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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Thomas Mercer-Hursh who wrote (42796)	5/18/2001 11:37:35 AM
From: Judith Williams	Respond to of 54805

Thomas-- Does this suggest that large complex networks, which were once "hard," are becoming commiditized? This is the question that was behind my response to your first post. It was a nettlesome issue when I was doing the JDSU network report and led me to conclude that JDSU was neither king nor gorilla--yet. The movement from components to modules would promise greater end-to-end solutions. But--and this is a big but--unless those modules became smart and more software intensive, I could not see the aggregation as much more than convenience. As Bruce points out, it is not the speed or the optical strands supported alone that give the edge, but the imbedded intelligence in directing signals around the network. Otherwise we are just talking about better mousetraps and capital-constrained customers will still have the option of selecting a less elegant trap that manages to the job done with relative efficiency. --Judith Williams

To: Thomas Mercer-Hursh who wrote (42796)	5/18/2001 3:03:04 PM
From: Bruce Brown	Respond to of 54805

It sounds as if one way to paraphrase your description would be that the networking equipment market mushroomed dramatically over the last three years, except for the recent and presumably temporary constriction, and that multiple competitors have been successful at carving off some fairly substantial and growing segments of this growth, possibly starting with an advantage in a single category, but developing this into broader share. Well, run the total router market revenues of the latest quarter with the total router market revenues of Q1 in 1998 and do the division to get the percentage growth. Pretty impressive. And it isn't over yet - by a long shot. Yes, there are divisions within the router and switch market that address customer end needs both on a hardware and a software basis. If this is a fair summary, it doesn't sound very gorilla-like. I am particularly interested since the reasons given for Cisco's [one-time?] dominance were their software, which presumably addresses integration and control issues in complex networks, and their end-to-end solution. Yet the picture that you seem to be painting here has competitors able to sell point solutions with considerable success. Whoa! You have to break down each niche market to see what it is they do and what the game is within that respective market. On the IP Core market, we're talking a highly software intensive game where the Cisco IOS was the early leader in the software/hardware combination and became the standard with about a 70% market share. Pretty tough barrier to entry to crack in the enterprise. Then along came Juniper which 'cracked the code' and made their JUNOS software interoperable with the Cisco equipment. Nobody else has cracked that 'code' to make their IP core equipment interoperable with the Cisco gear. Of the larger players in the space, Foundry gave up in the core software interoperability (and the core space) and Avici runs their own OS. Hence, the market is Cisco and Juniper's to own/share/fight over or whatever at this point in time. Tony Li, who is famous for his work at Cisco and Juniper, is now toiling and working at the private company - Procket Networks. Who knows what will transpire from that firm once we know exactly what it is that firm is working on between their secret, sacred walls? Tony and a poster from Cisco, debate on regular basis on the Fool Juniper board about MPLS-TE and customer needs in IP. According to their 'debates', end customer needs continue to have broken problems that need fixing and firms are addressing these needs from different angles. All broken problems and fixes are not the same. Yet, the IP Core market is only 'one' of the markets within the broader scope of the next generation networks industry. "Switches and routers galore" seems to aptly nome the industry. MAN, WAN, SAN, FRAN, DAN, PLAN, CAN, STAN - you name it. Does this suggest that large complex networks, which were once "hard" are becoming commoditized? Here again, the complexity of the networks and the needs of the networks are not universal. Whether we are talking ISP, CLEC, etc... - it is not a one size fits all market both on the hardware and especially on the software side. In fact, they are way over the heads of our understanding as retail investors in terms of determining which company needs what solutions for their network. It's just not that easy. No way. Yet, there has been a plethora of companies with fixes that came to market which will not survive. This is a classic gorilla game hardware/software combination scenario that leaves the technologies 'not chosen' as potential road kill. Some of the games are not as software intensive and do lead much more to what you hint as being a commoditized game. The Ethernet Switch game certainly lends itself to this category and it is no mistake that this happens to be the largest market segment in terms of revenues and ports shipped. Hence, the large number of players within the space. If you study the margins throughout the various spaces, you will find a range with the higher gross margins going to what most believe fit more into the category of a gorilla game. Plenty of lower gross margin games going on to support your commodity thesis within the router/switch markets. It really is a vast space to study (until some consolidation takes place) and can't be narrowed down to a one size fits all category - both on the hardware and the software sides. BB