In the Spotlight: Ken Lewis, Chiaro Networks

Ken Lewis, CEO of startup equipment vendor Chiaro Networks survived a shakeout in the core router market, as rival Hyperchip fizzled and Procket Networks was acquired by Cisco Systems. Lewis spoke to Telephony’s Optical Insight last week, days before reports surfaced in the foreign press that Israeli-based vendor ECI Telecom was in the process of investing in Chiaro.

On vendor partnerships: I’ve been spending huge amounts of time on exactly that. We’re not ready to make any announcement now. We’ll have some news this quarter, the fourth quarter. If you’re going to sell to a tier-one carrier anywhere around the globe, you have to have a partner. In North America, a VAR [value-added resellers] is not going to work at all. In Europe, a VAR’s not really going to work for a tier-one carrier. In Asia, a VAR will work for a tier-one carrier but you still need to partner, because the partner brings the balance sheet stability that a startup needs.

On the core router market: We’re in a duopoly. The marketplace is asking for a viable third vendor to be a credible second source to Cisco and Juniper. That’s what we’d like to be. One of the most significant achievements is we’re still here talking to you. The other startups in the core router space are effectively all gone. We’re kind of the last man standing, which is a good thing. We’ve been busy. In the last three quarters we’ve seen more RFP activity--and it’s still accelerating--than we’d seen probably in the previous three years combined. It’s all now focused on carriers wanting to build a converged IP backbone that’s MPLS-enabled. Many of them will be making technology decisions either still this year or the first quarter of next year for deployment next year. Finally carriers are ready to start spending in the core, but this time with a new architecture.

On RFPs and RFIs: There are probably north of 10, all open and in various stages of analysis. It’s on all three continents, but there’s more action in Europe and Asia than North America. Probably a little less than a third here and a little more than a third each in Europe and Asia. From a timing point of view, I feel more confident about Asian and European opportunities. Not to say that things might not happen in North America; it’s just still a tough environment here. We might see something even next year, but the health of the industry is still suffering from over-provisioning during the bubble and capex issues. It’s not going to be the front end of next year in my mind. It’ll be the back end of next year, maybe even 2006 before we see any real major builds here. That’s not going to be the case in Europe and Asia. There may be an exception or two to that in North American markets, but they’d be exceptions. The IXCs are feeling the most capex pressure.

On Cisco’s acquisition of Procket Networks: It had a couple interesting effects. One is a competitor’s gone away. Hyperchip went away a little bit after they did. That’s the good news. The bad news is it confirms the fear that every big carrier had about even talking to a startup. Because here was a high-flying high-profile hundreds-of-millions-of-dollars-invested company--here today, gone tomorrow. So it’s a dual-edged sword. Procket had not really penetrated tier-one or tier-two carriers yet. But they had been active, no question. We just hired Procket’s former EMEA VP of sales, Stefan Beck. He’s been on our payroll now three or four months. We’ve also hired another [Procket ex-employee] we haven’t announced yet.

On headcount: It’s creeping up. We run around 125. We’re adding sales and support resources around the globe.

On the Avici/Nortel partnership: No currency exchanged hands. It’s not exclusive either. It’s just one of these preferred channel partner announcements. We’ve not seen it be successful anywhere. I had a tier-one carrier tell me last week, “Partnerships come and go.” When you walk in and say, “XYZ is my big brother partner,” they want to know what that really means and if there’s real significant skin in the game by the partner. That’s the kind of deal we’re going to be talking about real soon.

On profitability: With a little luck we can see it late next year or the beginning of 2006, if we can nail a few of these accounts.