CISCO READY ON THE BUY SIDE. 12-12-97 from The Red Herring on-line:
herring.com
----------------------------------------------------------------------
CISCO READY ON THE BUY SIDE
The networking giant's most
important acquisition could be in
the Gigabit Ethernet sector.
By Dan Mitchell
December 12, 1997
The supply of private Gigabit Ethernet companies
shrank further last week when Lucent Technologies
announced it would acquire equipment maker
Prominet. As the shakeout proceeds, Cisco CEO
John Chambers continues to boast that his company
is looking to acquire about 10 companies over the
next year in such sexy markets as IP telephony and
data/voice/video convergence.
To be sure, Cisco isn't ignoring Gigabit Ethernet.
Indeed, the company recognized the nascent market
early when it purchased Granite Systems in
September of 1996. And it's more than likely that at
least one more Gigabit Ethernet company will be
part of the next batch of buys. But Mr.Chambers --
increasingly image-aware as networking burrows
into the public consciousness -- wants to appear
hip. And these days, IP telephony and convergence
are where it's at in the marketing world, if not
among technologists.
It's been a while since Cisco has done a deal. Its
last acquisition -- xDSL firm Dagaz Technologies --
came in July. Meanwhile, several startups have
successfully released Gigabit Ethernet products this
year, and some have already been acquired by
Cisco competitors. In June, Bay Networks bought
Rapid City Communications. Then came this week's
Lucent/Prominet deal. Although a common standard
for Gigabit Ethernet won't be in place until late next
year, expectations are that many of the small private
companies will be snapped up soon, and industry
observers say Cisco -- which was rather late in
releasing its Gigabit Ethernet Systems product --
needs to act now. Essentially, "they don't really have
a product yet," says Lee Keough, editor-in-chief of
Data Communications magazine. "They could use
another acquisition."
Target practice
Several analysts point to Foundry Networks as a
possible Cisco target. Since its launch in June 1996,
the switch and router firm has gotten two rounds of
funding totaling $15 million from Crosspoint
Venture Partners, Institutional Venture Partners,
Accel Partners, and Dixon Doll. Other startups
bobbing about in the Gigabit Ethernet froth include
GigaLabs, Alteon Networks, XLNT, and Acacia.
As far as the IP telephony and convergence
markets -- still in their larval stages -- Cisco has
endless choices. The ripest sector in IP telephony is
gateway service, which allows conversations
between a point on an IP network and a point on a
switched telephone network. Companies in this
space include Israel-based VocalTec, which
created the first Internet telephony gateway;
Efusion, which was spun off last year from Intel and
enjoys the backing of Microsoft, Intel, AT&T,
Telecom Italia, France Telecom and Shaw Venture
Partners; Vienna Systems, an Ontario, Canada,
company that makes gateway servers; Array
Telecom, another Canadian company; gateway
software maker Clarent; and a bunch of others.
So far, it's far from certain how successful IP
telephony will be. For one thing, the quality doesn't
yet match that of a switched telephone network.
And while most observers say quality will eventually
be equal, it's hard to pinpoint when. For another
thing, the phone system is a huge installed base that
the telcos work hard to protect, even as they inch
toward an acceptance of packet switching.
"Nobody expects anybody to just throw out the
switched network for IP," says Ms. Keough.
There are even more, and even smaller, firms in the
convergence realm. They are spread across many
disciplines, including systems integrators,
videoconferencing software makers,
bandwidth-management specialists, virtual private
network vendors, and many more. In this space, it's
harder to determine what Cisco may do. "This is
really early days. Nobody can say for sure who's
ready to be bought," says Ms. Keough.
"I don't foresee them buying a system integrator,"
says Ellen Carney, an analyst at Dataquest. "They'll
probably buy technology companies. If nothing else,
it will thwart a pre‰mptive strike from some
startup."
"They're going to need more pieces in voice, video,
and data," adds Virginia Brooks, director of
networking research at the Aberdeen Group. "I
don't know -- maybe IP multicast?" And, she says,
"anything that's software is fair game for putting in
IOS [Cisco's network operating system]."
Add to the mix markets such as network security,
e-commerce, and xDSL vendors, and it becomes
clear that Mr. Chambers' task is not an easy one.
Industry-watchers say -- big as it is -- Cisco needs
help in all these areas if it truly wants to fulfill its
promise of providing "end-to-end" network
solutions.
"It's like a fruitcake," says Ms. Brooks. "The more
stuff you put in, supposedly, the better it is."
Efusion attracted attention with its high-powered round
of funding in September.
Whatever companies it may buy, Cisco is likely to stay
ahead for a long time yet.
If you were Mr. Chambers, what would you go after? Tell
us. |
