WaveSmith Targets Cascade Switch

WaveSmith Networks (NYSE: AMD) has an interesting plan: Hit Lucent Technologies Inc. (NYSE: LU) when it's down.

The approach: Give carriers an alternative to Lucent's carrier ATM (asynchronous transfer mode) switching products by building a competitive product that offers higher density, IP features, and open management interfaces. The primary target is the CBX 500, the carrier switching product that Lucent acquired in its purchase of Ascend/Cascade, which has been the leader in the product category.

"Carriers won't have to change the way they build networks," says Bob Dalias, WaveSmith's President, CEO, and founder, of his plans to offer an alternative to the Lucent products. "It gives us an opportunity to be a second source.

It's a similar strategic approach to the one that Juniper Networks Inc. (Nasdaq: JNPR) used to go after Cisco Systems Inc. (Nasdaq: CSCO). Juniper got its foot in the door by boosting performance of Internet core routers while at the same time offering a compatible product that could be used as a second source. The only question is whether WaveSmith's team has the wherewithal to execute in similar fashion.

Tim Kraskey, managing director at YankeeTek Ventures and a former VP of marketing at Ascend and Cascade, says it's not as easy as it sounds.

"I think they've got their work cut out for them," says Kraskey. "As a management team, executing in a tough marketplace is not going to be easy."

Indeed, WaveSmith's got competition. Of primary concern is Équipe Communications Corp., a company staffed by many of the employees from the CBX 500 team at Lucent (see Équipe Scores Another $51 Million ). And Lucent is working on a successor to the CBX 500, though many of the players involved in the orginal development of the switching platform have left the company, including those that went to Équipe.

WaveSmith says it differs from Équipe in that it's targeting a product for the network edge, rather than the core of telecommunications networks. But that may be splitting hairs. Such positioning puts WaveSmith in an awkward position between a large core switch such as Équipe's and the multitude of access and edge players.

Marketing Position There are other warning flags: WaveSmith has raised $23.5 million in venture capital so far, but that's not a huge amount for an equipment company in a funding environment that's getting tighter.

WaveSmith's products, grouped as a "WaveForm Architecture," will handle TDM (time-division multiplexing), ATM, frame relay, and IP traffic over a protocol-agnostic, packet-based switching fabric, according to WaveSmith officials. The switch will scale to 7.6 Gbit/s per one inch of rack space, and its management system is designed to accomodate standards such as CORBA, SIP, and MPLS, according to WaveSmith's management team.

Despite the challenges, analysts say the market opportunity is large.

"It's an installed base that's huge," says Scott Clavenna, of PointEast Research LLC and Light Reading's director of research, who estimates there must be tens of thousands of Cascade switches installed in telecommunications carrier networks. "Once you bought a Cascade switch, you got locked into the whole product line. It's in almost every central office in the country. The RBOCs are definitely ready for the next generation of product."

Indeed, Lucent is vulnerable in the product category (see Lucent Losing Grip on ATM Core?). The company is also undergoing a major financial and management crisis after announcing several earnings shortfalls and the resignation of former CEO Richard McGinn (see Lucent Starts Cleaning Up).

WaveSmith plans to ship a beta product in the summer and make the product fully available by the end of the year.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com
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realdeal 12/4/2012 | 8:50:34 PM
re: WaveSmith Targets Cascade Switch So which other successful companies have done this?

Did Juniper, Sonus, Cascade, Sycamore, or Redback do this???

If it were a great thing, wouldn't eveyone do it?
joey_baggadonuts 12/4/2012 | 8:50:34 PM
re: WaveSmith Targets Cascade Switch Ive seen other startups do this, to hear them tell the story, they use the money as a cushion between the A and B round so they can maximize value in B as i understand it equity wise the banks take some warrants but a small percentage so there is some dilution but sounds like <5% if they raised this money right after their first round they either knew the market was going south and wanted to wait it out or they were wicked lucky
joey_baggadonuts 12/4/2012 | 8:50:33 PM
re: WaveSmith Targets Cascade Switch Pretty much every successful company uses the debt market to finance growth, where do you think the interest charges on the balance sheet is comes from? As far as juniper, sonus sycamore and redback, the answer is yes they used mecahnisms like this, just watch the tombstone ads in redherring and you see that. Im not defending these guys I don't know why they did it but if a bank gave them more debt financing than they raised in their first equity round, they (the bank) must know something we don't.

fk 12/4/2012 | 8:50:29 PM
re: WaveSmith Targets Cascade Switch I think the implication is clear. The amount of dilution that Wavesmith would have had to take for a second round given the market conditions was more than they could stomach, due to a lower valuation by the VCs than they wanted. So they decided to take on debt instead. They are probably carrying a higher interest rate to compensate for the additional risk the bank is taking on, and this money has to be paid back, but at least they didn't have to take a lousy valuation. That would have made recruiting very difficult. Still, it seems like a stop-gap measure. With companies having trouble getting 3rd round funding right now, I hope they are managing their burn rate to have a hope of getting to a better money climate.
joey_baggadonuts 12/4/2012 | 8:50:28 PM
re: WaveSmith Targets Cascade Switch actually one of the lightreading articles talks about this http://www.lightreading.com/do...
Silvio 12/4/2012 | 8:50:25 PM
re: WaveSmith Targets Cascade Switch
>The Oz switch doesn't have a prayer of getting >out this year.

Auntie Em, Auntie Em, it's a twister, it's a twister!

Whenever it comes out, I'm sure it'll get that fine QA and support the CBX gets - just like SyCaMoRe is getting all their fine under water munchkins.

Spring will be here soon, and the poppies will grow along Robbins Way again (or inside the building if the roof keeps leaking).

bsmith 12/4/2012 | 8:50:23 PM
re: WaveSmith Targets Cascade Switch I think you hit on a good point here. I think WaveSmith saw that the VC money was drying up (and with ridiculously low valuations compared with similar companies in this space just a short time ago) and decided to bridge the gap between today and the future when the VC market opens up again. By that time, WaveSmith, using the funding wisely, will have something real and not have to give away the rest of the company to some greedy VC who cannot even spell ATM (much less MPLS).

I think these guys are right on track in what is a required space - although not necessarily the "sexy" monster box space.
bsmith 12/4/2012 | 8:50:22 PM
re: WaveSmith Targets Cascade Switch Remember that all of the intelligence of an ATM network resides on the edge - especially for value added services and MPLS. The core switches might be the muscle (but it's not that hard to create a bigger switch fabric) but all of the brains are at the edge. This is where carriers will spend their money and enable them to effectively take advantage of the "dumb" core.
yomama 12/4/2012 | 8:50:16 PM
re: WaveSmith Targets Cascade Switch There's nobody left at Robbins road in westford from cascade, never mind Ascend...over 250 engineers left INS in Westford in 2000...I think wavesmith is right on track going after the large installed base of CBX 500's....
atmforever 12/4/2012 | 8:50:15 PM
re: WaveSmith Targets Cascade Switch There may not be many Cascade Engineers left at Lucent. But they have excellent new talent, good code base, existing architectures, and most importantly a great product in the making. Having a few former Cascaders does not make these startup great companies. Its all about products and revenue.
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