2000 was a tumultuous year for Sorrento Networks Inc. Now, that could be costing it top talent. According to industry recruiters, as many as 30 engineers could be leaving the company by the end of Q1 2001.

Company executives said that they haven’t seen any signs of a mass exodus. “The fact is that we have been growing as a company,” said Dick Jacobson, general counsel for Osicom Technologies Inc. (Nasdaq: FIBR), Sorrento’s parent company. “We haven’t seen any massive defections, and we don’t expect any.”

Sorrento, which focuses on metropolitan-area dense wavelength-division multiplexing (DWDM) technology, was formed about a year ago as a subsidiary of Osicom and was being groomed to be spun out into an initial public offering. But in September Osicom changed its strategy completely. Instead of having an IPO, it decided to hold onto Sorrento, spin off its other two subsidiaries, and rename itself Sorrento Corp. (see Osicom Investors Rebel). Shareholders will vote on renaming the company on January 17, 2001.

Current hostile market conditions make the prospects of any optical IPO look bleak, as other startups have realised (see Anda Networks Withdraws IPO Filing). Further, according to the proxy that the company filed with the Securities and Exchange Commission, an IPO was going to cost shareholders too much money due to taxes.

Osicom says that a new name is needed to show investors that it is focusing on optical networking. "We are proposing that our name be changed to Sorrento NetworksCorporation to more closely identify us with our optical networking unit,” says the proxy.

Will investors really buy into the new name? “It’s more psychological than anything else,” said Joe Gladue, director of research for The Chapman Company. “It’s more form than substance. There are some people who held onto Osicom stock for a long time and it didn’t go anywhere. I’m sure they’ll be happy to put the Osicom name behind them.”

But it seems as though Sorrento/Osicom’s flip-flopping strategy has made some engineers uneasy.

“They feel as thought they have been lied to,” said one recruiter, who didn’t want his name used. “And they are looking to get out.”

For its part, the company says that it’s actually growing its head count. In November it reported a total of 220, of which 89 are in R&D. Jim Dixon, president and COO of Sorrento, who just joined the company in November, also said that the company has added even more employees recently, bringing the head count closer to 240, with four new engineers starting just in the last two weeks (see Osicom Hires New President and COO).

But despite the company’s growth, he also admitted that Osicom/Sorrento has lost a few employees recently, which he attributed to a December 15 vesting date. The company decided to accelerate the three-year vesting plan and allow employees to vest a portion of their options in December.

While the company has clearly abandoned any plans for an IPO in the near future, Dixon said he would not rule it out altogether for some later date. For this reason, the company is offering employees the option of either converting their Sorrento Inc. options into Sorrento Corp./old Osicom shares or they can hold onto the private Sorrento Inc. options. Why? In the event that Sorrento spins out its private subsidiary, those employees would have the pre-IPO options.

“I never say never,” said Dixon. “Who knows what will happen with the IPO market in the coming year?”

The company will have to raise money somehow in the next six to 12 months, say analysts. And one of the obvious possibilities for doing this is a public offering.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com