Sycamore Lineup Move Makes Sense

When a baseball team is slumping, the manager often substitutes promising, unproven players for experienced, underperforming ones to do something,
anything, to become a winner again.

In a sense, that’s what Sycamore Networks this week.

The Chelmsford, Mass., maker of optical networking equipment benched long-haul transport products (SN 8000, SN 10000), which move data through light
pulses, in favor of optical switching offerings (SN 3000, SN 16000), software-driven equipment that manages network traffic.

Additionally, it signed reseller, and technology pacts with Siemens’ information and communications
networks unit, part of the German telecom giant.

Analysts, including those at Soundview Technology Group and Morningstar, applauded the moves, saying they will put Sycamore, a one-time industry darling, in a better
position when the long-awaited economic recovery materializes.

“Since last August we felt the company should exit long-haul,” said Soundview’s Kevin C. Slocum told boston.internet.com. “You’ve got more than a dozen (long
haul) equipment suppliers in the world and Sycamore doesn’t have an impressive installed base. The couple of carriers who have deployed its equipment are in
Chapter 11.”

By contrast, the optical switch market is less competitve (though heavyweights including Ciena, Lucent and Nortel have offerings and Cisco is considering one).
Sycamore already has boasts three large carriers (Bell South, Vodaphone and NTT) among its switch customers.

As for the Siemens deal, it’s too soon to tell. Terms call for Sycamore’s SN 16000 optical switches to be integrated with Siemens’ TransXpress Infinity MTS long
haul system. The combined offering will be sold through Siemens’ 160 sales offices.

“(The pact) provides us with a significant opportunity to expand our footprint and reach additional global service providers,” Sycamore CEO Daniel Smith said.

But Smith was noncommital about when sales from the deal will materialize. It will likely be at least a quarter before Siemens staffers are fully trained to sell and
support Sycamore products.

When asked if the deal could be a prelude to an acquisition, Sycamore officials answered with an emphatic “no.”

Analysts also doubt it, given that Sycamore has
$1 billion cash in the bank and its stock is trading at a discount. And a result of the strategy shift, Sycamore cut 235 jobs, or a third of its workforce, further reducing
its expenses.

“I would be surprised if Sycamore decided to sell absent a significant bump in their stock level,” Slocum said. “I think they are mostly focused on landing a major win
or two.”

With the telecom carriers still being tight-fisted, it’s difficult to say when, or if, Sycamore’s moves will pay off. But analysts like the fact that managers are trying to get
the company back in the win column, knowing that business, like baseball, is a streaky endeavor.

“To stand still and do nothing makes no sense at all,” Slocum said “Companies have to do things to improve their prospects, even if they don’t know when the turn
will occur. Sycamore has done the right thing.”