plug?

I really love it when people try to belittle others by saying things like "I'm guessing you haven't been through a lot of funding rounds by your comment" without ever knowing a single thing about the person they are referring to. For example, you have absolutely no idea who I am or what I do for a living. It could be that my entire job is centered on helping startups secure funding - in that case your statement would pretty much make you look like a moron.
mrcasual 12/4/2012 | 11:37:41 PM
re: Procket Plows On If you say you've been through funding rounds that's fine.

My point was that there are many examples of statements that mirror what is being said about Procket and securing new funding that have been made in the past year only to be followed up by the company NOT getting funding and shutting down.

Just this week Ceyba shut down and not too many months ago new funding was a sure thing.

I stand by my original statement, don't count on it until the money is actually in the bank. Putting credence in statements about money being a sure thing, especially when they come from the CEO, are naive at best.
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