Massachusetts startup Tenor Networks Inc. laid off about 50 people yesterday morning, or roughly 40 percent of its staff. The company is now down to 71 employees from about 120, say sources close to the company.

Tenor executives confirmed that there was a layoff but would not give numbers. David Tolwinski, the company's president and CEO, blames the reductions on continued uncertainty in the service provider market. The company also confirmed that it has closed down its development facility in Edinburgh, Scotland. The Edinburgh facility, which had opened up in March 2001, handled Asynchronous Transfer Mode (ATM) and routing protocol developments (see Tenor Opens in Scotland).

“The best advice we could get from experts is that carriers won’t start spending again until 2004,” says Tolwinski. “So we have to conserve cash. We have enough belief in our product and the feature set that we will still come out ahead when the market gets going again.”

So Tenor is buckling down in hopes of riding out the telecom slump -- although company officials recently insisted the company is not pursuing a "hibernation" strategy (see Bear Market Inspires Hibernation).

But despite the obvious problem of the carrier spending slump, Tenor's struggles also raise questions about the necessity of a distinct switch for delivering Multiprotocol Label Switching (MPLS) technology. The MPLS switch market, which looked promising back in 1999 and 2000, seems to have faded, as core routing vendors like Juniper Networks Inc. (Nasdaq: JNPR) and Cisco Systems Inc. (Nasdaq: CSCO) include MPLS technology in their gear. Tolwinski acknowledges that these other players have complicated the marketplace, but he claims that Tenor’s offering is differentiated enough that service providers will still need to buy Tenor gear.

“I’m sorry that the MPLS market didn’t develop into its own market,” he says. “But an MPLS switch like ours is still relevant and important. I saw the other MPLS implementations from competitors at the Supercomm demo and -- believe me -- ours is a lot more stable.”

Tenor’s MPLS switch, which it says has been generally available since last year, was part of the 21-vendor MPLS demonstration at Supercomm last week (see MPLS Forum Hosts Superdemo). The product is testing in at least three or four major carrier networks, says Tolwinski. But so far the company has not generated any revenue from these tests nor has it been able to secure any type of commitment contract.

Tenor hasn’t closed a round of funding since May 2000, although at that time it was one of the last of the communications startups to score big before the downturn. It raised $93 million in its third round of funding, bringing the total raised to $120 million. The company, which has never seen its headcount go above 150 employees, laid off about 10 percent of its workers back in May of last year (see Telecom Woes Prompt More Layoffs).

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com