Kestrel Takes Another Turn

Kestrel Solutions Inc. is changing directions -- again (see Kestrel Quietly Reconfigures).

Two months after it announced it would be acquiring the small seven-person startup Teon Optical Networks, the deal has been canceled (see Kestrel to Acquire TeON), says a source close to the company who asked to remain unnamed. Kestrel is supposedly abandoning its development of the TalonMX, a metro FDM (frequency-division multiplexing) transport product, and instead is working to shrink the technology to target the subsystem market.

According to the source, the Teon deal was called off about two weeks ago, after a month and a half of stagnant negotiations with Teon’s parent company Milcom Technologies and its technology partner Lockheed Martin Corp. When contacted by Light Reading, a Kestrel spokesperson refused to comment on any developments at the company. Milcom executives had not returned phone calls before press time.

While Kestrel may have lost Teon’s technology, it ended up keeping Martin Kaplan, the former CEO of Teon who had been appointed CEO of Kestrel after the merger was announced. Kaplan was formerly chief technology officer at Sprint Corp. (NYSE: FON) and before that worked at WorldCom Inc. (Nasdaq: WCOM). He is viewed as a key piece to Kestrel’s new restructuring. He was instrumental in developing a relationship with SBC Communications Inc. (NYSE: SBC), which had been testing the Talon product for months.

Originally, Kestrel positioned its FDM technology head-to-head against DWDM technology, saying that it was a cheaper solution for the metro network. FDM crams multiple streams of traffic into a single optical wavelength, reducing the cost of the system. Because FDM can use lower-grade fiber and a single laser, it can lower the costs of optical networks. DWDM uses multiple lasers to cram multiple wavelengths into a single, higher-quality optical fiber strand.

But Kestrel was fighting an uphill battle. DWDM had already been proven in the long-haul carrier market, and prices fell dramatically as DWDM component companies developed cheaper lasers and wider channel spacing.

“Kestrel was busy pushing the envelope on the technology, when the market was clearly focusing on cost,” says David Gross, a senior analyst with Communications Industry Researchers Inc. (CIR)

In more recent marketing efforts the company has tried to bring out the synergies between FDM and DWDM. But Gross says those efforts have also not gotten much traction.

Now, instead of building and selling large systems, Kestrel is said to be adapting the FDM technology for use in a subsystem product which could be sold to companies like Nortel Networks Corp. (NYSE/Toronto: NT), Ciena Corp. (Nasdaq: CIEN), or ONI Systems Inc. (Nasdaq: ONIS, all of which are making metro DWDM gear.

“This seems like a very sensible strategy,” says CIR's Gross. “Service providers are usually hesitant to use a proprietary technology from a startup. But FDM has some benefits, and I think if it comes in a Nortel or a Ciena product it’s much more sellable to carriers as part of a total solution.”

The big question now is whether or not the company has the resources for another attempt at refocusing its strategy. Sources close to the company says it still has about $80 million of the $187 million it had raised from venture capitalists. Layoffs have reduced the company headcount to about 100 people.

- Marguerite Reardon, Senior Editor, Light Reading

ownstock 12/4/2012 | 7:56:14 PM
re: Kestrel Takes Another Turn Gee I guess their new CEO forgot to check with you before he joined an FDM-fiber company. What was he? Some numbnut from SBC, right?

Check your Blackberry lately? There is an emergency partners meeting on Sand Hill Road. Better rev-up the Boxer and get moving...can never tell about traffic on 280 these days... Graham crackers and milk afterwards!

DWDM fiber for the last mile? Try that answer atany cable company. When they stop laughing at you, they might tell you there is more last mile analog fiber in place and working than there is OOK digital, by a long long shot.

Good luck in your investments.

roomyroom 12/4/2012 | 7:56:17 PM
re: Kestrel Takes Another Turn What's your opinion on latus and innovance.
Do thay have potential to survive
the telecom's "perfect storm".
lightreader 12/4/2012 | 7:56:18 PM
re: Kestrel Takes Another Turn centerpoint+zaffire ==
analog FDM + digital wrappers == sudden death...
or FDM amputation...

ownstock 12/4/2012 | 7:56:18 PM
re: Kestrel Takes Another Turn Making your point with some emphasis, Siemens is a big investor in Kestrel...the Sand Hill VCs stayed away when it was clear they could not steal the company away from a couple of fresh-out-of-the-box PhD's from Harris' group or LLL.

The management team was always top notch...and they recognized the trail was going to be long and hard (two words VCs fear wrt business: long and hard). One of the reasons the industrial VCs invested the way they did: reality and big scale potential.

Now the team is red hot.

Centerpoint was and is a slimy inside political steal of an original Kestrel idea. Now maybe even they can realize they are walking dead.

DWDM and FDM can live together...admittedy with some discomfort on both sides...but live together nevertheless.

About time there was some systems engineering sanity of the telecom industry.

Now if we could only chip in the pay off the debt the telecoms got themselves into with their dumb-and-expensive-to-boot DWDM systems...good thing a lot of it was fronted by the idiots who made it!

lightreader 12/4/2012 | 7:56:21 PM
re: Kestrel Takes Another Turn very very good observation....me thinks now the
VC's are looking to inveset in teleportation...
flanker 12/4/2012 | 7:56:22 PM
re: Kestrel Takes Another Turn It's ironic that silicon valley vc's have never truly broken into the "BIG BOY" market.

Lucent, Alcatel, Nortel, Marconi and Siemens will continue to dominate the core, with support from Ciena, CORV and a few Asian vendors.

Even Cisco has had trouble with core products. Makes you wonder whether sand hill will ever develop something beyond Ebay and Excite.

Wonder what they're working on now. Cold fusion?

USA 12/4/2012 | 7:56:26 PM
re: Kestrel Takes Another Turn Any service provider or carrier in their right mind wouldn't go with a OFDM solution. Who is going to support this technology a couple of years from now? You won't be able to find a support engineer anywhere who understands the Centerpoint product line or technology. The best bet is to stay with mainstream technology...
[email protected] 12/4/2012 | 7:56:29 PM
re: Kestrel Takes Another Turn Obviously not good news for CenterPoint. OFDM is a bust and they went out and bought that piece of ^%$#& called Zaffire. Then again, the marketing folks running the show up there, Rosalyn Genin, Eric Schmidt and the RHK refugee Catherine Cooke are too busy slinging the BS about their company to know that the show is over....

MrBurns 12/4/2012 | 7:56:30 PM
re: Kestrel Takes Another Turn Marty Kaplan was the closer on this long lingering relationship. He deserves credit for making some very tangible progress in a very short time compared to his predecesor. The others talked - he delivered.

It's that attitude that is infusing the company with some much needed enthusiasm. MB
ownstock 12/4/2012 | 7:56:33 PM
re: Kestrel Takes Another Turn This is a great move...too bad it took so long. Another good move is here:


...which is where Kestrel started off, sort of. Good luck guys.

ngotb 12/4/2012 | 7:56:35 PM
re: Kestrel Takes Another Turn
If Kaplan came recently and was earlier involved with Sprint..., it seems strange that he is credited with SBC!!
gea 12/4/2012 | 7:56:36 PM
re: Kestrel Takes Another Turn Finally! An OCDMA or FDM company finally started to understand the role of that technology. It was dumb for them to hype it as VS WDM, as it is ultimately compatible. Rather, it is potentially a very nice way to pack up a single wavelength with various forms of traffic, without incurring the normal TDM multiplexing inefficiencies.

Kestrel and others should have done this earlier, and if they license this technology to others (and if it really is cheaper and not too fragile optically), they could do quite well.
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