WaveSmith Gets $30M, Signs With Ciena
The news mimics the funding/distribution deal Ciena did with Équipe Communications Corp. in March 2002 (see Équipe Announces Third Round Funding, Partners with Ciena and Équipe Partners With Ciena, Scores $40M).
As with Équipe, Ciena's keeping mum on the amount of its stake in WaveSmith, saying only that it's "less than $10 million." What percentage of the startup's equity is now owned by Ciena is being kept confidential.
The round brings WaveSmith's total to $84.5 million, and execs say it will fully fund the company through 2004. Primary uses will be for ongoing operations and "selective hiring." Besides Ciena, Argonaut Private Equity Management LLC also is a new investor. Others, including Atlas Venture, Bessemer Venture Partners, and Fidelity Ventures, along with some private investors, also contributed to WaveSmith's first round.
The arrangement has potential impact in many directions: Indeed, it's a triple play of sorts. First, it extends a vital helping hand to WaveSmith, which, like Équipe or any startup in the present telecom market, needs the sponsorship of a powerful partner to succeed with incumbent carriers. For its part, Équipe can hope for a wider range of prospects, thanks to its partners. And Ciena gets to peddle a solution in multiservice switching, a market that by all accounts is a beacon of cheer in the telecom gloom (see Multiservice Switches).
Specifically, Ciena claims the deal will enable it to offer a well rounded solution tacked onto its own switches. Spokesman Glenn Jasper says Ciena can offer Équipe's 3200 core switch with its CoreDirector, for instance, and sell WaveSmith's Distributed Node (DN) in tandem with its own MetroDirector K2.
So what's not to like?
Well, there's the issue of integration. Not a problem, according to WaveSmith's CEO, Robert Dalias. "Équipe has always been a close neighbor. We've tested interoperability of our equipment. Large carriers like the solution and they're testing us together." Équipe could not be immediately reached for comment at press time, but a WaveSmith spokesman says it's familiar with the deal and has worked to create the interoperable trio.
Then there's the matter of the 800-pound multiservice gorilla, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which Dalias sees as WaveSmith's primary competitor. Still, with Ciena and Équipe in the portfolio, he's confident of winning despite Alcatel's installed base.
The key is the Ciena partnership, he says. "For the longest time, our biggest risk was the startup perception." Often, it was tough to get in to see senior people at some big prospective accounts. Now that's solved, says Dalias. Thanks to a partner with the right contacts, WaveSmith isn't dismissed as a rank beginner anymore.
Not that WaveSmith's done so badly for itself (see WaveSmith Networks). It claims to have five paying customers, three announced (see WaveSmith Wins Twice and WaveSmith Wins Customer). Still, the push into the coveted U.S. incumbent market has eluded it so far.
But another issue could lie with Ciena itself. Despite its claim that WaveSmith will sell well alongside the MetroDirector K2, some analysts have said it's a no-show in carrier networks (see Ciena's K2: What Problems?). If that's the case, it could conceivably affect Ciena's WaveSmith pitch.
Still, the possibilities the deal presents are compelling. One of these is the chance that if all goes well, Ciena might purchase WaveSmith and/or Équipe.
WaveSmith's Dalias doesn't encourage this line of thinking. "At this time, there is no commitment of any type," he says. While he acknowledges that a market upturn could change things, he thinks it will be a while before Ciena or any large company sees sufficient traction to risk an acquisition. "No one will be offering to buy us for quite awhile."
Meantime, the multiservice market's looking good, comparatively speaking. While WaveSmith and Équipe both started out pushing their platforms as Multiprotocol Label Switching (MPLS) migration boxes, it's looking as if there's a lot more life left in the legacy networks they also address (see MPLS vs ATM? Vendors Weigh In).
Dalias says vendors will need to make their solutions interoperable before MPLS takes off. "Someone has to win, someone has to decide they've lost, and someone has to play nice," he says.
In the meantime, he's focused on the business at hand. "Customers are telling us ATM, Frame Relay, circuit emulation... This market segment will grow."
— Mary Jander, Senior Editor, Light Reading
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