Fore builds network dynasty
Fore Systems, operating in relative obscurity in a Pittsburgh suburb, is becoming a networking powerhouse through its development of ATM technology.
Away from the "pot of gold" mentality often found in Silicon Valley, in a city best known for its declining steel industry, Fore Systems (FORE) is looking to hammer the competition with its asynchronous transfer mode (ATM)-based technology.
And as part of that strategy, the company announced plans to create two new business units--enterprise and service providers--in two of the fastest growing markets for networking. Fore's engineering, product management, and support resources will develop solutions for customers in these markets.
This marks the latest effort of Fore, which operates in relative obscurity nestled in a Pittsburgh suburb, as it builds a nearly $400 million networking powerhouse based on ATM, a
high-speed network technology that has gained converts as a "backbone" pipe to connect multiple local area networks (LANs) and as the next-generation technology for wide area networks (WANs).
The company, founded in 1990, was the first to commercialize ATM for LAN environments. Fore makes switches, multiplexers, adapter cards, and internetworking software, which serves as a traffic cop for moving data across networks.
But despite ATM's ability to handle voice, data, and multimedia traffic--which by reason would make it attractive for technological cutting-edge corporations--the technology's recent growth has fallen short of initial estimates.
Industry watchers say ATM networks failed to generate the promised multibillion dollar revenues and capture the desktop market. Last year, the industry generated less than $1 billion in revenues, according to In-Stat Research.
Rival technology is challenging ATMs' efforts for rapid growth. Good old Ethernet running at a speedy 1000 mbps, for example, has caught several vendors' eye, even though a basic standard for Gigabit Ethernet technology is not complete.
And critics have said ATM-based networks are complicated to configure and manage, requiring a total network overhaul.
"It's a complex technology," admitted Ron McKenzie, marketing vice president of Fore, in a recent interview. But once the networks are installed, he noted ATM provides a way to reduce the complexity of a network.
Critics, however, are quietly being converted over time. The industry, which has largely failed to catch fire, is now showing signs of a spark.
In-Stat Research predicts ATM networks will become a $3 billion gold mine by 1998--more than a three-fold increase from 1996. This anticipated boom comes as more ATM backbones begin to handle a variety of data traffic swirling around today's networks.
"[ATM] has not yet lived up to my expectations, but I see nothing but bright lights in the future," said Mike Trest, chief scientist for ATMNet. "The application will continue to drive and feed the bandwidth monster."
McKenzie, meanwhile, said Fore's customers present this challenge to the company.
"The critical decision for a company is the core of the network," McKenzie said.
And Fore is hoping more customers will chose them as their core. Apparently that movement is afoot.
Fore recently announced a 76 percent increase in revenue and a 79 percent increase in earnings for its fiscal third quarter. First Call estimates predict Fore Systems will see earnings per share of 55 cents for its current fiscal year and continued growth--to 83 cents per share--for its next fiscal year.
Fore Systems, continuing to chant its ATM-centric mantra, is taking steps to become a one-stop solutions provider through its acquisitions and is reaching beyond its core business to spur growth.
The company debuted enhancements to its Ethernet switching line yesterday that underscores its power play to become a complete-solutions provider. The switch combines the popularity of Ethernet and Fast Ethernet at the desktop and the workgroup, with an ATM uplink for the network backbone.
McKenzie said ATM is the ideal technology for a network backbone, while devices--such as an Ethernet switches--at different points, or "edges," of a network can change as application needs change. For instance, an Internet-based application could run over ATM using Internet Protocol switching.
Fore Systems is also leveraging its expertise and marketshare lead in ATM by plucking a number of vendors recently to complete its product portfolio. The most important acquisition came more than a year ago at the close of 1995 when Fore acquired Alantec for $700 million in a stock swap. Alantec provided Fore with routing technology and Ethernet and Fiber Distributed Data Interface LAN switching gear.
More recently, Fore bought Scalable Networks, for its Fast Ethernet and Gigabit Ethernet expertise; Cadia Networks, which added multiservice technology for ATM networks, allowing multiple data types to be carried over an ATM pipe; and Nemesys Research, which offered Fore ATM multimedia technology.
The company is also expanding beyond its core business.
"Fore is going through kind of a catharsis right now," said Craig Johnson, principal analyst with Current Analysis, an Ashburn, Virginia-based, consulting firm. "With the buying binge, they've obviously expanded beyond their ATM-at-the-core approach."
Recent Fore successes on the user front also highlight the unique capabilities of ATM. Fore has integrated its ATM products with a real-time operating system in Canada to provide video-based toll collection on Highway 407 outside Toronto. ATMNet is also making huge inroads on the West coast and beyond as a network services provider using Fore's ATM switching gear.
"Expanding beyond their ATM roots is really a marketplace necessity," said Dan Taylor, an analyst with the Aberdeen Group consultancy. "They're just continuing to round out their service offerings."
Expect a continuation of Fore's acquisition spree in the coming months as the company tries to enhance its "complete solutions"-style strategy.
As a market matures, marketshares tend to shrink. But Fore Systems may have enough of an advantage to fend off competitors.
In the first half of 1996, Fore Systems maintained a significant marketshare lead with 30 percent of port shipments for ATM switches compared to its closest competitor Cisco Systems, which held 12 percent, according to market researcher Dataquest.
Fore, along with rivals Cisco Systems and Cascade Communications continue to benefit from their investments in ATM research and development.
"I don't see any reason to change right now as far as continuing to drive our [initial] vision," said Fore's McKenzie. "We're really on a roll and I see most of our competitors continuing to play catch up."