Here's whole article: Top Stories: Ascend Makes a
Foray into Services
By Kevin Petrie
Staff Reporter
11/9/98 4:43 PM ET
After building much of the Internet's backbone,
Ascend (ASND:Nasdaq) is branching into the
services business.
Ascend intends to launch a services arm next
week in an effort to preserve profit margins and
assist carriers that purchase its increasingly
advanced network machinery. Carriers need
advice as they broaden into specialized data
services for corporate customers. While Ascend's
new venture, called global integration services, will
also sell to corporate customers, carriers are the
focus.
"I think it's a smart move," says Peter
Crowcombe, research director with Spikes
Cavell, a U.K.-based information technology
researcher that has not worked for Ascend.
Crowcombe suggests global integration services
will help Ascend compete with archrival Cisco's
(CSCO:Nasdaq) successful services division in
Europe. Spikes Cavell has worked for Cisco, the
dominant networker.
Ascend is negotiating a few contracts now and
plans to make about 10% of its revenue on
services this quarter, according to Michael
Graham-Hyde, marketing vice president. In the
third quarter, services generated a bit less than
5% of Ascend's $370 million in revenue, which is
consistent with prior levels.
Ascend is hiring platoons of consultants and
staffers to fill new global integration services
offices on its tidy campus east of San Francisco
Bay. Graham-Hyde, a veteran of Compaq
(CPQ:NYSE) who joined Ascend a month ago,
expects the global integration services team of
400 employees to swell to 550 by the end of next
year.
"That really should help them improve their
margins," says analyst Richard Dean with market
researcher IDC. (Dean declines to disclose his
firm's clients.) Ascend's gross margins were 64%
in the third quarter, flat with a year earlier. While
much of global information services will focus on
simple customer support, the consulting might
prove lucrative; Ascend estimates that its top
consultants could bill $300 to $400 an hour.
Of course, some customers may balk at steep
fees such as those. But Ascend's Cascade unit,
acquired in June 1997, is the incumbent supplier
of backbone switches to carriers, which gives it an
advantage, says president Tom Nolle of Cimi, a
consulting firm in New Jersey. By contrast, Cisco
is still fighting to win these types of contracts, and
is less likely to raise its bidding price by adding
sophisticated services, Nolle says. Both Cisco
and Ascend are clients of Cimi.
Cisco is enhancing its customer support and says
8% of its October quarter revenue came from
"training, royalties, service and support" -- a slight
uptick from 7% one year earlier. A Cisco
spokesman declines to comment on how it will
compete with Ascend's new services division. An
executive did comment on Cisco's general plans
when queried at the company's annual confab it
held for analysts in San Francisco last week.
"We're not staffing up to be in the services
business," managing director Todd Abbott said.
"We're a company with limited resources. We
want to focus our resources where we can create
the most value."
In special cases a customer -- for example, USAA
-- will enlist special assistance from Cisco,
according to Abbott. But generally Cisco counts
on partners such as Hewlett-Packard
(HWP:NYSE) to handle this type of work.
Global integration services workers will advise
carriers and corporations on designing, deploying
and managing their networks. Ascend will base
services such as bug fixes, documentation and
live help on the Web as well. It also has enlisted
partners like IBM (IBM:NYSE) and Unisys
(UIS:NYSE) to serve clients.
Ascend is trying to help telephone carriers
become data service bureaus. Carriers have
deployed massive infrastructures and now intend
to sell tiered services to offices and consumers.
For example, they might ferry email messages
between consumers for one low rate, and connect
the trading floors of an investment bank for a
premium price. Also, corporations are shifting
network tasks to carriers, increasing their
responsibilities.
Ascend marketing director Fred Sammartino
explains that carriers, especially upstarts such as
Qwest (QWST:Nasdaq), could use extra help in
designing new systems. (Officials at Qwest, a
customer of both Cisco and Ascend, were
unavailable to comment.)
Ascend is working to educate these young
companies and enhance its own revenue stream
in the meantime. Still, Nolle of Cimi adds a
cautionary note: "Ascend's going to have to be
careful not to get diverted from its primary mission
of selling products." |
