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Allegro poised to alter router market

A start-up that lured a former Intel and Nortel Networks executive out of semi-retirement says it is poised to alter how some networks are built.

A start-up that recently lured former Intel and Nortel Networks executive David House out of semi-retirement said it is poised to alter how some networks are built, taking on rivals Cisco Systems and Juniper Networks in the process.

Allegro Networks plans to test its new technology with several telecommunications companies this summer with hopes that some network operators will change the way they view their routing--a technology that spurred the growth of the Internet and has reaped billions for the likes of Cisco and Juniper.

A routing device directs Internet traffic by quickly examining the characteristics of the data, then sending it to its appropriate destination. The largest Internet networks in the world, such as WorldCom subsidiary UUNet's, use thousands of routers.

A recent Gartner Dataquest study found that the market Allegro is attempting to cater to will total $3 billion this year, climbing to $5 billion to $6 billion by 2004, according to Jennifer Liscom, a principal analyst at the industry consultancy.

Allegro garnered $24 million in first-round funding from a variety of venture firms, including Bessemer Venture Partners, and is in the process of finalizing a second round if funding, a spokesman said.

Executives at Allegro said they are not gunning for Juniper's or Cisco's most lucrative business with global networks, but around the edges of those networks at the point where they feed Internet traffic to specific cities and businesses.

"This is pretty unique," Liscom said. "I haven't seen anything like this. It'd be a real competitive product for Cisco and Juniper."

Allegro's hopes are tied to an industry in financial and technological turmoil, however. Cisco is facing the first significant downturn in its fortunes and Juniper is paring its own expectations. Hardly a climate for a young company to debut largely unproven technology, some would think. But others, including analysts and Allegro executives, believe Allegro has timed their technology just right.

"There's a huge market for their product," Liscom said.

Allegro's technology and resulting strategy to alter the routing business is akin to how a dial-up Internet access system works and to how the technology is used by service providers.

Emulating AOL
Several years ago, America Online (now AOL Time Warner) decided it was not in the networking business and chose to outsource the technology it uses to provide consumers with dial-up Net access using phone numbers. As a result, network operators like Level 3 Communications are the ones that actually provide the technology service that underpins much of AOL's business.

In a similar fashion, Allegro hopes network operators will use its technology to provide routing services to customers. Its technology is a routing device that can perform functions similar to those provided by technology from Cisco and Juniper, only for hundreds of companies at once using one device, according to the company.

With current technology, a company building an Internet-based network using routers has to purchase them from equipment makers such as Juniper and Cisco and then sprinkle the technology across the country in so-called co-location facilities and data centers that have a limited amount of space.

Given the space constraints, a router like Allegro's could save network operators money because it could perform the same functions as a Cisco router several times over for numerous customers.

Allegro executives said they think they're on to something because the industry has been building routed networks the same way for too long.

"Nothing has really changed in the way networks have been built over the past 15 years," said David Ginsberg, Allegro's vice president of product management and marketing.

Thus, equipment makers that provide unique technologies could be poised to benefit, according to Steve Kamman, an equities analyst for CIBC World Markets.

"We expect winning companies will be those building equipment to cannibalize and disrupt the existing public network architecture, not to sustain it," Kamman said in a recent report.

At the edges
To be clear, Allegro is not shooting for the high-end business where Cisco and Juniper reap their biggest rewards at the "core" of the Internet. Rather, Allegro is shooting to serve the needs of network operators at the "edge" of their networks, where their networks interact most directly with a specific customer via a connection to a building or campus headquarters.

One of the few remaining opportunities in the networking industry is the rapidly morphing edge of the network. This area has been left relatively unscathed by the downturn in the fortunes of telecommunications network operators and by an associated reduction in spending on equipment by businesses.

Numerous companies are tackling this area with success, such as ONI Systems in the optical networking market. Other start-ups are angling for prime spots, such as Ellacoya Networks and Gotham Networks, among others.

House, who was attracted to Allegro by the idea of running a start-up, said that even amid an economic downturn and a precipitous plunge in the fortunes and spending patterns of the telecommunications industry, a start-up with a new way of doing things can succeed.

"At a time when the economy is growing, incremental change works well," House said. "But when you've got an economic downturn and capital expenditures are dropping, that kind of 'speeds and feeds' approach tends to be less successful.

"When the market is booming, no one is really interested in changing. In a kind of perverse way, it gives us a big opportunity."