Cereva Skids to a Halt

Cereva Networks Incs epic struggle to find more financing seems to have taken a turn for the worse.

The startup has confirmed that CFO Brian Cohen and head of sales Timothy Lieto have quit within weeks of each other. The management shakeup isn't helping Cereva’s long, drawn-out effort to secure a much-needed third round (see Cereva Closes In On Round Three).

Cohen, VP and CFO since Cereva launched in early 2000, unexpectedly quit last Thursday, while Lieto, Cereva’s head of sales and business development, resigned a few weeks ago. Bruce McDonald, head of corporate communications at the company, confirmed the departures but had little else to say on the subject.

"They left for personal reasons and it’s too early to say who will replace them." As well, he gave assurance that the rest of the management team, under CEO Mahesh Ganmukhi, are staying put (at least for now!).

Of the two resignations, Lieto’s seems particularly painful for Cereva, as he plans to join Pirus Networks, another major player in the SAN startup field.But plans to join are the operative words here, as Cereva has filed a breach of contract suit against Lieto, which Cereva sources say is expected to be heard in a court in Massachusetts this week. Cereva is not giving out further details right now.

Insiders at Pirus say the case rests on whether their company is found to be a direct competitor to Cereva. If it is, Lieto may have to do some gardening for awhile. Stay tuned.

While both companies fall into a fairly small market niche, there are distinct differences. Cereva is building a large-scale “SAN-in-a-box” product that includes a switch and storage array and is pitched against products from EMC Corp. (NYSE: EMC).

Pirus is building just the switch and will compete more directly with networking players such as Brocade Communications Systems Inc. (Nasdaq: BRCD), McData Corp. (Nasdaq: MCDT), and Cisco Systems Inc. (Nasdaq: CSCO), among others. (For a more detailed analysis on how the SAN market is divided up, see Virtual Reality?).

So why the fight over Lieto? Former colleagues say Lieto’s blend of skills in LAN and SAN switching are a perfect fit for Pirus as it builds its hybrid Fiber Channel/Ethernet switch. Prior to joining Cereva, Lieto was head of data networking sales at Lucent Technologies Inc. (NYSE: LU), a role he assumed when the telecom equipment giant acquired his employer, Gigabit Ethernet switch maker Prominet.Cohen and Lieto were the last two remaining members of the old guard under Cereva’s first CEO, Alan G. Lutz (see Cereva: Stalled, Not Stopped). "Changes are bound to happen when a new CEO comes in," McDonald says.

Right, say the analysts, but Lutz’s departure was back in May, which is leading some to speculate on why it is taking the company so long to settle down.

"Ganmukhi is going to take it one step at a time," said a Wall Street analyst who declined to be named. "They grew too fast, staffed too quickly and were talking about an IPO back in February. They were very cocky and the market has not cooperated with them." He added that Ganmukhi is trying to undo some of that "get-rich-quick" mentality, and if he achieves this, Cereva will emerge as a strong contender again.

Meanwhile, McDonald has told Byte and Switch that Cereva has some news on the way soon, news that looks good for the financial stability of the company. We'll wait and see.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com