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September 8, 1999


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The $900 Million Man Who Can Never Take a `No'

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Sonia Chopra

Mukesh Chatter Mukesh Chatter based his life and business on one simple cliché: think big. And for this determined, passionate and resourceful entrepreneur it paid off.

Until recently, Marlborough, Mass.-based Nexabit Networks, which Chatter founded in 1996, was an independent private company. But on June 25, before the financial markets opened, Nexabit announced that it would be acquired by Lucent Technologies Inc., the communications equipment giant for $900 million.

"When you're a small company, you go through three phases. ... First they laugh at you, then there's jealousy, then there's guarded admiration, and I suspect the fourth phase will be us saying, 'I told you so'," Chatter said.

And indeed, Chatter has ''told them so.'' Chatter had worked long hours and weekends, pouring his heart and soul into the company, which aimed to top all current networking technologies. It also had to defy conventional networking technology to succeed and did all that and more. Chatter and the Nexabit team have since basked in the accolades that came with achieving unprecedented speed with unconventional technology, which was a personal and professional triumph.

Nexabit created a product that can switch data 100 times faster than comparable products. The data transfer rate Nexabit claims is 6.4 terabits per second. That is the kind of speed that telecommunications companies will need in the next decade to support millions of new Internet users and to transmit heavy loads of audio and video.

"Everyone told us it couldn't be done," Chatter said. Chatter's career has been defined by stubbornness and extraordinary ability to prove critics wrong.

But for the man who was born in India, into a family of lawyers who also owned marble mines, there were some failures, which left "plenty of scar tissue."

Chatter who was recently selected by The Red Herring magazine as one of the Top Ten Entrepreneurs of 1999, came to the US as an engineering student.

In 1989, Chatter explored the idea of starting a document management software company. "By the time I was done raising the money," he recalled, "I realized the equity left...was in single digits."

After he abandoned the ill-fated attempt, he started a small consulting business, Celinx Research, which designed networking hardware and superconductors for clients like the Center for High Performance Computing, the Massachusetts Institute of technology and the US Air Force.

Chatter was now on a roll. In 1994, he formed NeoRAM, a company that applied for patents on networking technologies with the intention of licensing its intellectual property. But soon, he realized that the market for NeoRAM's switching technology was bigger than he had calculated. He quickly added manufacturing to the company's capabilities, thus creating Nexabit.

A chance meeting in 1996 between Chatter and Ray Stata, the chairman and founder of Analog Devices -- a chip maker that would generate sales of $1.2 billion in 1998 -- solidified Nexabit's existence. After a 45-minute meeting, Stata agreed to invest money in Nexabit, serve as chairman and immediately concluded that Nexabit's technology was a "long-pass in the end-zone!"

"That was a big turning point, to get somebody who has been through it all," Chatter said.

Chatter praises Stata for giving him important pointers, like how to treat employees. When senior managers considered cutting life insurance for employees, Stata was upset. He told them, Chatter recalled, "When people are working long hours, spouses and kids are participating in building the company. It's our moral obligation to provide life insurance."

Chatter understands the commitment and drive and the price employees have to pay. He is no stranger to long hours and working weekends. Despite his success, his one regret is his inability to spend more time with his two young children.

"There has been night after night of reading bedtime stories on the phone. That's a tortuous process," Chatter said.

Chatter's phenomenal success has some sceptics unconvinced, said The Red Herring magazine. But at least one company, Lucent Technologies, was interested enough to make an offer that Nexabit was unable to refuse.

Initially when rumors began flying about Lucent acquiring Nexabit, Chatter had denied it. "We're a red hot company. Everyone approaches us," Chatter had said.

But now journalists quoted in The Red Herring are reportedly upset at Chatters' "betrayal" and "selling out." In May, when Chatter had been asked if he was going to sell his company, he replied: "No way, no way...IPO, all the way."

But as they say, there's always a price and Nexabit's turned out to be $900 million. But Chatter, who will still run the company, said he isn't enamored by dollars. "Beyond a certain point, it's just a number," he said.

He is convinced that a fruitful partnership with Lucent, a company that has both multiplexer optics and ATM switches, could create one dominant player at the heart of the network.

"There's definitely a need for a partnership among the players who do IP routing, ATM switches, and optical technology," says Chatter. "The one who will do that will rule the world."

The acquisition has tremendous advantages for Lucent. Analysts say that while Nexabit's technology was far superior to other companies in its class, it was not yet selling products to paying customers, making it tough to persuade investors to buy the stock if an IPO was eminent.

''If you really think you can make it in the public markets, you'll get an higher valuation in the public markets,'' said Sender Cohen, an analyst for Lehman Brothers. ''But I can understand Nexabit's choice. If you get offered $900 million and you can't go public for another year, the question is whether the market is going to be there. In that case I would sell out also.''

With this acquisition, Nexabit wins too. As part of Lucent, Nexabit gains access to a large and experienced sales force that enjoys strong relationships with a customer base that includes the nation's biggest communications carriers.

''We could have gone IPO and perhaps done better financially, but as a smaller company we would have ended up with a smaller part of the market," Chatter said. ''We needed someone's channels, support and service systems.''

For all Lucent's voice expertise, the company lacked two things: ATM core switches carriers need to support multiple services; and ultra-fast routers to add intelligence to Lucent's homegrown optical backbone technology.

But by closing the $20 billion Ascend Communications-buy last week and announcing intentions to buy startup Nexabit Networks for $900 million the week before, Lucent has plugged this gaping hole in its product line.

The two deals are part of the company's plan to provide IP voice and data equipment for enterprise and carrier networks. Central to that effort is offering support for quality of service (QoS), which is key to supporting voice calls on packet networks.

Does Chatter care that he won't be in the limelight? No more CEO feature stories, no more interviews or pictures in glossy business magazines "I don't need any more pictures on the covers of magazines," Chatter said laughing. "I already convinced my wife that I'm good-looking. I don't need to convince anyone else."

While critics currently claim that terabit speeds are unimportant because the market hasn't yet demanded such performance -- an argument that other companies like Cisco has often used to defend its position that its routers need only to be as fast as its customers require -- Chatter said that reasoning is dead wrong.

"People say it's not important, but it's the only thing that's important ...Instead of looking at the engine, they say, 'Don't look under the hood, buy this cute knob or nice stereo'," he said. "But if there was no demand, why would we have interest from our beta testers?"

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