Historically, networking devices have been an entirely different species
of machines from conventional computers, with their own hardware design
and special software tailored to the specialized task of pumping messages
around the Internet and private corporate networks. For now, the new interlopers
are simply bringing out their own versions of traditional network products.
But in addition, there is a move afoot in the networking world to use new
generations of generic PC hardware and software to perform what had previously
been considered esoteric communications tasks.
For example, Berkeley Networks Inc., a San Jose, Calif., start-up company,
is developing a device called an "NT switch," which performs many routing
functions using custom-built networking chips along with portions of Microsoft's
Windows NT operating system. Microsoft itself is aiding and abetting this
move toward fusion by adding special router software to NT as part of a
project code-named Steelhead. For some low-volume applications, a PC or
server could potentially double as a router without any specialized hardware.
Underlying many of these developments is a contest over which companies
will have "strategic control" at big corporate customers. As networking
becomes more important, owing to the growth of the Internet and internal
corporate networks, computer hardware vendors worry about being forced
to take a back seat to networking companies like Cisco in influencing purchase
decisions. Being able to offer their own line of networking products is
one way computer makers are trying to assure that they, not a network company,
are the first in line to give advice to corporate decision makers.
The higher profit margins of networking companies are a more obvious
lure to PC makers, notes Tam Dell'Oro, of the Dell'Oro Group, a Portola
Valley, Calif., research outfit. The computer crowd thinks they have a
big advantage because of their histories in the rough-and-tumble world
of computers, where profit margins are thin.
"We can tolerate a lot more price competition," said Alan Luntz, general
manager for Compaq's networking division. "That gives us a substantial
advantage." Mr. Luntz said Compaq will be using that tack as it begins
to compete this year with a category of networking products known as remote
access devices.
For their part, networking suppliers say their field is far too complicated
for them to be easily threatened by computer makers that lack deep experience
in the specialized field. "Would a fixture company make a great plumbing
company? Only if they hired a lot of plumbers," said John Hart, chief technical
officer at 3Com. "Just because you have mastered one skill, it doesn't
mean you have mastered the other."
And investors certainly don't see any immediate threat to the likes of
Cisco. In fact, shares in the San Jose, Calif., company have been rising
in recent days in anticipation of a strong quarterly earnings report today.
Analysts, though, see the industry in the beginnings of a major transition.
Paul Callaghan, with Forrester Research Inc. in Cambridge, Mass., said
Intel's moves may be the most far-reaching. The chip company wants the
Internet and corporate networks to be faster, so it can sell more of its
high-speed Pentium microprocessors. But Intel, said Mr. Callaghan, believes
the high cost of networking gear is holding back speedier network systems.
"Intel thinks the networking guys are screwing up their business by making
people pay through the nose for faster networks," said Mr. Callaghan. "So
Intel is saying, `We'll fix them.'"
(END) DOW JONES NEWS 05-05-97
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