Amy,
You know the communications sector. What do you think about this company?
H&Q report: Nexabit is cool to the core
By Peter D. Henig
Red Herring
April 30, 1999
"Being at the core of the network is cool," says Mukesh Chatter, CEO of Nexabit Networks, a next-generation terabit-speed router company that presented this week at Hambrecht & Quist's Technology Conference.
"It's not like making modems," Mr. Chatter says. "If the core of the network goes down, just try using your American Express card. ... The implications are huge."
Nexabit's story could be one of the most interesting, if not the most unbelievable, at the conference. Doubters still find it difficult to believe that this small startup out of Needham, Massachusetts, could have actually built a router 160 times faster than anything on the market.
"What we needed was a breakthrough in technology. ... The electronics needed to catch up with the optics," says the CEO. "We are that breakthrough."
Despite what critics are saying, Mr. Chatter is brimming with confidence that his ultra-fast combined switch-router in a box will live up to its 6.4 terabit-per-second-per-chassis switching capacity. He is predicting already that the beta testing currently taking place will prove him right.
EQUAL OPPORTUNITIES
"I'm positive that no one has a monopoly on virtues and innovation," says Nexabit's CEO. Mr. Chatter believes his 110-person firm has more than a fighting chance against Cisco Systems (Nasdaq : csco), Lucent (NYSE : lu), and Nortel Networks (NYSE : nt) -- not to mention other next-generation router companies like Juniper Networks, Avici Systems, and NetCore Systems -- that are gunning for the core of the network.
While critics currently claim that terabit speeds are unimportant because the market hasn't yet demanded such performance -- an argument that Cisco has often used to defend its position that its routers need only to be as fast as its customers require -- Mr. Chatter says that reasoning is flat wrong.
"People says it's not important, but it's the only thing that's important ... Instead of looking at the engine, they say, 'Don't look under the hood, buy this cute knob or nice stereo'," says the CEO. "But if there was no demand, why would we have interest from our beta testers?"
Although Nexabit won't reveal which carriers are testing the terabit boxes, sources confirm that AT&T (NYSE : t) and Frontier Communications (NYSE : fro) have expressed interest, and Qwest Communications (Nasdaq : qwst) is on deck for trials in the future.
"The carriers need a solution today because the onslaught of bandwidth is huge," says Mr. Chatter. "Either they go with us, or wait for the bigger players who may or may not have a product."
"When you're a small company, you go through three phases. ... First they laugh at you, then there's jealousy, then there's guarded admiration, and I suspect the fourth phase will be us saying, 'I told you so'," says the CEO, breaking into a wide and satisfied grin.
CROWN PRINCE
Normally, small companies making large claims about breakthrough technology several orders of magnitude ahead of the goliaths of an industry would be shrugged off without a second thought. That's clearly not happening with Nexabit, however.
Conference-goers have either already heard of Nexabit or are fascinated to learn about the company. The consensus, says one attendee, "is if they're a real threat to Cisco, Cisco will buy them."
Yet Nexabit might not be for sale. The company is eyeing a possible IPO in the first quarter of next year, while flying high with some serious funding from Paul Allen's Vulcan Ventures and Fidelity Investments. It is concentrating on staying independent and partnering with the right players.
Citing forecasts from San Francisco research firm RHK that the core switch and router market will reach $5.4 billion by 2003, Mr. Chatter argues that "the one who's going to win this war is the one who will have core optical technology, core ATM technology, and core IP technology ... and the capability to integrate all of it."
Mr. Chatter asserts that Cisco's next-generation routers are 32 times slower than Nexabit's current product and that Cisco only has the IP leg of the core technology tripod. He is convinced that healthy partnerships with the likes of Lucent, a company that has both multiplexer optics and ATM switches, could create a single dominant player at the core of the network.
"There's definitely a need for a partnership among the players who do IP routing, ATM switches, and optical technology," says Mr. Chatter. "The one who will do that will rule the world."
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