Desh Deshpande

Sycamore Networks is counting on market turmoil to shake up the established vendor stronghold. And why not? The fairly young optical company compares equitably to Lucent Technologies in terms of stock price. Both were trading around $10 per share in May — Sycamore having dropped from $172 and Lucent from $67.

It's nothing the communications sector hasn't seen before, says Gururaj “Desh” Deshpande, co-founder and chairman of Sycamore. He compares the current shuffle to the PC market crash in 1984, which washed out old standbys and allowed new players like Dell Computer, Compaq and Gateway to come forth.

“The restructuring in telecom is very similar,” Deshpande says. “We want to be one of those new guys who emerge as leaders. To do that, we need three things: capital, a good vision of where all of this is heading and talent.”

It also takes a strategic tightening of the purse strings. Sycamore has more than $1 billion in the bank, but earlier this year the company cut its revenue expectations by more than a third and announced plans to lay off 140 people.

That spurred Sycamore to narrow its product portfolio. Last year, when growth was strong, it was OK to have a broad product line, Deshpande says. “When the growth is down you want to chop off all the marginal activities and really focus on the core products, core customers and core values.”

Sycamore is now concentrating on optical switching, optical edge products, transport and network management. It's also honing in on specific features rather than adding “speculative” ones. That could hurt Sycamore, however, if the resulting feature blend turns out to be misguided.

Another potential problem for Sycamore is the fact that its strongest customers — 360networks and Williams Communications — are still relatively new and unstable. Deshpande admits that Sycamore must target incumbent carriers and bite the bullet on longer sales cycles.

Sycamore's distinction, Deshpande says, lies in its next-generation product focus. “The world still spends $40 billion a year on infrastructure, and it's growing at 10% to 15% a year — if it stays at $30 billion to $40 billion a year, that's still a big market,” he says. “Our opportunity is not dictated by the growth of that big number, but by the transition of building the infrastructure the new way as opposed to the old way.”