Internet & Technology
Friday, September 29, 2000
Printer-Ready Version
It’s Foundry Vs.
Extreme
In Push To Boost
Ethernet
By Mike Angell
Investor's Business Daily
This is a tale of two start-ups.
Foundry Networks Inc. and
Extreme Networks Inc. were
newly public data networking
companies.
Last year, they both had huge
IPO gains on the promise of
offering businesses cheaper,
faster ways to hook up
computers to high-speed data
networks.
They then began to set their
sights on newer markets with
different results. Foundry
wanted its gear in metropolitan
networks, long-distance
networks and sitting in front of
computer servers. Extreme
decided to venture into only the
metropolitan service provider
market.
After public trading for a year,
the results are in. Extreme
shares are near 118, not far
from their high of 124. Foundry
has dropped to 65, 69% off its
high. Extreme’s more limited
focus has won favor over
Foundry’s strategy of casting a
wide net.
“They’re both buy-rated, but
there’s more reason to favor
Extreme,” said CIBC World
Markets analyst Martin
Pykkonen. “They have a tighter
focus. . . . With Foundry, the
criticism has been that it’s gone
in a few too many different
directions.”
Image: The Right Route?
Early in the game, both firms’
fortunes hinged on offering
networking equipment that
used Ethernet technology.
Ethernet’s Promise
Developed in 1972 by Xerox
Corp., Ethernet allows
networked computers to share
data over only one line. It’s now
the most popular way to
connect computers in offices
and businesses.
While Ethernet had been used
within buildings, it was still
untested as a way to hook
buildings up to outside
networks.
Then Foundry and Extreme
began touting their network
switches as the way to expand
Ethernet’s advantages beyond
the office. Switches direct data
within a network.
Other companies hope to do
the same. Data networking firm
Cabletron Systems Inc. recently
filed to spin off its Riverstone
Networks Inc. unit, which builds
Ethernet gear.
“What all these firms are doing
has never really been done
before,” said analyst Andy Cray
of Boston-based researchers
Aberdeen Group Inc. “Ethernet
was never designed to work
over longer distances.”
Ethernet is specifically
designed for delivering data. A
lot of data today are sent using
technology developed for voice
services.
Ethernet allows all data to
travel simultaneously through
the network. Voice technology
requires tying up a whole
connection for traffic even
though that traffic may only
need a little bit of space.
Ethernet’s also more flexible
than other high-speed data
delivery services. If a customer
wants to go from a digital
subscriber line to a faster T1
line, a work crew would have to
go out and install a new
connection.
Ethernet is like a water tap.
The spigot can be turned up or
down to deliver any speed. It
goes up to gigabit speeds - 1
billion bits per second. So
there’s plenty of headroom for
increasing service.
Plus, Ethernet equipment is
generally cheaper than other
types of gear. High-speed
Ethernet service would cost a
business $6,000 a month vs.
$18,000 with other methods.
Customers Interested
Newer Internet service
providers like Yipes
Communications Inc. and
Telseon Inc. got hooked on the
idea of offering cheaper, more
flexible Ethernet access. “It’s a
very different way of building a
network,” Cray said.
Foundry believed if it could
hook up buildings to the
Internet, why not hook up other
parts of the Internet. After all, it
would expose them to a much
bigger market.
So it introduced a core router -
a piece of equipment that
dishes out data over
long-distance networks. This is
the same market now owned by
Cisco Systems Inc. and Juniper
Networks Inc.
Foundry has won some
contracts recently to supply
core routers to America Online
Inc.,Yahoo Inc. and Earthlink
Inc. Still, Foundry will have
some catching up to do in this
market.
“Its going to be harder for them
to find non-Cisco and
non-Juniper accounts,”
Pykkonen said. “They’re going
after those same markets.”
Foundry also began offering
Web switches. These
specialized products attach to
computer servers. They
scrutinize incoming Web page
requests and direct them to the
best server for those data.
Like core routers, this is a
high-growth market with a lot of
activity. Web switch makers
have recently been a favorite
acquisition target. Nortel
Networks Corp. bought Alteon
WebSystems Inc., and Cisco
bought privately held
Arrowpoint Communications.
“Foundry in the last year and a
half has gone in three different
directions,” Pykkonen said.
“Last quarter it hadn’t grown as
much as Extreme and Alteon.”
Extreme, meanwhile, stuck with
its main product line. Instead of
building Internet core routers
itself, it formed a partnership
with Juniper to make sure their
products work together.
“That’s a much more sensible
thing to do,” Cray said. With
new fiber-optic networks, core
routers are complex to develop.
Extreme also is making a foray
into optical networks for cities.
Its switches have technology
that puts multiple light signals
on one fiber. That means
service providers need only
one fiber instead of several to
deliver different types of
services to customers.
“For newer carriers, they can
maximize use of the fiber they
buy,” Cray said. “It makes
sense as bandwidth needs
increase.”
Extreme scored something of a
coup earlier this year when
3Com Corp. decided to exit the
business networking market. In
return for an equity stake,
3Com began referring its
business customers to
Extreme. That deal alone
added $100 million to
Extreme’s annual revenue.
Though Extreme and Foundry
took different paths, analysts
are optimistic about expanding
uses of Ethernet gear. “They’re
at the edge of a whole new
opportunity,” Cray said. “Large
swathes of access networks
are opening up to Ethernet.”
Return to top of page
Also In Friday's
Internet &
Technology:
King Of The Hill:
Web hosting giant
Exodus
Communications
agreed to acquire
Global Crossing's
Web hosting unit,
GlobalCenter Inc., in
a $6.4 billion stock
deal.
Wireless
Workers: A
business-education
consortium is
developing college
curricula for
budding wireless
industry workers.
E-Learning:
Centra Software
Inc. specializes in
Web-based
education and
collaborative
software. In an IBD
interview, CEO
Leon Navickas
discusses the
trends in this
lucrative segment of
B2B commerce.
Computers Made
Plain: Hard-to-find
maternity wear isn't
so hard to find
anymore.
GapMaternity
clothing is available
exclusively at the
retailer's Web site.
And there are
others out there too.
Data Bus: Online
ads.
Tech Analysis:
IBD scans its
database for
leading technology
stocks and charts
featured companies
on the Internet &
Technology pages.
At What Price?:
Customers of
Amazon.com
recently found out
they paid different
prices for the same
product. The
company claims it
was conducting
random pricing
tests, but skeptics
have a different
view.
Follow The
Leaders: Each
day, IBD profiles a
top technology
industry group and
rates the companies
within the group by
their combined
Relative Price
Strength and
Earnings Per Share
Ratings.
Tech Special
Section: Internet
services are
adapting to mobile
devices, but is
wireless technology
good enough to
support
e-commerce? As
part of our special
technology
coverage, we look
at the efforts of
retailers, medical
services, travel
Web sites and
others, as they
attempt to go
wireless.
Tale Of Two
Networkers:
Foundry Networks
and Extreme
Networks both
came public last
year amid high
hopes, but it's
Extreme that has
the upper hand so
far thanks to a
tighter market
focus.
About Internet &
Technology |
