"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.''
investors.com
(C) Copyright 1998 Investors Business Daily, Inc. |
