Cabletron Fights Battle for Market Share

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Cabletron Fights Battle for Market Share

By Nick Wakeman
Staff Writer

Don't let the bucolic setting of Cabletron Systems' Rochester, N.H., headquarters fool you. Trees and farmland might surround the buildings, but the company is fighting a battle for the heart of computer networks.

At issue is the role routers and switches play at the core of computer networks.

Cabletron, whose primary product is switches, is locking horns with networking market leader Cisco Systems Inc., San Jose, Calif. Cabletron officials say routers, which are the products that break up network transmissions into packets and direct them through the network, should only be used at the edges of networks where one network connects to the other.

Analysts said that the core of the networks are transitioning from routers to switches. Routers have dominated the core of the network since 1990 but growth rates are declining, analysts said.

In 1996, the market for routers reached $5.1 billion, according to International Data Corp., Framingham, Mass. The market for switches was $4 billion.

"Routers can't keep up with switches," said Robert Levine, Cabletron's president and chief executive. "Routers create bottlenecks."

Cabletron is meeting some success in pushing its switches vs. router philosophy in the federal market, said Rudy Schmidt, Cabletron's director of sales to the Department of Defense. For example, the company is boosting the efficiency of a network under a $5 million project at the Marine Corps Logistics Base in Albany, Ga. Cabletron supplied hardware as well as network management software tools to the logistics base that supports Marine operations worldwide.

About 12 percent of Cabletron's $1.4 billion in revenue come from the federal government. Another 4 percent comes from sales to state and local governments, said Levine's brother Ken, Cabletron's executive director of worldwide sales. Government sales have grown from about $16 million in 1988 to $240 million in 1996, he said.

Cabletron photo Robert Levine, Cabletron president and chief executive

The government's reliance on networks is rising, said Ken Levine. "The government provides no products but it does provide services so [agencies must] make their networks more efficient," he said.

		Cabletron photo Ken Levine, Cabletron executive director of sales

"Routers are outstanding for firewall protection and access applications, but they should not be at the core," Schmidt said.

But operators of larger networks have been slow to realize that routers are not necessary in the core of the network, Schmidt said.

"It is a question of inertia," said Greg Cline, director of networking and services research with Business Research Group, Newton, Mass. "When you are talking about expensive pieces of equipment, there is a reluctance to change."

But as switches gradually take on more router capabilities, he said, the use of routers will decline. "It is an inevitable but slow process," he said.

Others disagree, however. Routers will always be needed because networks must have ways to change traffic flow, said Roxane Googin, an independent research analyst based in Jackson, Wyo.

What's more, claims by Cabletron and others that switches can do as much as routers are overstated, she said. "But I've always been a believer in Cisco," Googin said.

Googin also noted that switches are proprietary products that lock customers into a particular brand, she said. "I don't trust proprietary technology," Googin said.

But somebody must be trusting Cabletron. The company's earnings have jumped to $1.4 billion in its fiscal 1997 from $290 million in 1992.

While Cabletron has made some acquisitions, most of the growth has been internal, said Lee Allen of Allen Financial Advisors, Boston. "Financially, they are very strong," he said. "They are debt-free and they have a lot of cash."

Cabletron photo Marsha Malone, Cabletron director of government business development

But the federal market is evolving. The growth of the General Services Administration schedule and the use of broad purchasing agreements will decrease the use of large indefinite-delivery, indefinite-quantity contracts, she said, although Malone did not think IDIQs will go away.

Purchasing vehicles like GSA and broad purchasing agreements are making "branding" of products more important, she said. "You have to hit the right shows, do the right advertising and have good relationships with your partners," Malone said.

Although Cabletron does not sell directly to government end users, it does spend a lot of time marketing to them. "It is a push-pull philosophy," she said.

Cabletron's Bottom Line
1992 revenues:	$290.5 million; earnings: $58 million
1993 revenues:	$418.2 million; earnings: $83.5 million
1994 revenues:	$598.1 million; earnings: $119.2 million
1995 revenues:	$833.2 million; earnings: $156.6 million
1996 revenues:	$1.1 billion; earnings: $205 million
1997 revenues:	$1.4 billion; earnings: 261.4 million
Source: Cabletron