Hammerhead Raises $43 Million For The 'Big Switch'

Hammerhead Systems has raised another $25 million--bringing its total venture-capital investment to $43 million--to fund its data-migration switch. In addition to revealing the robust status of its financial war chest, Hammerhead said Monday that it is "in trials with a Tier 1 RBOC and a leading U.S.-based network service provider."

The firm has been developing a powerful switch aimed at helping carriers move their mission critical ATM/Frame Relay data to Multiprotocol Label Switching (MPLS) backbone networks. "We will sell our system to carriers," said Hammerhead president and chief executive officer Joe Sigrist. "Our boxes will sit in the carriers' premises."

Hammerhead believes it is the only landline firm that received venture funding in 2002 after the telecom bubble had burst. The latest financing round was announced Monday and was led by Pequot Ventures, whose General Partner, Greg Rossmann, joined the company's board of directors.

Sigrist, who formerly held top management positions at Lucent Technologies and Ascend, said Hammerhead is targeting the $20 billion-plus "sweet spot" of carriers' profitable data-network business. He said the company's switch-based product should enable carriers to cut by half or more the costs of delivering ATM/Frame Relay data to their end customers. "We won't sell directly to end customers," said Sigrist. "We've found where the money is."

The company has been close-mouthed about its product plans. In an interview, Robert Keil, the firm's founder, said the switch has been designed and built from the ground up. Keil, who is Hammerhead's vice president of marketing and business development, said some carriers have begun moving their ATM/Frame Relay traffic towards IP networking, gradually building out MPLS. Already under pressure from declining revenues from traditional telecom services, the carriers--particularly the RBOCs--are aggressively seeking to protect their lucrative business data segment. Hammerhead is aiming to give the carriers the means to cut the costs of delivering business data.Keil was a senior group manager of product management at Cisco Systems and a group manager of product planning at StrataCom before it was acquired by Cisco. Hammerhead's co-founder was Dr. John Yu, who serves as the firm's chief technology officer.

Although Hammerhead has not yet announced its product, it believes its impressive level of financing and its blue-chip venture-capital backers will give it an aura of credibility. In addition to Pequot Ventures, the latest round of financing also drew on the firm's initial round of VCs, including Mayfield. "Carriers are looking for pragmatic solutions to protect and grow their huge and highly profitable Frame Relay investment," said Mayfield managing partner Kevin Fong in a statement. "There's little cost left for the carriers to slash--and they can't afford to abandon their most profitable enterprise customers as they migrate data services revenue to an MPLS backbone. Hammerhead has tapped into this huge market in transition, one that incumbent equipment suppliers have clearly ignored."

Other venture capital firms participating in the most recent round of financing include Enterprise Partners and Foundation Capital.