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Zhone to Buy Gluon Scraps

Light Reading
News Analysis
Light Reading
1/29/2004

Zhone Technologies Inc. (Nasdaq: ZHNE) is in the process of negotiating a price for the assets of Gluon Networks, Light Reading sources say. The ink isn't dry yet, so specific financial details aren't available. But one former employee of Gluon reckons the deal will close soon, as the talks have been going on since early December 2003.

Representatives of Zhone and Gluon were phoned on Thursday, but neither party called back.

Zhone's product portfolio is a grab bag of access products, include three generations of digital loop carriers (DLCs), a central office DSLAM, and some transport gear. Recently added were a core optical switch and a yet-to-be-discussed metro switching product from Zhone's acquisition of Tellium (see Tellium, Zhone to Merge).

Gluon, which recently closed, had barely begun to ship its CLX product, a next-generation, packet-based Class 5 switch that was meant to compete with the likes of Taqua Inc. and Tekelec Inc. (Nasdaq: TKLC), while uprooting switches from Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT). The company had raised more than $76 million since its inception in 1999.

Our sources say Zhone has recruited and is making offers to about 30 of the 60 employees that were cut on Gluon's final day of business (see Headcount: Job Makers, Deal Breakers). Most of those being recruited are engineers, a source close to Zhone says.

The good news for Zhone is there is definitely a market for Gluon's gear. There are about 1,300 carriers in the U.S., with an installed base of about 24,000 local phone switches, according to industry analyst Kermit Ross, principal of Millennium Marketing.

The next replacement wave of these switches, which includes the conversion from circuit to packet technology, has already begun and will run its course over the next 15 to 20 years, exhausting some $40 billion in capital, writes Ross in his report, "A Switch to Packet: U.S. Central Office Switch Market Brief."

Indeed, carriers want packet-based switches, but some argue they're not beating down the door just yet. A source close to Taqua says that in the fourth quarter, that company sold one packet interface card out of 25 new customer orders.

The bad news for Zhone is that the company isn't getting any cash in the deal, as it did with its Tellium buy. Instead, it's taking on yet another cash drain in the form of more employees and another product line with no significant customers.

— Phil Harvey, News Editor, Light Reading

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truelight
truelight
12/5/2012 | 2:33:32 AM
re: Zhone to Buy Gluon Scraps
It is remarkable that Zhone as a public company is allowed to do this. After buying up Tellium they took the cash forgave all the loans to the top execs and then fired everyone. Can someone verify this.

Good luck to the Gluon folks - try not to come "unglued" from Zhone.
rbkoontz
rbkoontz
12/5/2012 | 2:33:29 AM
re: Zhone to Buy Gluon Scraps
Zhone, the junkyard of failed telecom products, strikes again. Gluon has been at it for almost 3 yrs, has a product that doesn't work, close to zero customers, but got a big funding round completed in 2003, and still struck out. Everyone was amzazed they lasted as long as they did. The reason is this small ILEC market cannot profitably support more than a single product line from a single vendor. The 2nd vendor in will lose money - and so on... Instead, we have 10 products from 10 start-ups, killing themselves to become the king of the IOCs.

If you recall, this is the 2nd softswitch Zhoned has purchased. This first one was obviously a miserable failure. I think they paid a good chunk of cash for it in 2001.

Good luck kids.
alchemy
alchemy
12/5/2012 | 2:33:22 AM
re: Zhone to Buy Gluon Scraps
Most Wanted writes:
The reason is this small ILEC market cannot profitably support more than a single product line from a single vendor. The 2nd vendor in will lose money - and so on... Instead, we have 10 products from 10 start-ups, killing themselves to become the king of the IOCs.

My thoughts exactly. You'd think that the holy grail is the true Class 5 replacement. The support contracts and other operating expenses like labor, heating & cooling, and the sheer cost of maintaining those huge buildings must be huge. If you could forklift out a #5ESS or DMS-100 and replace it with a box that fits in a rack or two, you'd pay for it in a couple of years in the savings on your Lucent or Nortel service contract. It's the same metaphor as replacing your machine room full of old mainframes with a 19" rack full of Dells. There must be an awful lot of fully depreciated big class 5 switches out there that are just aching to be replaced.
morye
morye
12/5/2012 | 2:33:09 AM
re: Zhone to Buy Gluon Scraps
That is all I need to say...
sevenbrooks
sevenbrooks
12/5/2012 | 2:33:08 AM
re: Zhone to Buy Gluon Scraps

Mory knows how to line his pockets. That is all I need to say....loaning your own company money at usary rates?

seven
coco channel
coco channel
12/5/2012 | 2:32:55 AM
re: Zhone to Buy Gluon Scraps
"If you could forklift out a #5ESS or DMS-100 and replace it with a box that fits in a rack or two, you'd pay for it in a couple of years in the savings"

The telcos don't see this because they use "telecom consultants" from intelectual hotbeds like South Dakota?? as seeing eye dogs to guide them. And those guys couldn't see in front of their nose.
sevenbrooks
sevenbrooks
12/5/2012 | 2:32:45 AM
re: Zhone to Buy Gluon Scraps

The folks from South Dakota require one thing that Gluon doesn't have.....a working product that meets there requirements.

seven
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