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Gadzoox Networks: Page 3 of 6

"Every single quarter, Gadzoox has gotten funding," she says, insisting that the company will make a comeback. "When push comes to shove, it's product and pricing that matter. [Gadzoox] has always been better and cheaper than Brocade."

But despite the hopes of Gadzoox's shareholders, there is further evidence that things aren’t going quite as they should in Gadzoox-land. The company announced a round of layoffs last Thursday, and while no one at Gadzoox would say how many people had been let go, a former Gadzoox executive who asked not to be named says that 40 employees, or roughly 30 percent of the company, were dismissed (see Gadzoox Zinks).

"In general, this is basic restructuring to reflect the change of expectations on our side," says Clark Foy, Gadzoox’s VP of sales and marketing. "The 2-gigabit market was slower to take off than expected. The restructuring put us in a better competitive cost position."

Investors responded positively to the news of the downsizing, and Gadzoox's stock price jumped nearly 20 percent -- but only to 79 cents, up from 68 cents. And, less than a week later, the stock had dropped back down to 66 cents a share.

Foy might be downplaying the severity of the layoffs, which apparently all but wiped out the company’s Irvine, Calif., office, but he has put his finger on one of the main reasons that Gadzoox’s revenues continue to dwindle. Despite all of the hype a year ago about how big the 2-Gbit/s switch market was going to be, very few customers have actually made the leap over from 1-Gbit/s switches.