Synopsis from BancAmerica ROBERTSON STEPHENS
(A S C E N D C O M M U N I C A T I O N S April Update: Why we continue to strongly recommend ASND)
BARS says that they believe that current [market] expectations for ASND's ATM revenue stream in 1998 lie in the range of $300m to $350m and expectations for core switching for the same period range from $500m-$560m.
BARS says that they believe these expectations to be " considerably below the realistic potential of Ascend's ATM and total core switching revenue in 1998." and that they expect published consensus estimates will rise throughout 1998 and 1999 as carriers ramp deployment of the STDX9000, the CBX500, and the GX550 switches.
BARS then gives several examples of contracts that they believe are not fully recognized in today's consensus estimate for core switching at Ascend.
Williams $150m-$200m
Williams' core network will be based on Ascend 550s populated with the new OC48 cards (which carry higher margin interfaces) and the edge network will be based on the Ascend 500 and 9000. BARS says that "In conversations with Williams, they indicated to us their intentions to build this network as aggressively as they could and anticipated possibly spending another $50m-$100m on Ascend switching equipment if they were able to keep on plan. As Williams ramps their wholesale offerings, we believe they
will aggressively move into retail data and will continue to place incremental orders for Ascend switching equipment.
GTE/BBN $100-150m
BARS feels that there are a number of things happening that are benefiting Ascend core switching at both the ILEC side (GTE) and CLEC side (BBN) of GTE. BARS says "At the traditional GTE unit, we believe that their 5 year $1 billion strategic agreement with Cisco has been canceled. We believe that going forward the run rate of this relationship will be a maximum of $50m per year. In conversations with GTE, they have indicated to us their desire to buy their core switching equipment from Ascend. "
BARS adds that the BBN unit has also recently announced a contract with Ascend for approximately 30 frame and ATM switches. "After conversations with them, we believe a more accurate representation of the contract size is in the range of greater than 200 frame and ATM switches from Ascend and that a significant portion of these are 550s."
Qwest minimum $100m 1998
BARS says that while still remaining IP-centric, Qwest recently announced its intentions to deploy nation-wide ATM and frame relay services based on the Ascend 9000 and 500 by Summer, 1998. BARS says that although the release did not quantify the size of the contract or deployment, they believe that their intentions are to offer the services in 125 cities by the end of the year. BARS says that "In order to roll-out 125 PoPs of frame and ATM services, Qwest will have to build a nation-wide ATM backbone as well. This will be based on Ascend 500s and 550s as well."
Level 3 $50m-150m
BARS says that Level 3, the other IP-centric carrier and very similar to Qwest, is aggressively lighting fiber and building a data and voice network. BARS adds that "we have learned that Level 3 plans to start a large-scale ATM and frame relay deployment in 1998. We believe that the switched portion of Level 3's network will be based on Ascend equipment. Furthermore, Level 3 recently announced a $150m acquisition of XCOM -- a CLEC based in Boston. XCOM has a number of strategic agreements with Ascend and their entire voice access and data remote access offerings are based on proprietary XCOM software that runs on Ascend TNTs."
Bell South (BLS) $100m
BARS says that The CLEC unit of BLS is currently in the middle of designing a new inter-LATA data network in their unregulated territories. "We believe Cisco was recently awarded the layer 3 router portion of this build-out. We believe the layer 2 switching RFP is sized at approximately $100m for ATM and frame switches. Our understanding is that as of last week the short list has been narrowed down to
Ascend and Newbridge and the decision will be finalized very shortly. We believe the majority of the contract will be awarded to Ascend for a number of reasons. In recent conversations with BLS, the frame relay and ATM networks in the regulated territory are based entirely on Ascend equipment and BLS has been very happy with their choice and has no complaints. Additionally, the severity of the Cisco BPX failure during last week's AT&T frame relay outage plays very well into Ascend's hands. The frame relay network went down due to the BPX's inability to reroute traffic and handle signaling between switches. Ascend has a distributed signaling architecture and is known as having the best rerouting capability among ATM switch vendors. The Newbridge 36170 has a centralized architecture and has trouble with both signaling and rerouting and the BPX has trouble with rerouting due to software issues. Last week's events at AT&T (especially the tens of millions of dollars lost as they repay their customer's SLA agreements) were very fresh in the minds of the operations guys at BLS when we talked to them earlier this week." [Wow!]
AT&T minimum $50m 1998
BARS says that they believe "AT&T's intentions for 1998 are to build an ATM network with dimensions of a magnitude that will stun the telecom community as AT&T's begins to realize its plan to migrate all of its services to an ATM core. We believe T is currently in the midst of designing this network, but is waiting for Lucent's 80 channel WDM product before they begin to deploy significant amounts of hardware. We believe the ATM network will include Lucent Globeviews in the deep core, surrounded by a core of Ascend 550s, surrounded by Ascend 500s and 9000s at the edge. We also believe the current Cisco BPXs and Newbridge 36170s in the network will be pushed to the edge in order to support some of AT&T's frame relay services." [Double Wow!]
Bell Atlantic $50m
BARS says that Bell Atlantic expects to spend $1.5B in 1998 on transmission equipment for an inter-LATA network. Currently, a large majority of the switching installed base at Bell Atlantic (and the original Nynex territory) is based on Ascend ATM switches. BARS says that "In conversations with BEL, they have indicated to us their satisfaction with Ascend and have hinted at future ATM deployment based on Ascend 500s and 550s. However, no contracts have been awarded yet.
PSINet $50m
BARS says that half of PSINet's network of 300 PoPs have ATM and frame relay switches from Ascend in them. Additionally, PSIX just announced the completion of a $600m debt offering in order to raise cash for further network build-outs. BARS says that "In conversations with PSINet, they indicated their intent to fill their other 150 PoPs with frame relay and ATM switches from Ascend. Finally, PSI recently signed a contract with IXC Communications to receive 10,000 route miles of OC48 fiber and we believe part of the upgrade at PSI will be for 550s in the core.
MCI minimum $30m 1998
BARS says that MCI and AT&T have the biggest frame relay networks in the world. MCI is
currently in the process of upgrading their frame relay network which is comprised of 130,000 ports and more than 600 Bay BCN routers. BARS says that "Because Bay never invested in their frame relay technology, MCI has decided to look elsewhere for their upgrade -- our understanding is that the upgrade will be based on Ascend 9000s and 500s. Additionally, we believe MCI is currently building out its ATM backbone. While there are currently 22 Newbridge 36170s in place for ATM we believe future ATM upgrades will be at a minimum of 50% Ascend equipment." [Awesome!]
LCI minimum $30m 1998
BARS says that LCI completed an extensive evaluation process between ASND, NN, CSCO, and NT, and that LCI has standardized on Ascend for their ATM and frame relay deployments in 1998. "After conversations with the operations staff at LCI, we anticipate that the initial upgrade will be based on 30 550s and 28 9000s. We expect to see further announcements between Ascend and LCI in the Spring Interop timeframe that will detail additional deployments of Ascend equipment."
BARS closing comments are that "Ascend is currently at the forefront of a strong new product cycle in core switching that is leading to a tornado in demand for their entire core product line. There is no other portfolio of ATM and frame relay hardware and software that can compete -- in fact, one large carrier described the current competitive environment as "a field day" for Ascend. While systems vendors are always in a state of 'leapfrog' with their speeds and feeds on these platforms, we feel that Ascend has other means of differentiating their products outside of a numbers-by-numbers comparison. Additionally, we believe that an examination of the competitive landscape yields little in 1998 that could be considered threatening to Ascend's core switching position within the industry.
BARS also put out a second report, much more technical than the other one. There is no way to adequately synopsize it, so I will include several long quotes:
BARS states that "carriers are installing ATM for more than just a simple transport mechanism. We believe that this benefits Ascend extremely well as Ascend is known among the legions of service providers as having not only some of the best hardware available, but also the best ATM software in the industry. As more of ATM's feature set is utilized, the software on a switch becomes that much more important. For complex switching products such as these, and as other core switching vendors have discovered, software can be the Achilles Heel of any hardware product. The reason Ascend's software is best-in-class is that they very smartly took the code-base from their original STDX8000 product and ported it first to the STDX9000, then later to both the CBX500 and GX550 and therefore have gained 8 years of software debug whereas most competing products are still in the first or second year of debug."
"Due to the frame relay outage and the cause of the failure at AT&T last week, we feel that going forward carriers will look very keenly on the rerouting and fail-over capabilities of any core switch they are thinking about purchasing. This positions Ascend well, as their switches uniquely support rerouting and protection capabilities similar to the underlying SONET infrastructure. Every line card has a signaling and rerouting ASIC on it and there is also a 'Smart-PVC' mechanism which polls circuits every 80ms for error and reroutes on the fly."
[This next part is extremely interesting!]
"Finally, a quick note about the hardware in the GX550. Carriers are extremely limited in the amount of rack and floor space they have in their COs or PoPs and look favorably at any switch which is competitive while maintaining a small footprint. We won't name any names, but most of Ascend's competition have built or are building core switches which claim to have backplane bandwidths of hundreds of gigabits per second or even terabits, but what they don't tell you is that to obtain this capacity you have connect sometimes 10 to 20 different smaller capacity switches together! Furthermore, we know of at least one vendor that is building a core switch which is currently the size of a refrigerator! There are very few carriers we know of who would choose to waste that kind of precious rack space. Lastly, it is one thing to build an ATM switch that has tens or hundreds of gigabits of capacity, but it is extremely difficult to have low enough latency across the switch to yield a throughput that matches that capacity. Typically, core switches comprised of multiple units trunked together have eye-popping aggregate capacity, but very low throughput. We talked to many different service providers who had GX550s in their labs filled with OC48 interfaces that were yielding throughputs in line with the 25Gbps bandwidth of the switch by maintaining very low latency from input port to output port."
BARS adds a standard disclaimer that BancAmerica Robertson Stephens maintains a market in the shares of Ascend Communications and has been a managing or comanaging underwriter for Ascend within the last three years. |
