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Tachion Tackles Its Critics

Light Reading
News Analysis
Light Reading
11/17/2000

Is broadband switch maker Tachion Networks circling the drain or just winding up? It depends on who you ask. Tachion's competitors allege that its product is in bad shape, there's high turnover amongst its engineering team, and it's looking to sell out before it ships a product. Tachion counters that its product development is going well, it's hiring like mad, and it's looking forward to an initial public offering within a year.

Tachion CEO Jeff Matros believes an upcoming $75 million round of investment, to be closed shortly, will silence the critics. The round will include venture capitalists and carriers, he says. Tachion has raised just over $49 million to date, according to Venture Economics.

It's probably closer to the truth to say Tachion's growing pains, however severe, are symbolic of what equipment startups will be dealing with so long as the stock market frowns on telecom firms with no revenues and slipping product schedules -- even those with barrels full of vision (see IPO Filter Gets Finer and Optical IPOs Hang at the Gate).

"We're 60 days away from [booking] our first revenues, and that's several months later than we had originally hoped," says Matros. "We're probably going through the same thing that most privately held companies in our space go through. We underestimated the complexity of the customer features that are required when you build a network versus the requirements that you have when you're just a bunch of guys in a basement building a better mousetrap."

Indeed, at least two of the guys who started building Tachion's product in a basement years ago have left the firm to start another yet-to-be-named optical networking outfit. Tachion co-founder Sunil Malhotra left during the summer, and Satish M. Sharma left last month -- though he retains a board seat.

Among Tachion's fits and starts were plans for an IPO that never materialized because of product delays and a hostile stock market. "We were planning on going public in the fall of this year, and we had expectations of having this product generally deployed," says Peter Benedict, a Tachion spokesperson. "That could be some of the reason that some people are leaving and others are coming in."

A few weeks ago, when it was clear that an IPO was months away, Tachion laid off nine people. Among those let go were five information systems employees, two security guards, and a credit manager, says Matros. "We had hired people to scale our company's infrastructure, rather than hiring people to help us build our product."

Still, Matros denies competitors' claims that Tachion is hemorrhaging engineers. "Though we had to lay nine people off, we actually have 20 more employees today than we did when we laid them off," he says. Tachion currently employs 225 people.

"We've got about 50 requisitions open right now, and it is very easy to get people to come over here from Lucent Technologies Inc. (NYSE: LU) and AT&T Corp. (NYSE: T)," Matros says (see Ex-Lucent Exec Joins Tachion). "Even the people who have been there for quite some time have recognized that with their stock underwater and with them not working on exciting technology, they can just walk across the street."

A Lucent spokesperson declined to respond directly to Matros's remarks, noting that it's only been recently that Lucent's attrition rate has equaled the industry average.

One thing's for sure, Tachion won't die of loneliness when its product does ship into the marketplace. The company's product competes with offerings from Lucent, Nortel Networks Corp. (NYSE/Toronto: NT), Convergent Networks Inc., Sonus Networks Inc. (Nasdaq: SONS), Santera Systems Inc., Telica Inc., and Oresis, which is rumored to be close to closing a mezzanine round of funding this month (see Convergent Heads for IPO, Santera Launches Multiservice Switch, and Telica Launches Convergence Switch).

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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