Inkra Sells Some Switches

Data-center switch maker Inkra Networks finally has a customer. After boasting for months of beta customers and OEM deals, Inkra announced today that it has signed a multimillion-dollar purchase agreement with Savvis Communications (Nasdaq: SVVS) (see Inkra Gets Savvis as Customer).

Savvis, a service provider that has been beta testing Inkra’s 4000 Virtual Service Switch (VSS) since February, plans to use the switch to virtualize managed IP services such as firewalls and load balancing in its data centers worldwide, according to the companies. Four of the switches will be delivered immediately, and Savvis says it expects to roll out its first intelligent hosting customer for the VSS by the end of the third quarter 2002.

Though the buyer isn't exactly AT&T, a paying customer gives Inkra signs of life. Following the rapid demise of Nexsi, Inkra's main (some say only) competitor, in April, many observers questioned the company’s chances of survival (see Nexsi Hits the Exit). While Inkra has claimed to have many beta customers for its 4000 and 1500 switches, and it has announced several OEM deals in Asia, this is the first announced customer deal (see Inkra Virtualizes Data Center and NEC Distributes Inkra).

"It certainly speaks volumes to validating these types of products," says HTRC Group LLC analyst Greg Howard. “I really think they will [make it] -- especially in this environment where pricing is a huge issue."

“The fact that a major service provider is betting on their product is a good sign for Inkra,” concurs Infonetics Research Inc. analyst Michael Howard. Inkra aims to virtualize, and thus simplify, the extreme complexity of the data center. Instead of each customer in the data center having its own dedicated equipment, Inkra’s switches enable customers to turn on IP services through software commands. Using ASIC-based processors and software, the switch can create “virtual racks” for data-center customers; and by using a feature called HardWall, the switch ensures that each customer’s virtual rack is inaccessible from other virtual racks (see Inkra Intros VSS Family).

“It allows us to scale from hundreds to thousands [of customers] without all the junk,” Rob McCormick, CEO of Savvis, says. “It fits right in our boxes.” He claims that both the one-time cost of installing the box and the ongoing operational costs are only about one tenth the price of Savvis's former solution.

Previously, McCormick says, the service provider basically had to duct-tape together a bunch of best-in-class boxes, setting up separate systems for each and every customer. “That really cuts into your operating and service expenses,” he says. “[Inkra’s] is just a much cleaner solution.”

Savvis is a service provider in "survival mode," with its stock trading at less than 50 cents a share. The publicly traded company recently took steps to shore up its balance sheet by selling off nearly half the company to investors in exchange for an investment of $158 million (see Savvis: Safe for Now). But recently it's been angling for a turnaround. In its first quarter this year, Savvis actually saw its revenues increase by 4 percent compared to the same period last year, and it reports being cash-flow positive.

McCormick says that Savvis, which concentrates on intelligent hosting services, had been looking for the past two years for a switch that would help it simplify its data centers, but that Inkra was the first company it actually found capable of doing it.

However, more competition may be on the way. Word on the street is that Nauticus Networks Inc., which also appears to be making data-center switches, will be announcing a product before the end of the year, which could threaten Inkra’s dominance in the market.

One major question for Inkra is whether it has enough cash to finish the job, or whether it might have to go back for more funding.

Recent signs indicate it may need more money. Inkra recently pled "lack of resources" in declining to participate in Light Reading's Layer 7 switch test, despite the fact that Light Reading was paying for the test. The company said it couldn’t afford to provide the equipment necessary, since it needs all of its equipment for customers. “It would require that we have a system free for that time period,” says Inkra's cofounder and VP of marketing Dave Roberts, “and right now customers are our first priority.”

Inkra is privately held and hasn’t revealed how much cash it has on the books. But the company hasn’t made a funding announcement since it was founded in May of 2000, when it pulled in $36.5 million – a little more than a third of what Nexsi received before closing down.

Roberts, however, claims that Inkra has a completely different business model than Nexsi had. “We’ve done very well with cash management,” he says. “Our 2000 cash lasted for over two years.” He says the company is looking for additional funding, and that he expects it will get it. “VCs very much appreciate fiscal responsibility."

— Eugénie Larson, Reporter, Light Reading

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