Nine months after it was born, a semiconductor start-up has been all but killed off by a combination of the continuing funk in the networking industry and questions over ownership of the company’s intellectual property.

Protean Devices licensed technology from Japanese electronics giant NEC last fall and had intended to develop reconfigurable processors that NEC would manufacture and sell to networking companies such as Cisco Systems and Nortel Networks.

But the company has cut about two-thirds of its work force, which stood at close to 30 employees in March, when the company was close to landing its first round of venture capital, sources familiar with the company tell Local Tech Wire.

Protean’s struggles also may give rise to two other chip-related companies.

Sources say co-founder Brian Van Essen and former Chief Operating Officer Angelo DeVita are working on new ventures following their departures from Protean. Both men decline to comment, saying they are still in the planning stages.

Protean was never able to close the funding round after venture capital firms backed away from the deal over concerns about NEC’s ownership position in the technology, the sources say.

“What did Protean really own?” one source says. “We didn’t own the architecture we were working on. We had a license, but NEC still owned it, and at the end of the day, people just couldn’t see putting money into the deal because of that.”

The application-specific standard product, or ASSP, that the company wanted to develop is an off-the-shelf chip that can be redefined to handle everything from packet classification to encryption. The name of the company even emphasizes the versatility of the products, alluding to Proteus, a shape-shifting character from Greek mythology.

Officials had called the chips, which are cheaper and more flexible than custom-built application-specific ICs, a “turbocharger” because they boost the speed and efficiency of routers, switches and other networking equipment by taking over some of the work from other, overloaded processors.

‘Private matters’

Protean Chief Executive Marc Edwards, who learned of the technology early last year while working at Cisco and later took a team of Cisco researchers with him to form the new company, declines to comment on Protean’s current status.

“Those are private matters,” Edwards says. “My partners and I have agreed that we won’t discuss these issues with the media.”

In addition to the clouded title to Protean’s intellectual property, the company has had trouble lining up customers for the ASSPs because most networking companies are still cutting back operations to deal with the ongoing downturn in the telecommunications market.

“It doesn’t surprise me that a company in that market would find it difficult to survive,” says Jeremey Donovan, an analyst with Gartner Dataquest. “Nobody is buying anything these days. Even if they were, the market for reconfigurable processors has never taken shape, so I’m still not sure they would find customers.”

NEC had provided Protean with $1 million in bridge financing last fall to fund it until the first venture round could be completed. Sources tell Local Tech Wire the Japanese firm continues to fund the company on a month-to-month consulting basis, hoping to keep the core group of researchers together to continue development work on the technology.