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Q. Can you migrate to ATM from Ethernet, or can
you just upgrade?
A. Typically, if the customer has a large installation
of shared hubs, typically the shared hubs can
aggregate onto a high density closet-type switch,
Layer 3 switch that we offer today. Our PowerHub
product line can do that very well. We'll offer
next-generation switches that can facilitate this very
well. It's essentially bringing shared hub traffic onto an
ATM backbone infrastructure. And financially
customers are amortizing the costs for the shared
hubs. As the shared hubs begin to fall off the
amortization schedule they can begin to upgrade them
to switches out on the edge and have desktop
switching, either 10-BaseT or 100-BaseT, or 10/100,
whatever they need or ATM, for that matter. So, they
can actually, with their Layer 3 edge devices can
migrate shared hubs an ATM backbone infrastructure
and evolve the network over to switching, whether it
be ATM or Ethernet, out on the edge.
Q. So, when you talk to customers, what do they
ask you to build, what are they looking for from you?
A. Well, typically, a lot of the customers that we're
working with today, they have FDDI backbones, they
have a big router infrastructure. It's, again, complex to
manage, it's costly, and it's at capacity, it's essentially
hitting the wall. Some of the FDDI backbones are at
99 percent capacity, and they can't take the
corporation forward They can't implement new
applications that drive a competitive advantage with
another organization. So we have the ideal
opportunity to come in and, at a very attractive price
point, upgrade their backbone, and bring them a very
attractive edge solution that integrates well into the
ATM or cell-based backbone infrastructure, and
provide them a road map, over the next three to five
years, on how their applications can actually be much
better enabled over the network solution that we
offer, and solutions of scale with what they're trying to
do within their own organization. So we actually
provide competitive advantage, a cost savings, and as
a productivity enhancer. There are a number of things
that we bring to the table in terms of how we architect
our solution. And again, it's based on an ATM-centric
focus but it's an integrated solution with other
technologies. But the key difference is how you
architect the solution and design the network for the
customer, I think, which makes a big difference. A lot
of people say they have ATM products, they have an
ATM focus. Yes, we have that, too. We can offer
whatever you want, a little bit like the supermarket
approach. We come in with a much more focused
approach, we come in with a much more focused
architecture. That actually addresses the customer's
needs, in terms of their applications and what they're
trying to get done in their business, competitively.
Q. With your ASX-4000, there's a definite
migration path built in there. You start high but you
can go much higher. Are ISPs one of the markets
you're hoping to attract with that?
A. There are two initial markets for that particular
switch. One is high end large enterprises who - you'd
be surprised at the number of our current enterprise
customers who are very interested in that switch,
particularly in the U.S. Federal Government and many
Fortune 100 corporations - and Microsoft, for that
matter, is very interested in this particular switch. So
there's a big need for high end enterprising. And
what's interesting is that with ASX4000, does not
require to take out any equipment out of the network.
You can essentially drop it into the center of the
network, get a significant boost in capacity and
performance, while at the same time interfacing our
ASX1000s and 200BXs into the ASX-4000. So it
makes for a very nice long-term investment protection
strategy. And in regard to the service provider
market, well, the interest right now is the internet
service providers in particular, but also the service
providers that essentially are transporting IP and have
a business around data. We do have good voice
capabilities but the traditional carriers are not
necessarily a big market for us, because of some of
the feature and requirements that a carrier-class
switch has. The switch will sell very well into the
carrier market, it has a number of redundancy
features, and so on, built into it. But the carriers that
we sell to today, the non-regulated carriers, make
good use of in terms of their infrastructure and service
offerings, and this includes the CLECs markets, the
ISPs, cable TV, competitive access providers, and so
on. We refer to these as the alternative carriers, or
emerging carriers. And over the next six to nine
months, we plan to evolve the ASX-4000 into a
carrier-class switch and will have many of the features
required that a traditional carrier needs for billing and
some other network management features, and so on,
that are important to many of the traditional carriers.
We're doing business with many of these customers
today, and our products are very, very solid, very
stable, they perform very well in carrier networks
today. The ASX-4000 is a very popular product in
many of the alternative carriers that we sell to today.
And the 4000 is extremely attractive to them. And the
roadmap for some of the features that are required for
this market is on the horizon and will be an attractive
sales proposition when they become available, in
probably the first half of calendar 1999.
Q. Can you just tell me what you mean by the
alternative carriers?
A. Well, these are competitive access providers,
local exchange carriers, cable TV companies, and
ISPs, primarily. This represents the big segment of the
core systems service provider market itself. And these
are businesses that have emerged over the past three
to five years, and are growing much faster than some
of the traditional carriers. And they're essentially
building solutions for their customers that require
ATM backbone infrastructure and an ATM service
offering. And we work very well with them. And I
think a lot of what we're calling alternative carriers like
our enterprise capabilities, they like the fact that we
have a large outside customer base and we can bring
enterprise customers to them, they can bring their
customers to us, and it's more of a turnkey solution
for the customer. And we're recognized as an
enterprise company, and our installed base primarily is
comprised of enterprise customers; but on the other
hand we have a very large number of service provider
customers that are growing, and it's probably the
fastest growing market within our overall segment of
revenue categories within the company itself. And as
we continue to grow in our solutions on the edge of
carrier networks and we expand and upgrade the
capacity of the switches that we sell, we'll have a
much more compelling offering to many of the
traditional carriers as well, or the regulated carriers, to
start with.
Q. Right. So you mean, like Sprint?
A. We're doing business with Sprint today, an ATM
service offering in conjunction with Nortel. And Sprint
sells our equipment to enterprise customers as well,
so it's a nice combination. And Sprint is very
interested in other aspects of the product line and the
direction that we're going. Sprint is a very good
customer, and we also do business with MCI, but we
saw MCI as an Internet backbone organization.
UUNet is one of our key strategic accounts in the
service provider market as well, like Sprint and like
MCI, and continues to buy our technology to expand
and upgrade their backbone infrastructure and their
their service offering as well.
Q. So do you think two of the original barriers, or
the recent barriers to ATM, high price and fear of
incompatibility with Ethernet, are dropping away?
A. I think so. The price issue is - let's start out on the
desktop first. We've rolled out very attractive desktop
pricing for OC-3. Our OC-3 pricing per port is about
$400, and the adapter card is just about $500. That is
very attractive when compared to Fast Ethernet that's
out in the market today, price performance
comparison is extremely good. And we will continue
to bring that pricing down. We've brought pricing
down on the desktop about 40 percent, year over
year, for the past five years. And as our volume
continues to grow, we gain more efficiencies, and to
design in cost productions into our product line, we
expect to try to continue to drop the price to be
competitive with other technologies. There's a certain
class of customers that are out on the edge, there are
some that just can't use anything else other than ATM
on the edge of the network, and we take price off the
table as part of the issue, essentially, with the pricing
that we've offered today.
Q. Well, also you continue to refer to your cycle as
three to five years, which is more than twice what
Ethernet seems to be at this point. So, then, if you
take that into account, your pricing drops
dramatically.
A. Absolutely. The architecture in how we design
our network has this longer life built into the design of
the networks that we sell. I think that's an advantage
that we have. And it scales, and that's one of the key
issues with ATM, if we offer 25M bit/sec, OC-3,
OC-12, OC-48, and our switches are architected for
OC-192. So we'll continue to scale in the backbone
and onto the desktop. In the backbone itself, we are -
for enterprise customers, we are very price
competitive with alternative technologies that are
offered in the backbone today, especially when it
comes to the complexity of managing some of the
other alternative technologies in the backbone. When
you take into account the overhead costs and the
infrastructure to support some of the legacy
technologies that are in backbones today, it's fairly
expensive to support all the changes. This is all the
intelligence that we build into our switches as part of
intelligent infrastructure, which actually helps
customers take the costs down of managing the
networks and takes the complexity out of the
networks, makes it simpler to manage, easier to use,
we're plug and play, self-healing, self-tuning. And,
compared to the hardware costs within the network
and software, it's cheaper. So the hard dollars are
cheaper and the dollars associated with managing the
overhead infrastructure, or the network managers
department, are less than, as I said, focused on more
important things for their business. The other aspect of
this when compared to other vendors who are
offering ATM technology, we are very competitive,
and I think that everybody is kind of in the backbone
kept their prices in the same range. There's no wild
deviations, let's say, between Cisco or Bay or us in
the the backbone of the network. In the edge, we're
the only guys who are offering desktop ATM desktop
solutions, and at the price point that we're offering
them, and with the broadest range of adapters and
network interfaces. That gives us a very competitive
advantage as well. So price for ATM is really
becoming less of an issue for customers. For service
provider networks, there's almost an order of
magnitude difference between some of our
competitors, ATM backbone switch pricing as the
pricing that we offer for our products as well. And
that is where we become more attractive. We offer
much of the redundancy features and requirements the
carriers need today, and at a much more attractive
price point. And as we evolve our product line and
our platform to have all of the redundancy
requirements that a traditional carrier would need I
should say, will be at an even more attractive price
point than we're offering in the marketplace today. So
there are bigger disparities in the carrier market, and I
think that's why we are quite popular, amongst the
alternative carriers.
Q. So you think by being an ATM shop that offers
other solutions, that's a strength, rather than, say,
Cabletron or Cisco, which also offers ATM, but that's
not their focus.
A. That's right. And when I refer to our architecture
and our focus, we don't come into a customer and an
enterprise and offer whatever they like. In other
words, if a customer says, whatever you think our
needs is, just put it in and make my network better,
we come in with a much more focused approach.
Because a lot of times customers are looking for
advice. What do you think I should do? What do you
recommend to me? We come in with a very focused
approach that is not necessarily geared towards a
continued upgrade path, and I think customers see
that as attractive. OK, this solution is going to scale,
it's got investment protection built into it, and it
addresses the needs of my corporation in terms of
applications that I want to run over the network. And
I think some of the other suppliers in the industry take
an approach to offer a broader range of technologies
and whatever you like we'll supply you, and actually
focus the customers towards an Ethernet solution that,
I guess, continues to be upgraded, and then with the
promise of we'll offer an ATM infrastructure later, if
you need that, because you really don't need it today.
Where we're a bit different is, I think, we convince
customers pretty quick, or a lot of them already know
that they need a better, more suitable backbone
infrastructure that supports what they want to to do
today. They really can't wait. They see it as a way to
spend more money for continual replacement upgrade
path that's pretty costly to them. So, this is our focus,
and if you look at the profile of our business, over 70
- 80 percent of our business is ATM. We're not
hiding from that, it's how we design and architect
network. And we expect the Ethernet piece and the
enterprise wide area networking technologies and
voice technologies to become a bigger piece of our
solution, a bigger revenue generator, over time. And
conceivably, we could end up with 50 percent of our
revenue being Ethernet and 50 percent being ATM.
That's OK. We won't lose our focus in terms of how
we architect our network and how we design network
for customers. And again, in that focus that we have
today, if you look at the other industry players, they
have a much, much smaller amount of revenues
coming from this 70 percent focus that we have. And
this is why we're different than the rest of the players
right now.
Q. Right. So, as we wind down, just one or two
more questions on the financial side. Do you think
your stock is undervalued at this point?
A. Well, we let the markets determine that. I think if
you look at the past year, we've hit a low of ten
dollars a share, and currently we're trading in the
$18-$19 range. Our stock's appreciated about 25
percent since the beginning of the fiscal year. We're
pleased with the performance. Would we like to see
the stock continue to go beyond where it is?
Absolutely. Are we committed to run the company for
the long-term and add shareholder value? Absolutely.
And our strategy is to manage the company as a
long-term, independent player, a very strong player in
the industry, a leader, and that will bring value to our
shareholders. And the performance of the company,
over time, will drive the market and valuation for the
company itself. So, I don't want to say that it's
undervalued. I will say that we are positioned very
well today to continue to grow, and the outlook for
the company is very good. The demands for the
solutions that we sell is extremely strong, right now,
and I think that's evidenced by the financial results that
we've published recently, and we'll continue to stay
focused and explore the opportunities in front of us
and to bring value to shareholders over time. |
