HIGH-TECH
Calix leads new wave of high-tech startups
Carl Russo, chief executive officer of Petaluma's Calix, says his telecom company's small size and private ownership help give it the flexibility needed to succeed.
KENT PORTER/PDPublished: Sunday, January 22, 2006 at 3:00 a.m.
Last Modified: Friday, January 20, 2006 at 5:50 p.m.
Carl Russo runs his Petaluma high-tech company the same way he approaches auto racing.
Build a strong team, drive fast and win.
Russo's telecom company, Calix, is blistering the course. The 6-year-old company, which reported more than $100 million in annual sales in 2005, could be the next big company to emerge from Sonoma County's Telecom Valley.
Last year, Calix won a contract to supply networking gear to Sprint Nextel, a telecommunications giant with 7.5 million phone lines in the United States.
In November, Russo's company got a jump on the competition when it acquired Optical Solutions Inc., a Minnesota firm building fiber optic networks. The acquisition doubled Calix's customer base.
Russo, 49, represents the next generation of Sonoma County high-tech entrepreneurs. Survivors of the technology crash that started in 2001, they're in good position to profit from the industry's recovery, said Ben Stone, director of the county's Economic Development Board.
"They've been through the downturn, so they're more business-savvy," said Stone.
The companies are leaner, more nimble and less well-funded than their predecessors. Venture capitalists no longer throw unlimited sums of money at startups, Stone said.
The new tech vendors keep expenses low by outsourcing production. Their core operations in Sonoma County include higher-wage research, development and marketing jobs, said Robert Eyler, head of the economics department at Sonoma State University.
He said their business is driven by demand for new wireless services, including on-demand video, voice and high-speed Internet.
Calix isn't the only next-generation Sonoma County tech company with good prospects for 2006. Teknovus, Turin Networks, Caymas Systems, Dilithium Networks and Clovis Solutions all made strides last year and are poised for growth.
Stone said history shows that not all tech companies will survive or remain in Sonoma County. Petaluma's struggling Mahi Networks moved to New Jersey last year and then merged with a Canadian telecom vendor.
Tegal Corp., which produces equipment for manufacturing computer chips, served notice it may relocate from Petaluma to Silicon Valley this year.
Tegal chief executive Thomas Mika said the company needs the kind of top-level management found in Silicon Valley. Publicly traded Tegal hasn't made a profit since 2001.
Many of the county's tech startups are subsisting on venture funds while they develop their first products. Some may be targets in a new round of acquisitions if the tech industry continues to grow, Eyler said.
Calix is a prime candidate for acquisition because of its fast growth, according to industry observers.
Russo was chief executive of Cerent Corp. in Petaluma in 1999 when the optical networking company was acquired by Cisco Systems for $7.3 billion, one of the largest sums ever paid for a private technology firm.
Russo stayed with Cisco for two years before trying auto racing. Though he no longer takes the wheel, his RuSPORT racing team has become a top finisher on the open-wheel racing circuit.
Russo was an early investor in Calix, which developed a broadband loop carrier that lets telephone companies deliver voice, video and high-speed data over fiber or copper networks to subscribers' homes.
Russo said Calix's system offers carriers a simple, low-cost way to upgrade their networks. Calix is the Latin word for cup, but to Russo it signifies the "Holy Grail" of network connections.
Most of its customers are small to mid-size independent telephone companies, though Calix reached the market's next tier with Sprint, which has local phone networks in 18 states.
Calix has plenty of competition in the telecom access business, including industry giants Motorola, Alcatel and Tellabs. But Russo, a wiry, high-energy type who dresses casually and occupies a modest cubicle at Calix's Petaluma headquarters, said he welcomes the challenge.
"What gets you up in the morning?" he asked. "Our job is to help customers win."
Telecommunications companies plan to spend billions on network upgrades over the next decade, according to industry analysts. Daniel Briere, an analyst for Connecticut-based telecom consulting firm TeleChoice, said there's lots of room for mid-level players such as Calix to compete, especially if they team up with larger partners.
Calix has done just that, in a deal last year with Nortel Networks to market and deploy the Calix system. Russo said Calix's small size and private ownership gives it power to move quickly.
Russo said Calix uses contractors to manufacture its products for cost savings and flexibility, and that outsourcing is a hallmark of the new breed of tech companies.
"We're pursuing what we think is the right model," he said. "This is a great time to build a business, because it's back to fundamentals."
Calix was working on next-generation fiber optic technology known as GPON when it decided to acquire Optical Solutions, the leading provider of GPON equipment.
"They are light years ahead of the market," Russo said. "They had the people and the expertise."
The acquisition, the company's first, will let Calix quickly add GPON to its existing platform, offering more capacity and broader services, he said.
The deal also brings an advanced line of optical network terminals, boxes mounted on the outside of homes or offices that convert fiber optic signals.
Russo wouldn't say whether Calix is earning a profit, but he pointed to the Optical Solutions deal as an indicator. With the acquisition, Calix now has about 350 carriers in its customer base.
Light Reading, an Internet publication that covers the telecom business, named Calix last year as one of the industry's top candidates to go public or be acquired by a larger player. A stock offering would give Calix the cash to grow even faster, Light Reading said.
With the buyout of Optical Solutions, Calix now has about 350 employees, mostly in Petaluma and Minnesota. The company's headquarters will remain in Petaluma, Russo said.
"We have good products, products invented here," he said. "Our roots are here and we're not going anywhere."
You can reach Staff Writer Steve Hart at 521-5205 or shart@pressdemocrat.com.
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