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Out of Atrica

Light Reading
News Analysis
Light Reading
9/18/2000
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A gigabit Ethernet startup founded by 3Com Corp. (Nasdaq: COMS) could give its troubled parent a much needed shot in the arm.

Atrica Inc. was founded by 3Com in February 2000 with $4 million in seed funding. Today, the startup announced it's garnered $16 million more in a second round of funding led by Accel Partners, Benchmark Capital, and Innovacom, a venture funding subsidiary of international carrier France Telecom. With 70 employees, which it claims are divided roughly half and half between software and hardware engineers, Atrica plans to unveil its first products early in 2001.

The startup also announced that Eric Benhamou, 3Com's CEO, will join Atrica's board "pending approval by board resolution." It's highly unlikely that he will be refused admission.

Atrica's charter is to bring high-speed optical Ethernet to metropolitan area networks -- supplanting Sonet/SDH. The gigabit Ethernet route is being embraced by other equipment startups, including World Wide Packets Inc., as well as a range of carriers, such as Yipes Communications Inc.. Gigabit Ethernet also is a major focus for component suppliers. (See Infineon Gets 10-Gig Boost, Intel Out for Broadcom Blood, and Broadcom Buys Its Way In.)

The startup says its particular approach involves creating customer premises equipment and central-office switching gear that supports gigabit Ethernet and 10-Gbit/s Ethernet, but with a difference -- namely, traffic control capabilities. Atrica says the new gear will give carriers a way to guarantee service levels, control quality-of-service parameters, and ensure rapid reconfiguration and remote troubleshooting in case of outages.

Atrica could give 3Com a boost. This summer, 3Com's stock fell sharply in the wake of huge quarterly losses (specifically, 3Com reported on June 27 that sales had decreased 33 percent sequentially, and net loss was $147 million for the quarter, or 42 cents per share). Benhamou has started a program to revamp the product line, cut jobs, and redirect the company's mission. Benhamou also started Atrica, which represents 3Com's first foray into optical networking.

Since 3Com owns less than 20 percent of Atrica, it's unlikely that 3Com investors will be able to benefit from a "back door" strategy if Atrica issues an IPO. (See Investors Head for Luminent's Back Door for a recent example of such a strategy.) Still, if it's successful, Atrica could benefit 3Com as a business partner.

Atrica also just might offer an interesting lifeboat for Benhamou, should things get worse at 3Com.

Despite 3Com's problems, Atrica's benefited from its parentage. First, it got ready-made management: Founders Avinoam Rubinstain, Zvika Bronstein, and Amir Lahat all come from Nicecom, an Ethernet switching startup acquired by 3Com serveral years back. Atrica also got an international start: Thanks to 3Com, it's been able to launch offices in Israel and Paris as well as San Jose. Most importantly, Atrica got an "in" with France Telecom, which has invested in the startup and also plans to trial its early products.

But success isn't guaranteed. Atrica faces a slew of competitors in the metro space, and it's not certain if its strategy will succeed. "Atrica has a good background in Ethernet and IP, but the question is whether they can put the two together in a product that's competitive with those of other emerging vendors," says Chris Nicoll, VP at Current Analysis. He notes that voice, not data, is also a key money-maker for most carriers, so having some Sonet and voice support is becoming a selling point for emerging platforms from the likes of Astral Point and Cyras Systems Inc..

Atrica says it plans to give carriers a "migration strategy" for replacing Sonet with Ethernet. It won't say exactly what that means at this point, but if the startup doesn't provide support for Sonet and voice, that could hinder its chances against those emerging vendors that include Sonet and voice in their strategies.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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