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The Hammer Falls at Hammerhead

Hammerhead Systems Inc. is shutting down after failing to land a buyer, Light Reading has learned.

The edge aggregation company had been trying to strike up a deal for months, but the global recession cut down any chance it had left.

The last of Hammerhead's negotiations ended Wednesday afternoon. CEO and founder Rob Keil tells Light Reading that the company is now closing and preparing to sell off its assets.

"We had been in an M&A process for a very long time; in fact, we started late summer," Keil says. "We had carrier interest, but unfortunately, we were not able to get it over the finish line. As the economy got worse, the prospective buyers got more conservative and risk-averse."

As startups go, Hammerhead had a good run, securing four carrier customers, including, as rumor had it, Verizon Enterprise Solutions . (See Swimming With Hammerhead and Has Hammerhead Nailed Verizon?)

Two of them had even signed contracts to use Hammerhead's HSX 6000, an aggregation box for merging various traffic types onto Multiprotocol Label Switching (MPLS) using pseudowires. (See Hammerhead Retools MPLS Approach.)

But when it came to actually deploying the equipment, the carriers wanted Hammerhead to have a large company as a partner.

"In this economic climate, more than most times, they wanted the comfort that there was financial stability behind any company they would buy from," Keil says.

An OEM partnership with Fujitsu Network Communications Inc. dissolved in 2007 for reasons Keil wouldn't discuss. And that left Hammerhead in a hammerlock, because other potential partners wanted to see carrier deployments.

One reason for all this was that Hammerhead wasn't building a teeny access box that a carrier could just try on a whim. The HSX 6000 carries a six-figure kind of price tag. "There's a much bigger commitment, even though it's edge aggregation, because it's much deeper inside the infrastructure. Many carriers had been burned in the last bubble when startups didn't make it through."

Hammerhead's life was difficult even when it won business. One person familiar with the company says Hammerhead had to win one deal at least three times, as executive and board changes kept resulting in the bidding process restarting.

"It took a while for our product to find its place, but this year was when customers started to realize they wanted to deploy a Layer 2 edge box," says Keil. "It'll be one of the areas carriers are spending money in, this year and next."

Hammerhead raised more than $100 million in venture money, with backers including big names like Mayfield . It entered this year with 50 employees, including many who'd been with the company since its inception in 2002.

"I'm looking out as much as I can for what I think is a very talented team. There are certainly pockets of opportunity. There are pockets of hiring."

— Craig Matsumoto, West Coast Editor, Light Reading

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