In a move that was not unexpected, Avici Systems last week said it will cease development of its core router in favor of its new carrier service-level agreement products.
Avici entered the core router market as a high-profile start-up in 1997. But gaining share against Cisco and Juniper proved challenging -- Avici never achieved greater than 5 percent -- leading observers to tag it the third horse in a two-horse race.
The company did land AT&T as a high-profile customer, but few others. Profitability also eluded the company until recently.
AT&T says changes in vendor strategy, including halting development of key products, is common.
"AT&T's top priority is in maintaining the reliability, quality and security of our network," a spokesman for the carrier says. "Changes in vendor strategies and support are relatively common. Suppliers discontinue and cease support of equipment and products as their business strategies change. AT&T has managed those changes as part of our normal business process. As with any element in AT&T's network, we have a wide range of contingency plans in place to deal with nearly every potential scenario, including changes in our vendor community.
"Changes from any single vendor will not impact the performance of our network."
The spokesman declined comment on AT&T's contingency plans. AT&T was an Avici customer before being acquired by SBC in 2005. SBC has a longstanding relationship with Cisco.
The first indications that Avici planned to throw in the towel on core routing were last year, when the company laid off 45 percent of its staff and disclosed that it would seek buyers. Avici also started to pursue other opportunities, including the formation of Soapstone Networks earlier this year.
Soapstone Networks will develop controllers to enable carriers to bring predictable, "business-driven" behavior to their networks, regardless of vendor or technology composition. The Soapstone controller provides an abstraction layer that sits between IT-hosted services and network/transport, enabling services to be defined by their desired behavior rather than the underlying network technology, Avici says.
"While our core router business continues to be profitable and we expect this will remain the case for the remainder of 2007, the company's announced transition away from the development and sale of core routers presents a great opportunity to leverage our networking expertise and our strong financial position and apply them to a new growth area," said Avici CEO Bill Leighton in a statement. "We believe that this financial strength and our commitment to innovation strongly positions us to take advantage of the new market opportunities we see for Soapstone."
"We recognize that the routing market is under tremendous pressure from alternative technologies such as Ethernet switching and we do not believe our focus on core routers and our position as the number three supplier in this market to be a sustainable growth business for the company," Leighton says.
Avici expects the final shipments of its core router products will occur by the end of 2007. Avici says it will continue to service its products under existing contracts the company has in place with its customers.
The company says it is actively working with its customers to finalize transition plans.
Separately, Avici posted a profit for the first quarter, ended March 31, on a slight decrease in revenue. Gross revenue was US$20.5 million compared with US$21.4 million for the comparable three-month period a year ago.
Net income conforming to Generally Accepted Accounting Principles the first quarter was US$6.0 million, or US$0.42 per share, compared with a GAAP net loss of US$5.3 million, or US$0.41 per share, in the prior year's first quarter.