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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: The Phoenix who wrote (12579)	2/19/1998 6:10:00 PM
From: sepku	Read Replies (1) \| Respond to of 77399

I wasn't too convinced on the author's hypothetical musings that suggest CSCO and ASND will come to resemble Gateway and Dell, someday becoming distributors of hardware rather than manufacturers. I think he's trying to look way too far into the future, considering how quickly this industry evolves. I don't understand why CSCO or any of the other top 5 networkers would cease manufacturing AND distributing their hardware? He brought up the possibility that more and more networking companies (particularly start-ups) would begin licensing proprietary technology rather than developing it themselves, and I guess that is certainly likely to some degree. Some processes in the manufacturing of hardware can be outsourced, such as chips -- but this practice has been going on for some time now. I cannot see the parallel he draws between Intel manufacturing the guts of the PCs and the box-makers as the assembler/distributers, to the networkers. Since when has Dell, Compaq, or Gateway ever manufactured AND boxed their computers from the inside-out like SGI still does? If anything, there are signs today that the industry may move in exactly the opposite direction of what the author suggests. Check out these two announcements today: ------------------------------------------------------- UUnet Targets Small Businesses selling ASND's RA By Randy Barrett 3:30 PM EST UUnet Technologies Inc. is targeting the small-business market through reseller agreements with leading hardware manufacturers. The new program includes partners 3Com Corp., Ascend Communications Inc. and Whistle Communications. Each will provide hardware for a new package of Integrated Services Digital Network and local area network services aimed at small companies using UUnet's network. "The small-office buyer wants to be told pretty much what to do," said Rick Mealy, manager for channel development at UUnet. UUnet will offer the services at discounted rates and will waive installation fees. The final price tag: $249 per month for the first 10 months. Resellers can earn commissions of $300 to $700 per customer, Mealy said. The new offering represents a newfound interest by UUnet in the small business market. To date, the Fairfax, Va.-based Internet provider has sold dedicated access to large corporations. The new program will depend on 25,000 resellers belonging to Marisel Inc. "We can't get to [the small-business market] with the sales force we have," Mealy said. ------------------------------------------------------- UUNet Negotiates Bundled Solution selling ASND's Pipeline 50 and Pipeline 50 with Firewall By Ed Sperling Internet service provider, UUNet Technologies Inc. is negotiating to sell a bundled solution through all the major distributors that will offer hardware from 3Com Corp., Ascend Communications Corp. and Whitle communications with its own Internet services. The company signed a deal with Merisel Inc., but sources close to the company say similar deals also are under negotiation with MicroAge Inc., Tech-Data Corp. and Ingram Micro Inc., to name a few. UUNet, a wholly owned subsidiary of WorldCom Inc., declined to comment on those talks. Bundling best-of-breed products from multiple vendors into a single solution is not a new idea. Companies such as Novell Inc. and Hewlett-Packard Co. have attempted to do the same thing, but with little success. "The problem was that those companies didn't want to go to market with other vendors," said Rick Mealy, manager of channel services at UUNet. "We saw this as a chance to get into the small office. UUNet is situated well in the medium and high end. What we wanted was to take on VARs that understand the small business market and arm them with integrated solutions." That solution consists of 3Com's OfficeConnect 521, Ascendes Pipeline 50 and Pipeline 50 with Firewall, and Whistle's InterJet 140. UUNet has tested all the products and certified they all work together, and is offering commissions of $300 to $700 per sale. In addition, the company is offering resellers' customers substantial cuts on first-year hook-ups and service to help win sales. ---------------------------------------------------- So it looks to me like the networkers will remain primarily manufacturers/distributors, while there may soon be a new market that will consist of resellers/distributors of networking gear -- offering packaged solutions of the "best-of-the-best" equipment from several vendors to the customers. You brought up software. Remember that NN article that I forwarded here yesterday? Here are two excerpts: 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%.) Network management software is a boon for Newbridge's big customers as well, in that it promises to make ATM not just a cost saver but an attractive new revenue source. Here's how: once networks are pooled into a single ATM blob, the management software easily allows its operator to chop up the result into a nearly limitless number of virtual private lines for resale, with the level of service tailored to customers' needs and budgets. At the same time, Newbridge's network management system generally makes it more cost effective for private network customers--such as banks--to let their service provider run their virtual private network rather than continuing to do it in-house. "The network provider is now managing the services, right, the valuable thing," says Matthews. "They're moving up the value chain from basic transmission." 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. There is no way the networkers are going to solely become distributers and lose out on the lucrative software side of the networking business. The margins are higher than hardware and upgrades are added income long after the initial sales of equipment. Software generally holds a fat 90% profit margin. Only with CSCO -- considering its partnerships with MSFT -- can I imagine this segment being licensed out since the software giant will likely want a piece of this pie. Style Pts.