After selling his East Coast networking start-up, Nexabit Networks, to Lucent Technologies in 1999 amid a flurry of interest in high-speed routing technology, networking veteran Chatter left Lucent and launched a new company, taking many of his old engineers with him.
The new company, Massachusetts-based Axiowave Networks, was formed ten months after Chatter sold Nexabit to Lucent for $900 million. With Axiowave, Chatter aims to build next-generation optical networking equipment, a fast-growing market that includes heavy competition from the likes of Ciena, Nortel Networks, Cisco Systems, Corvis and other start-ups such as Tellium.
"Chatter is a good entrepreneur with a good track record in building something of great value," said Dataquest analyst Tim Smith. "Is Axiowave a slam dunk? No. There are a lot of well-funded start-ups trying to get ahead of the curve in optical, and Axiowave has some ground to make up. We have to see what they have and if it's a breakthrough technology."
With product delivery still at least a year away, the 9-month-old start-up has so far gotten the most buzz from its location and the fact that roughly one-third of its employees, or about 40 out of 120 workers, are former Nexabit staff members who became Lucent employees after the acquisition.
Chatter, however, maintains he did not solicit his old Nexabit employees from Lucent and says the fact that he set up shop a block away from the large telecommunications equipment maker is simply a coincidence.
"This was the only office space within a 30-mile range. It had nothing to do with Lucent," Chatter said, noting that the office park also includes 3Com, Ciena and other networking or communications companies.
"We did not solicit people from Lucent," Chatter said. "People wanted to come and join the team. As you work with people, you develop a bond and relationship. These are all friends. People knew about the new company, and they evaluated what's in their best interest."
The start-up is still in what the industry often calls "stealth" mode but is well-funded and has received investments from venture capitalists such as Madison Dearborn Partners and Soros Equity Fund Partners. Five of the seven Axiowave executives, including co-founder Ray Stata, are former Nexabit executives.
While Chatter declined to talk about the technology the company is building, he promised that the products will be innovative and targeted at the "core" part of the service provider network, where most Internet data travels through.
Chatter said he is hiring another 80 employees, mostly engineers, and hopes to announce hardware and software products by 2002.
Lost in the shuffle?
Analysts say Axiowave is not a sure winner because of its many optical networking competitors but, they add, Chatter has proven himself once before. In 1999, Chatter's first company, Nexabit, was one of many hot new start-ups, which included Juniper Networks and Avici Systems, gunning after Cisco in the lucrative high-speed router market. Perhaps fearing that it would get shut out of the market, Lucent bought Nexabit for $900 million on the same day Juniper went public.
Although analysts were impressed with Nexabit's technology, they say the acquisition hasn't yet translated into big bucks for Lucent.
Burton Group analyst Dave Passmore believes Nexabit's Internet-based technology hasn't sold well because Lucent in the last few years was still too focused on selling its older networking technology, such as ATM (asynchronous transfer mode) equipment. Lucent, which has struggled financially within the past year, has since embraced Internet-based equipment. But at the time Lucent was run by supporters of its ATM equipment, Passmore said.
"When they bought this IP (Internet Protocol) router, the transplant didn't take. Culturally, it was a mismatch," Passmore said.
A Lucent spokesman said the company has been shipping the Nexabit technology for more than a year. Some of the emerging service providers that have purchased the software include Winfirst and Xspedius. Lucent spent about a year tinkering and improving the Nexabit software and believes it will start reaping more revenue from the technology, the spokesman said.
"We had to rebuild the software team...and now we believe we have a stable, commercial quality release," the spokesman said. "We believe that gives us parity, from a software perspective, to Juniper."
Cementing the deal
Chatter disagrees with the notion that the Nexabit technology was faulty, saying the technology was fully ready at the time of the Lucent acquisition.
He said he sold the company to Lucent in 1999 because he believed Nexabit's technology would work hand-in-hand with Lucent's family of optical networking equipment.
Passmore believes Lucent simply made Chatter an offer he couldn't refuse.
As for leaving Lucent and starting a new company, Chatter said he misses the start-up atmosphere.
"The pace at which you move is much, much faster than you could in a larger company," Chatter said. "The decision-making tends not to be as layered. It all boils down to very quick decision-making vs. committee reviews to make a decision."
Venture capitalists who invested in Axiowave say they have a lot of confidence in Chatter.
"We think it has a terrific team, and they did great things at Nexabit, and we have confidence with what they're doing with Axiowave," said Andrew Sinwell, managing director of Madison Dearborn Partners. "We think there's tremendous growth in the optical core equipment market and that they're well positioned."