Telco Gear Makers Are Also Supercarriers

Cisco Systems leads the way for a new breed of telecom gear companies

P> One-stop shopping may be the predominant business strategy for the new telecom supercarriers, but it's also the battle cry for the gear makers that create their networks.


While telecom service companies have been making big splashes lately with mergers and new product announcements, the manufacturers -- makers of the bread-and-butter switches and routers that make everything work -- quietly have been making their own changes to the telco industry.

Much in the way long distance telephone companies are starting to offer local access and vice versa, throwing in other services such as Internet access and cellular, manufacturers are beginning to sell both local area network switching and wide area network equipment. The service companies were pushed into one another's businesses by the Tele- communications Act of 1996, but the gear makers have new technology and competition spurring their own integration plans.

Highlighting the trend is the recently proposed acquisition of StrataCom Inc. by Cisco Systems Inc. The deal between the two Silicon Valley companies, which is expected to be completed in June, is worth $4 billion. The combination of the two companies allows Cisco to offer a telco equipment smorgasbord. The marriage makes perfect sense: It combines a leading local area networking company (Cisco) with a top supplier of wide area platforms (StrataCom) at a time when customers want networks that can carry all types of traffic.

"By combining our networking technologies with those of StrataCom, Cisco will become the first vendor to provide advanced network infrastructure for the intranet and Internet environments, and the only vendor to offer end-to-end connectivity across public, private or hybrid networks," said John Chambers, CEO of Cisco.

The telecom industry already is heralding the new Cisco as the manufacturing company of the future. Salomon Brothers, New York, met the acquisition announcement enthusiastically, praising Cisco's Internet access capabilities. "We view Cisco as the best-positioned vendor in the data networking marketplace," said Salomon analyst Peter Swartz. "Cisco's and StrataCom's product offerings are complementary.... Cisco will look to integrate its software expertise into the StrataCom switching pro- ducts, which will significantly improve the performance of the switching platforms."

However, Swartz predicted Cisco will see much competition in the coming months from Bay Networks, Cabletron and 3Com. There are now 10 or 12 competitors in the LAN market previously dominated by just two, he said. Salomon estimates the LAN switching market -- which hit $1.4 billion in 1995 -- will grow 150 percent in 1996. After the Cisco deal was announced, other telco manufacturers' stocks rose significantly. Netrix, Herndon, Va., is also trying to attract customers by expanding its product line. Netrix recently announced it would sell public network access products, in addition to its staple of private networks in international markets. Netrix CEO Chuck Stein said he recognized a new trend that has changed the way the company does business: U.S. companies are using public frame relay networks for wide area backbones, and using a public frame costs much less than a private line. "Companies are also using the Internet to communicate both internally and with others, creating a whole new view of wide area networking," wrote Stein in his letter to shareholders in the 1995 annual report.

Another reason to offer one-stop shopping is that many companies have patchwork networks and want complete solutions fast. "One of our greatest strengths is to turn jobs around quickly," said Peter Madsen of FastComm.


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