Dow Jones Newswires -- August 11, 1999
SMARTMONEY.COM: Yet Another Cisco Killer
By Tiernan Ray
Smartmoney.com
NEW YORK (Dow Jones)--STOP ME if you've heard the one about the company that's trying to challenge Cisco Systems (CSCO).
In the past 18 months, it's become a joke how many companies have crept out of the woodwork to try and take on the king of routers with communications equipment that can send data over networks at speeds of several billion bits per second. Pluris Networks, Avici, Nexabit, Netcore - the parade of awkwardly named startups has been really fun to watch. In fact one of these startups, later acquired by Cabletron Systems (CS), two years ago christened itself Yago Systems, an acronym for "Yet Another Gigabit Outfit."
Well, there's yet another gigabit outfit on the market, and its emergence just goes to show that you don't have to be young, and you don't have to have scads of venture-capital money to take on Cisco. The challenge comes from a relatively small company, $387 million (market cap) MRV Communications (MRVC) of Chatsworth, Calif., which has been around for 11 years and had revenue of $264 million last year. MRV has an intriguing multipronged strategy to take on the $193 billion Cisco (and everyone else).
Although it offers a "Big Fast Router" like a lot of other companies, this time the issue is not, as with so many startups, to make a faster machine.
This time it's the software, stupid.
Cisco's gear contains a lot of software to run the various communications protocols that give the Internet structure. In many senses, Cisco is really a software company disguised as an equipment company. In the past year or so, the company has come under increasing scrutiny for structural problems with its proprietary operating system, IOS. Some believe an opening exists in the market for a more credible software package that could challenge Cisco.
With a stunning display of chutzpah, MRV is developing a router that runs on the freeware Linux operating system, which the company hopes to put up against IOS. The idea, says CEO Noam Lotan, is not to take on Cisco's biggest, fastest routers, but to exploit the need for better software among Internet service providers that use many of the older versions of Cisco's gear, such as its venerable 7000 line of routers.
It's all part of MRV's struggle to recover from a rough 1998, when pricing pressures hit its fiber-optics business, and a third-quarter warning made the stock drop 53% last Aug. 28. MRV is selling off the division that makes fiber-optics components and optical cross-connects, which generates abou t 20% of revenue, and focusing on the NBase division, a networking-equipment subsidiary that accounts for the balance of revenue. Shares of MRV have been picking up recently, rising 63% in the past six months.
The Linux project is not entirely new. Linux has been doing routing duties for a while - by some estimates, it is responsible for as much as 75% of the world's routing installations. But that is mostly for small-scale routing where the bandwidth being moved is limited. MRV is putting Linux on steroids: The company will be offering a multiprocessor router, with four chips running Linux in parallel, and a possibility of eight or more chips in future, backed up by chips from MMC Networks (MMCN) that can move packets of data at speeds of 10 gigabits.
More important, existing Linux routers usually run BGP software on a desktop workstation, separate from the so-called switch matrix, the fast IO ports that actually transmit the data packets. MRV says that in its Linux router, the multiprocesing module that performs the routing functions is connected directly to the MMC chips over a shared backplane, which means routing and switching should function as an integrated device. That's important for performance and reliability.
In addition, the company is selling a piece of software to run on Linux, called BGP. In crude terms, BGP software sends data across the Internet by playing the game "Six Degrees of Kevin Bacon." In that game, individuals amuse one another by piecing together the myriad wa ys in which they could be connected to the actor through a chain of associations: someone knows someone who went to high school with Bacon's publicist's hairdresser, for example.
Likewise, when someone wants to reach, say, the SmartMoney Web site, a BGP router at her ISP gathers information from all the routers on the Internet, and runs a mathematical algorithm to determine which chain of routers is the most direct pathway by which the individual's data packets can reach the SmartMoney site. BGP has a really big address book to work from, and sends messages frequently to keep it up-to-date.
MRV's Lotan thinks the combination of a multiprocessing BGP and "open" software via Linux could make a killer data switch for ISPs.
It's a steep bet. There's already one software play in this space, Juniper Networks (JNPR), which went public on June 25 at 34 and soared to 98 7/8, closing Monday at 162 7/16, giving the company an $8.12 billion market cap after just beginning sales to ISPs. (Revenue was $27.6 million in the last six months.) The fact that Juniper stole away several of the top software developers at Cisco for its own BGP and operating-system software is a large part of the company's current appeal.
Juniper's box is not as fast as some on the market, but its operating system, which is based on another free version of Unix, BSD, is widely considered superb, and the company claims its version of BGP can support hundreds of thousands of Internet "routes" - a huge address book. That's importa nt because as the Net increases in size, the number of possible routes increases as well.
MRV is undaunted. The company invested several million dollars in an Israeli startup called Charlotte's Web last year. Charlotte's Web is building its own multigigabit router and its own BGP software to compete with Juniper and Cisco. The Linux router, on the other hand, will create a new market. BGP routers sit on parts of the network where ISPs may want to provide special services. The Linux router, because it's open source, could have new software features added by ISPs in order to add those services. Mary Jane Gruninger, NBase's head of engineering, says using Linux means programmers can access very deep features contained in the router's switching hardware.
"You could do packet tracing and network statistics and tie those into your billing applications," Gruninger explains.
So far, the response from the experts is extreme skepticism.
"I think Linux is a pretty good marketing gimmick," Joe Skarupa, director of switch & routing research at San Francisco consultancy RHK, recently told me. "I don't know of a service provider on this planet that would let somebody go in and hack around with the routing protocols and then just stick [the router] back in the network." In all, the strategy sounds loopy. With all due respect to the technical team at MRV, how can a small cap that's been making fiber-optics parts for most of its life suddenly become a valid Cisco challenger by leveraging a radical software technology into a product niche that may not even exist, within a market (telecom) with long buying cycles and conservative standards? Crazy. Still it's audacious, but the focus on BGP and programmable networks is certainly with the times. What's more, MRV reportedly has several other gigabit products in the works, including a piece of equipment for cable networks that's similar to products offered by Redback Networks (RBAK). That might add some broadband luster to MRV's stock. This should be one of th e more interesting sagas to watch.
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