Zhone tacks on Gluon

Zhone Technologies continued picking up the pieces of the telecom washout, signing a deal to acquire the assets of softswitch vendor Gluon Networks for $650,000 in cash and about 1 million newly issued shares of stock.

The deal gives Zhone its first entry into the softswitch market after cobbling together almost a dozen acquisitions in the access space.

Gluon's CLX switching system is designed as a classic softswitch, competing with the likes of MetaSwitch, Telica, Tekelec’s Santera unit and Taqua as a potential class five replacement. The portfolio includes both a switching and signaling gateway interface. The company has yet to make a significant in-road into the market but has several trials going with independent telcos, Mory Ejabat, chairman and CEO of Zhone said during the company’s fourth quarter earnings call.

"We are going through several certifications that we need," he told analysts and investors. "By the time we are through all the certifications we need and get the product ready to ship, we are going to see the product generating some revenue in 2004."

Though Ejabat doesn’t have significant expectations for the switch this year, he forecast that Gluon’s product would contribute between 10%-15% of Zhone’s revenue in 2005. In the fourth quarter of 2003, the company reported revenue of $23.3 million and a net loss of $6.4 million. Those results did not include any revenues from its last major acquisition, Telium.

"When we did [the Gluon acquisition] we had to do a lot of due diligence for signaling gateways and voice over IP," Ejabat said. "The forecast of this type of product is pretty good for 2005 so we took a small portion of that an assumed that that could contribute to our sales."

Gluon, which went through a management shakeup early last year, has been known among many independent telcos as a company that produced a solid product, but one whose financial situation was hampering it. In an interview with Telephony last year, newly appointed CEO Fred Fromm, who is not taking a position within Zhone after the deal, said Gluon’s instability was more based on market perception and not financial reality.

"I don’t believe it’s an issue with the financial backing," he said at the time. "The technology is there. The instability comes from the fact that this company has had three CEOs in four years."