For Networkers, a Squeeze From Two Sides

Williams Communications' (WCG Quote) cash crunch could signal more than a kink in the closely watched network-equipment spending cycle. It could also put several start-up optical-equipment companies in a sort of stock-market double jeopardy.

Blinded?

Cash Crunch Threatens to Slow Optical Network Buildout

Williams isn't just a good customer of these optical networking companies, such as Nasdaq highfliers Sycamore (SCMR Quote), ONI (ONIS Quote) and Corvis (CORV Quote), and closely held Tenor, Amber and Zaffire. It also happens to be an owner of these firms, through deals in which Williams received pre-IPO stock in exchange for agreeing to test or buy equipment from these companies.

When companies like Sycamore held their hugely successful IPOs, Williams' shareholdings fed into a positive cycle for the networkers: The start-up companies used the cash and the customer relationship to build their fledgling businesses; investors saw Williams' stake as a stamp of approval; shares jumped after the IPO amid the clamor to get in early on the great network buildout. ...