DZS Files Chapter 7 – What Went Wrong?**Updated March 26**

**UPDATED WITH NEW INFORMATION**

With the recent news that DZS (formerly Dasan Zhone and Zhone Technologies) filed for Chapter 7 liquidation, I’ve given a lot of thought to what this means for customers; who might acquire their assets; what went wrong and whether this has ever happened before.

Let’s be clear.  Chapter 7 is used by individuals, partnerships, or corporations who have no hope for repairing their financial situation vs Chapter 11 allows corporations, partnerships, and individuals to reorganize, without having to liquidate all assets. DSZ filed Chapter 7.

Has this happened before?

I had to think long and hard about when another telecommunications equipment provider filed for Chapter 7 and it was hard to come up with much.  Nortel certainly comes to mind, but they filed Chapter 11 first and were able to unload most of their key assets, patents and portfolio long before they finally filed for Chapter 7.

What went wrong?

DSZ has an interesting history.  Zhone Technologies was formed back in September 1999 by former executives of Ascend Communications Jeanette Symons, Mory Ejabat and Robert Dahl and quickly went on an acquisition spree during its product development phase.  It became a public company via its merger with Tellium Networks in 2003. In its first 6 years of operation, Zhone made a dozen acquisitions, with the most notable being Paradyne in 2005 – and by notable, I mean it was one of the only acquisitions to actually improve its revenues and market position, but not significantly and not for long.

Zhone’s challenge has always been – in my opinion – its lack of focus.

These are the exact words I wrote back in 2016 after Dasan acquired Zhone.  https://www.broadbandtrends.com/post/a-difficult-path-lies-ahead-for-dasan-zhone-solutions-inc

And my opinion remains unchanged.  I called it then.

And for a refresher – here is a high-level listing of Acquisitions/Divestitures over the years (may not be comprehensive - but you get the picture):   

Acquired	Sold/Divested
Premisys Communications
Nortel Access Portfolio	Sold to CDGI
Tellium
NEC Eluminant	Sold to CDGI
Gluon Networks	Unknown
Sorrento	Sold back to Sorrento
Paradyne
DASAN	Sold Asia Pacific assets back to DASAN
ASSIA	Sold WiFi Management SW and  Service Assurance to AXON
RIFT
Optelian
Netcom	Sold IoT Division to Lantroxix

Who might pick up their assets?

In the last filed 10K (2023), DZS has revenues of $244 million, of which nearly half was attributable to Asia Pacific and Dasan and the remainder ($120 million) was evenly split between Americas and EMEA with some minor business in Asia Pacific (primarily Australia).

The big question with all their acquisitions and divestitures – what does DZS actually have in left in their portfolio?  What intellectual property remains? And by going Chapter 7 – they let go of virtually all of their employees particularly the ones that make these products attractive to buyers – the engineering and development talent.  

**According to a recent filing, the following products are available:

• DZS Velocity Optical Line Terminal (OLT) Systems

• DZS Saber Optical Transports Systems

• DZS Helix Optical Network Terminals (ONTs), Gateways, and Access Points

• DZS Xtreme Network Management, Automation, and Orchestration Software

All assets (technology, IP, software, lab equipment, inventory, IT systems, eligible contracts, BOM, etc.) will be sold on an “AS IS, WHERE IS, WITH ALL FAULTS” basis, and subject to Bankruptcy Court approval. Final bids will be submitted during the week of April 7, 2025 and approval of the sale by the end of April 2025 ****

Their main products are in the access market for fixed broadband networks.  They also had some optical transport products (per Optelian acquisition).  In addition, DZS once had a robust Optical LAN business (FIberLAN) – one in which I would have classified DZS as a market leader – but it looks like they had pulled back significantly even dropping their membership in the Association for Optical LAN (APOLAN) in 2023.

At present the access market is the US is dominated by Nokia, Calix and Adtran and to a lesser extent Harmonic, Commscope and a handful of smaller players.

Outside of the US, the access equipment market becomes a bit broader, with Nokia, Huawei, ZTE leading the charge, followed by Adtran, Calix, Iskratel, Radysis, Tejas Networks and a number of other smaller players.

Any vendor that looks to acquire DZS assets will be a vendor looking to break into new markets or expand their current footprints.  Possible contenders could be Commscope, Harmonic, Tejas Network, and Radysis – but again, there remains a question of who actually owns the technology – DSZ or Dasan Networks.

What Does this Mean for Customers?

In short – the customers have been hung out to dry.  They have no support for their networks - no software updates, no new hardware updates.  Nada. Nothing. Zilch. 

Their networks are left vulnerable to attacks – especially in an era where this is far more common than a decade ago.

For customers, network based on DZS today are where they will always be.  There is nowhere to go with them.  If they need parts – they will need to go through distributors or resellers or even eBay. 

The circle of trust has been broken forever. 

And the sad part is that even if the assets are acquired, it will take time to go through the courts. Will these customers even want to continue or will they look towards a vendor with more financial stability?  Can customers even wait during this period of uncertainty?

For many BSPs, they will likely have no choice but to replace their networks.  And now the bigger question is how are they going to pay for it? 

In many ways the demise of DZS is not a surprise.  They took a shotgun approach to the market and unfortunately, they kept missing their targets.  The lack of focus – not only on the product portfolio, but the markets they chose to pursue - are they main reasons their failed to ever garner any material position in any market

Opinions are my own.