IBD ARTICLE ON CSCO/ASND GLOVES OFF....
Gloves Are Off In Market
Pitting Ascend And Cisco
Date: 2/24/98
Author: Michele Hostetler
Networking titan Cisco Systems Inc. has battered
Ascend Communications Inc.'s business walls for
so long that some cracks are showing.
But Ascend continues to hold off Cisco in the
remote-access battleground. This is the market for
products that link far-flung computer networks and
users.
Now, the gloves are off. Cisco Chief Executive
John Chambers recently told IBD that his
company passed Ascend in this market in the
quarter ended Jan. 24, and will take the market
lead this year.
Ascend's CEO Mory Ejabat begs to differ. ''I
don't want to react to something that is bogus,'' he
said. ''We are the leader and will continue to
lead.''
Ascend, though, has had a rough couple of
quarters. It was hurt by a price war and
uncertainty over a standard for new modems that
run at 56 kilobits per second.
That slip has created an opening for rivals Cisco,
3Com Corp. and Bay Networks Inc., analysts say.
But they also say Ascend will be tough to topple.
Big bucks are at stake. The remote-access market
was worth $2.5 billion last year, compared with $2
billion in '96 and $1 billion in '95.
Telephone carriers and Internet service providers
are the major buyers of remote-access gear. The
products include modems and access
concentrators, the fastest- growing segment in
remote access. Working as an on-ramp to the
Web or a big network, these products house many
modems in one box.
''(This year) will be key for Cisco in terms of
market share, to show they can gain in the carrier
market,'' said Kiran Narsu, an analyst with Giga
Information Group in Cambridge, Mass.
The much smaller Ascend, though, might be able
to keep Cisco blocked.
''If anything, Ascend has already hit their low,''
said Tam Dell'Oro, principal of market researcher
The Dell'Oro Group of Portola Valley, Calif.
''They'll be getting stronger.''
For the fourth quarter, Alameda, Calif.-based
Ascend says its sales rose 2% to $292.5 million
from the year-ago quarter. For its second fiscal
quarter ended Jan. 24, San Jose, Calif.-based
Cisco says its revenue rose 27% to $2 billion.
And yet, Ascend steadily has pulled ahead of
Cisco in remote access, says market researcher
Dataquest Inc. in San Jose. There, Ascend's
market share rose to 27.4% in '97 from 11.2% in
'95, Dataquest says. Cisco's rose to 18.1% from
11.1%. 3Com's purchase last year of U.S.
Robotics puts the merged company at the top, but
analysts consider Ascend the leader because of its
dominance among big customers.
Ascend is clearly Cisco's target. Cisco sold $135
million in remote-access gear last quarter, says
Chambers, who also claims the lead.
''That's a fairly bold claim,'' said Brad Baldwin, an
analyst with Framingham, Mass.-based
International Data Corp.
Baldwin says Cisco may be gaining on Ascend,
but won't pass it this year.
Cisco, though, sees an opening. Ascend is having
trouble assimilating last year's $3.4 billion
acquisition of Cascade Communications Corp., in
part because the companies are located at
opposite sides of the country, Chambers says.
''In this industry, you move very rapidly,''
Chambers said. ''If you misstep, it's a very
unforgiving industry.''
Ejabat says the Cascade merger is working.
Cascade accounted for 43% of Ascend's '97
revenue. It added asynchronous transfer mode
and Frame Relay technologies to Ascend's
portfolio, he says.
Several analysts also give the merger high marks.
Cascade dominates Frame Relay, which is a type
of high-speed line used to connect networks.
Cascade had more than one-fourth of the '96
market share for Frame Relay, says Dataquest of
its most recent data, more than double its '95
share.
Ascend, meanwhile, plans to release a spate of
new products in its remote- access stronghold this
year. But so does Cisco. Telephone carriers are
expected to spend more this year in
remote-access gear. They need to upgrade their
networks because they're leasing more space to
Internet service providers. The ISPs need more
network capacity because Internet traffic is rising
fast.
Cisco is integrating voice-video-data capabilities
into its line of remote-access products so it can
sell more gear to telephone carriers.
Ascend plans to appeal to this booming market
with its new GX550 ATM core switch. It handles
heavy traffic on a network's backbone, which is
the core of a network and receives the most
traffic. Scheduled to ship before April, it will be a
key Ascend product this year, Ejabat says.
The new product, which costs $100,000 to
$700,000, could help Ascend recover, analysts
say.
Ascend struggled last year in part because it
upgraded its customers with free 56K modem
technology. But the move may pay off vs. Cisco,
Dell'Oro says.
''Cisco is a very big company, and they have a
tremendous installed base and a tremendous
story,'' Dell'Oro said. ''But if I look at what
Ascend did in '97, they gave product away to keep
hold of their accounts. That goes a long way. I
think they probably bought a lot of goodwill.''
ISPs and carriers are hungry for access
concentrators so they can connect more users.
Yet revenue from the product fell because of
price wars.
Sales of access concentrators dropped to $453
million in the third quarter from $466 million in the
second, says The Dell'Oro Group. It marked the
first quarterly decline ever for the product.
But access concentrator revenue now could climb,
analysts say. One reason is that the industry this
month finally settled on a standard for 56K modem
technology. Still, there's the possibility of more
price wars.
''The price cuts . . . remain a wild card,'' IDC's
Baldwin said. ''They can't be engaging in these
ridiculous pricing wars. Otherwise, I see clear
sailing ahead for Ascend in '98.''
(C) Copyright 1998 Investors Business Daily, Inc.
Metadata: CSCO ASND COMS BAY I/3574 E/IBD |
