Excellent article. Thanks for posting.
I've highlighted a few segments that stood out:
207.183.153.23
Those same third-quarter numbers hold lots of promise, however, for those who have faith in Matthews' decision in the early '90s to hang Newbridge's future on a newer generation of asynchronous transfer mode (ATM) networking technology. In the latest results, Newbridge's ATM sales were up for the ninth consecutive quarter--with orders more than twice what they'd been a year earlier. Overall, ATM products now make up about half of Newbridge's sales and the company claims to have a 40% global market share. . . .
What Newbridge's future ultimately comes down to, then, is whether it can achieve fast enough growth in its ATM business to offset declines in other areas and maintain market leadership. Where there is little disagreement is that this year and next will prove whether Matthews and his believers are right or wrong. . . .
. . . ask Matthews about Newbridge's future, and he paints an audacious picture. "Take a look at the fact that the data networking industry is now a US$100-billion-plus market and the telephony infrastructure is worth US$150 billion," he says. "There's a US$250-billion market It's unlikely I'd take all the market, but I'm having a go at it. And it's a long, long way up before I reach a ceiling. . . . "
The catch about making the plumbing that supports ATM is that it's an open industry standard. While Newbridge may have been one of the early entrants into the market--and still holds a technology lead in some segments--it doesn't have any special patent protection or trade secrets. For this reason, it helps to look at the ATM network equipment market as something akin to the ink-jet printer business. The printers themselves aren't particularly profitable, but absurdly high margins on replacement ink cartridges more than make up for that. In Newbridge's case, producing networking equipment is the burden it carries to get into the really lucrative network management software segment. (One industry analyst estimates that the gross margins on Newbridge's software are at least 90%. While its equipment margins are lower, the same analyst still pegs them at about 60%, which is well above industry standards--Northern Telecom's overall gross margin, for example, is about 40%.)
Because of Matthews' past, Newbridge has been careful to make sure its ATM networks don't make phone companies immediately dump the billions of dollars worth of voice switching equipment they haven't fully amortized. "You cannot toss out the old stuff, you can't do that," says an obviously agitated Matthews, the volume of his voice quickly rising. "That's tough for the new guys like Cisco. They say: 'Everything will be new and shiny.' No it won't. No! No! No! You have to have all of the legacy capabilities. There's never been a new technology that clears out the previous one, not in the telco industry. People have very important, mission-critical applications running, and they don't like big, big changes . . . ."
Recognizing that most telephone companies would be reluctant to entrust their core network operations to a company the size of Newbridge, Matthews formed an alliance with the telephone equipment branch of the German industrial giant Siemens AG in 1996. "We gained about 18 months to two years on the competition by joining together," says Jeff Matros, vice-president of marketing for Siemens Telecom Networks. Matthews, Matros adds, was also part of the attraction. "We competed against him when he was at Mitel and it's a lot better working with him than against him."
Now, the companies share R&D and work jointly on designs. Newbridge builds the small to medium-sized ATM switches (by far the biggest sellers), while Siemens produces a huge version that can wrestle one trillion bits of data--a product that not even Lucent Technologies, the world's biggest communications equipment maker, can match. All of the products are marketed under Newbridge's name.
Already, the alliance has scored some impressive gains, including major contracts with BT, Washington, D.C.-based MCI Telecommunications Corp., Swisscom, NTT in Japan and nearly all major Canadian phone companies as well as their Stentor network alliance. When Bell Canada went shopping for an ATM switch supplier, recalls Bell's vice-president for broadband services, Trevor Anderson, "It was pretty clear that Newbridge was amongst the world leaders." In the end, Bell picked Newbridge for the critical core switches, the top of the equipment food chain, while relegating ATM products from its corporate sister, Northern Telecom, to the fringes of its system.
Although it's sometimes hard to put a meaningful dollar value on these deals at the outset, they are huge. The BT agreement, for example, is worth an estimated $560 million over three years. About 90% of the contract's value will go to Newbridge and a couple of affiliates. It's all part of BT's plan to become the first major telephone company in the world with a fully ATM-based network. If past history with previous technology is any indication, the initial contract is only the beginning. Software upgrades will keep the money rolling in for years to come. . . .
In the big scheme of things, however, Newbridge will live or die by its success in the bigger ATM market. And right now, nearly everyone agrees that Newbridge offers the most advanced ATM technology for telephone companies and big Internet service providers. But others are moving in. Cisco Systems, which dominates the corporate networking market, bought its way into the ATM market through the takeover of StratCom Inc. in 1996. Since then, Cisco's ATM success has been limited mainly to Cisco's traditional private network market. While some telephone companies have installed Cisco machines, the hardware hasn't proven itself well-suited to the segment's needs. However, Cisco's flawless financial growth helps make it a formidable competitor.
Another potential threat from Cisco's end of the market may come from computer networking equipment maker Ascend Communications Inc. of Alameda, Calif., which bought ATM maker Cascade Communications Corp. last spring. Again, the private network world seems to be its main market, but it has sparked some interest with US telcos.
Anyone looking for other clues may have missed a BT announcement that was issued only hours before Newbridge divulged its dreary third-quarter results earlier this month. In essence, BT announced it was about to start a $705-million network modernization program--one built around the ATM deal it made with Newbridge last fall. The announcement was almost eerie, in that it sounded exactly like Matthews' own ATM sales pitch: emphasizing ATM's ability to handle all types of communications in a single, centrally managed network that's quickly and easily reworked.>>>> |
