 |
SAN DIEGO, March 6, 2003 — OMM Inc. could have been a contender.
 |
Born in the late ’90s, the San Diego startup had a novel technology for MEMS-based optical switches, an experienced management team and more than $150 million in funding from backers that included Sevin Rosen Funds, Nortel Networks and Alcatel.
But it’ll be all over for OMM on Friday, when the company is expected to close its doors for the last time and leave behind 85 employees, a technology that might yet fly and a telecom industry that’s still grounded. When the telecom market went south, OMM simply ran out of time.
 |
Picking through the pieces OMM left behind, clues emerge as to why telecom carriers and their suppliers are reluctant to design new technologies into their architecture — even when the technology passes its benchmark tests.
“It’s not good news,” said Lawrence Gasman, president of Communications Industry Researchers Inc. “Some of their customers are also investors. … If I had a stake in continuing having OMM’s subsystems in my system I would probably hire a few of their engineers, buy a few of their switches and put them on the shelf until they were needed.”
The company is quitting the race just as it was gaining traction, said Conrad Burke, OMM’s vice president of sales and marketing. “We’ve shipped close to $13 million worth of product and this would have been our best quarter in the last four,” he said. OMM components were involved in trials ranging from early designs, through line trials, and in one case a network trial.
“We were too early for the market,” Burke said. “We’ve got a lot of upset customers out there because we were the only supplier of this product.”
As OMM winds down, there has been a “flurry of last-time buys,” Burke said, illustrating how customers, too, take a risk when they buy product from a startup. It’s important to know if the company will be around for the long haul. But those predictions are difficult to make, even for the experts.
“Companies do real due diligence now, at least for the next two years,” Gasman said. “You want it as far out as possible, but once you get beyond two years, I don’t know what you’re looking for. You can’t expect them to have cash in the bank beyond two years.”
But telecoms do expect long-term stability if they’re going to sign on as customers. “Two years isn’t much, considering that the equipment is supposed to last five, 10 or even 20 years,” said Tom Hausken, director of optical communications for Strategies Unlimited, a market research and consulting firm. “Two years is awfully short, but then who knows how long any startup is going to be around? Telecoms demand reliability somewhere between satellites and nuclear power plants. They expect a lot more than they really need.”
In the meantime, what happens to OMM’s intellectual property? The company has developed a portfolio of highly advanced MEMS-based optical switches.
“It could be sold to someone else, so that the idea survives but the company goes away,” Gasman said. “Companies being born now and raising a few million are saying they won’t have money until 2005, when people are saying there might be a resurgence. That’s not a great story but it’s a better story than being at the end of the boom, so a new company like that may well take some of OMM’s intellectual property.”
Burke would say only that OMM is having “ongoing discussions” regarding its IP.
But no matter who inherits it, selling the technology to telecoms will not be easy. “The carriers are tough customers who want lots of testing, are very careful about qualifying their suppliers and want to make sure there’s more than one in case a supplier goes out of business,” Hausken said. “That makes it difficult for a company coming in with new technology, like MEMS or tunable lasers, no matter how great it is.”
Because even a second of down time can be critical, carriers quiz their equipment suppliers about supply chain problems up front. “I trust that they’re going to support their product line as much as possible,” Hausken added, “but if I’m a carrier I’ll ask, ‘Are you getting your parts from a startup that might go out of business?'”
Prior to 1990, carriers had less reason to be nervous because technology innovation was kept in-house. What is now Lucent Technologies was an in-house division of AT&T. “You either want to bring those guys inside to protect the technology or work so closely so you’re on top of them at all times,” Hausken said.
Marlene Bourne, MEMS analyst for In-Stat/MDR, said she doesn’t believe the door is closed to startup innovators. “This is an extraordinary downturn,” she said. “If it had not been so long, they’d be in a better position because they had gone through the qualification process.”