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Take Two
Monday, April 1, 2002
Wall Street is watching Surya Panditi. The former CEO of Avici Systems who led that company to a $200-million IPO became the president and CEO of Convergent Networks in January 2002. Convergent, a telecom solutions provider offering a range of packet-based switching products, withdrew its first bid to go public in March 2001 citing “poor market conditions.” A near-total collapse of the telecom sector would be more like it. Analysts view Convergent’s hiring of Panditi as a signal that it plans to try again.

It can’t be easy to be a telecom CEO. During the headiest days of the boom, the telecom innovations sparkled above the rest like diamonds in a coal patch. Investors seemed almost to revel in casting a blind eye toward the spending habits of their telecom entrepreneurs. Investor confidence was unshakable. Today, any telecom or telecom-related CEO lucky enough to remain employed and funded (miraculously) must also bear the burden of having many pairs of eyes looking over his shoulders

“There is certainly a lot of focus right now on the burn rate,” says Panditi. “Capital markets, both public and private, are obviously constrained. Our investors are as focused as we are on our burn rate and optimizing our cash. I have to be completely open so they understand why we are doing what we are doing. We want to make sure our cash lasts a long time.”

To date, Convergent has secured approximately $134 million in financing from private, venture and strategic investors, including Battery Ventures, Matrix Partners, Motorola, North Bridge Venture Partners, VantagePoint Venture Partners and Worldview Technology Partners.

“Granted, our area has low growth and a static market, but the market in general represents growth for us,” Panditi says. “At the end of the day the people who are going to make our company successful are our customers.”

The company’s worldwide customer base includes ACD.net, Adelphia Business Systems, BayRing Communications, British Telecom, Broadwing, Cablevision, Focal Communications, Global NAPs, Lightyear Communications, Missouri Telecom, TelNet Worldwide, Volaris Online and Warwick Valley Telephone Company.

Panditi points to Convergent’s willingness to shift focus to find opportunities as the market continues to correct itself. “When we started, we built business around certain technology and markets — first it was DSL and ATM technologies when the market opportunities were more in the CLEC space. Now we are changing. Our tech is broader — we’re going after multiple-markets, including the cable space and ILECS. We’re also targeting the regional bell operating companies, but regulatory constraints will likely bring delays in that area. But over time there should be opportunities for us there as well.”

Meanwhile, Avici, like almost every player in the telecom space, has seen its initial fortunes reversed. Stock that soared around $94 has slipped into the single digits. However, its most recent sales reports show a 500 percent gain in North American sales, up from one to five percent of the total market, and three percent worldwide. Avici trails Cisco and Juniper, by far the two most dominant players in the core router market. With that company at such a critical juncture, wouldn’t Panditi want to continue leading Avici’s management?

“I’m a passionate, strong believer in what Avici is doing. But I also know that I tend to operate best in a smaller, private company, because I prefer to be in the early stages of building a company,” explains Panditi, who has retained his chairman’s seat on Avici’s board.

So, is there a place on the NASDAQ for Convergent? Panditi jokes that people in telecom are filing today just as much as they were filing yesterday, but the difference is that yesterday they were filing for IPOs and today they’re filing for bankruptcy. Still, he remains upbeat about Convergent’s long-term prospects.

“Just as there was a tendency to overreact to the upside when people believed there was no cap on the growth, we will come out of the slump, says Panditi. “If you’re familiar with fluctuations, and can look at the trend and not just the swings, it’s clear that strong market growth will come around again. We have the right technology, the right market, and we have cash. Those are the elements we need to put us in a strong position.”
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