IronBridge, which has built a high-speed networking device that would compete against Cisco Systems and Juniper Networks, laid off 170 employees Monday because the company could not secure an extra $100 million in financing, said Doug Antaya, IronBridge's vice president of marketing. A small crew of about 15 to 20 employees still remain, he said.
The three-year-old start-up, which claims to have two telecommunications service providers testing its products, needs the extra funding to manufacture its products and to increase its marketing and sales staff, Antaya said. The company said the $100 million in funding fell through in early December because venture capitalists became skittish about the current state of the technology market, he said.
Analysts say IronBridge is the latest victim of the downturn in the overall technology sector, where a raft of companies have missed financial earnings and stock prices have plummeted. Networking companies have not been immune to financial woes, with 3Com, Lucent Technologies and Foundry Networks announcing profit warnings last quarter.
"The product is there. The market is there. But the other leg of the stool is financing, and it's unfortunate our timing is poor," Antaya said.
RHK analyst Tracey Vanik said IronBridge has built technology that would compete well in a market dominated by Cisco and Juniper. IronBridge's high-end router is aimed at telecommunications carriers, and Internet service providers build faster networks. Routers help direct Net traffic over a network at high speeds.
IronBridge, partly owned by French telecommunications equipment maker Alcatel, is hoping to enter a market that is expected to grow from $4.5 billion in 2001 to $12.7 billion by 2003, according to RHK, a market research firm. Other players entering the market include Foundry, Lucent Technologies and Avici Systems.
"They are an unfortunate casualty because they have a lot of good technology," Vanik said. "It just needed money to start manufacturing at the end of this quarter. They are so close to getting the product out. This is a company that should be funded."
Antaya, whose company was hoping to eventually hold an initial public offering, said venture capitalists became jittery after watching rival start-up Avici's stock drop from a high of $174.50 to a low of $16.25 late last year. Avici's stock has since climbed back to the mid-30s.
"Based on Avici's (stock price in December), the investors didn't see the return they were looking for," Antaya said.
With the venture capitalists pulling out of a deal, Antaya said the company is exploring all options, including seeking funding from other investors, finding a buyer, or simply closing up shop.
"It's day to day. We're monitoring the situation and working with our board to get direction," he said.
Alcatel owns about a 40 percent stake in IronBridge, stemming from its acquisition of Newbridge Networks last year. Newbridge was an early investor in IronBridge. In fact, former Newbridge Chief Executive Terry Matthews is IronBridge's chairman.
Antaya would not speculate whether Alcatel would step in and save the start-up. Alcatel executives could not be reached for immediate comment. Alcatel doesn't necessarily need IronBridge's technology because the company has its own internal project to develop a high-end router.
Antaya said IronBridge had been working to decrease Alcatel's stake in the company through the $100 million in extra venture capital funding it was seeking. Such a move would allow IronBridge to appear more independent and make it easier for the start-up to strike partnerships and deals with other companies who may compete against Alcatel, he said.
"They have their own program (to build a high-end router) and have invested a significant amount of time in it," he said. "We were hoping to take additional funding to dilute their stake."