The current economic slowdown is taking a further toll on optical startups. Not a week goes by without news of more once-promising companies hitting hard times or going out of business. Recent examples include the demise of Zenastra Photonics (see Zenastra Photonics: RIP) as well as losses in the startup stables of Wu-Fu Chen and The Iris Group (see Wu-Fu Chen Startups Hit the Skids and Iris Group Wilts; Metera Next to Shutter).

This week's barely begun, but at least two companies are showing up on the startup distress list. This afternoon, Caspian Networks (see Caspian Networks), the terabit switch startup founded by Internet luminary Larry Roberts, laid off 30 people, roughly 10 percent of its workforce.

"This move won't affect our product delivery schedule," says spokesman Dallas Kachan. "We've taken some modest reductions to increase our efficiency and cut our burn rate." While Kachan acknowledges that most of the cuts are coming from engineering, he says the company still plans product availability for mid-2002.

Meanwhile, rumors are circulating that Jasmine Networks also has hit hard times. Founded in November 1999, the ASIC-based multiprotocol switch startup already has been through substantial layoffs and management changes.

Sources say most of Jasmine's $72 million in venture capital was spent on a project for Nortel Networks Corp. (NYSE/Toronto: NT). Now Nortel seems to have cut back its orders, leaving Jasmine in the lurch (see Is the Bloom off Jasmine?).

But just what's going on is tough to determine. Contacts didn't return calls at press time, and the phones appear to be in automated attendant mode.

Analysts say stories like these will no doubt be repeated, as companies struggle with the present cutbacks in venture spending and capital buildouts.

"A year ago, I would have said a startup with problems was a sign that a company's product wasn't working or that the market wasn't there. Now I think it's a sign of the times," says Christopher Nicoll, director at Current Analysis.

Nicoll says layoffs and worse will continue in this environment because spending is depressed. Still, it's important to keep a perspective. Layoffs aren't necessarily a sign of pending demise. Much has to do with the size of the layoff. "If a firm's laying off 10 to 30 percent of staff, I'd say it's probably a sign they're trying to cut expenses to bridge the time until the next funding round," he notes. More than that, however, may indicate something is fundamentally awry with the business.

In contrast, startups that don't lay off, even in this environment, can be commended. Nicoll says those are the ones that have made the best choices about building their companies.

In the current atmosphere, it's not surprising layoff rumors abound, some of them apparently groundless. Today, for instance, sources at LuxN Inc. and Yafo Networks denied rumors that are circulating that there have been layoffs at the companies.

LuxN spokesman Rich Farana says there have been no recent layoffs, although he acknowledges there was a "minor layoff" of an undisclosed number of employees at the company six months ago. He says the company's been hiring and continues to develop its enterprise and metro DWDM gear (see LuxN Goes Metro).

Yafo has a similar response: "I can't comment on funding plans, but there have been no layoffs here," says Yafo spokesman Jeff Ferry. He suggests that rumors may have been planted by folk jealous of Yafo's recent praise from market researchers. Yafo makes polarization mode dispersion compensators that bolt onto existing DWDM equipment (see Can Yafo Lift Speed Limits?).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com