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Gigabit Ethernet makes its high-speed move

Gigabit Ethernet--once the darling of venture capitalists and the panacea for aspiring networking companies everywhere--seems finally to be taking hold.

The networking needs of Michael Calvo, a technology administrator at a medical equipment manufacturer, are pretty easy to understand: make it simple and make it fast.

Coincidentally, that simple mantra was what the industry has envisioned for the latest development in Ethernet--the networking technology created in the early days of the computing industry to allow PCs to communicate. With Ethernet now reaching gigabit speeds, the technology has grown into a viable option for connecting vast numbers of users across sprawling campuses.

Calvo, a network systems manager for Hologic, saw an increase in the glut on the company's Ethernet-based network and knew he needed to add more bandwidth to handle the increased size of files and broader use of networked video sent across the network.

To solve the problem, Calvo added a number of gigabit-speed Ethernet switching devices to the network when the company moved into a new building last month--and now says he can rest easy.

"We wanted to prepare for anything," Calvo said. "Our ceiling is much higher now. It wasn't very complicated to implement and the technology is here."

Now that the hype in the networking industry has turned elsewhere, Gigabit Ethernet--once the darling of venture capitalists and the panacea for aspiring networking companies everywhere--seems finally to be taking hold, with most observers expecting a huge increase in sales this year.

The Gigabit Ethernet market has evolved as many predicted, although the pace of growth has not necessarily been up to expectations.

Industry consolidation
As the multibillion-dollar networking giants like Cisco Systems and Nortel Networks caught hold of the gigabit craze, it made sense that the small start-ups that were formed in the early days of the technology would be consumed. As predicted, those deals have finally happened.

Of the major gigabit start-ups, only two traditional switching hardware companies remain: Extreme Networks and Foundry Networks. Others have carved out particular niches, like Alteon Networks--a company that specializes in distributing Web-based traffic across computer systems.

Market researcher Dataquest recently came out with preliminary numbers for the Gigabit Ethernet market in 1998, the first year in which the technology shipped in any sort of volume. For the year, sales of gigabit-speed ports on switching devices came in at $316.4 million, a figure above most expectations.

Yet adoption of the technology was expected to be far more rapid when the market was in its nascent phase.

"For some people, it's probably a little disappointing," said John Armstrong, an analyst with Dataquest.

Sales are expected to climb this year to $878.6 million, surging to more than $2.5 billion by 2002, according to Dataquest.

Taking the public plunge
It is this opportunity that has led Extreme to file for an initial public offering. Though the company is not yet profitable, Extreme has ridden the gigabit wave, posting revenue of nearly $55 million for the 1998 calendar year, up from less than $7 million the previous year, according to a filing with the Securities and Exchange Commission.

"We didn't predict that kind of growth rate," said Gordon Stitt, Extreme's chief executive, at a Gigabit Ethernet conference last week in San Jose, California. "At this point, a public offering is the next step, it's not the end point for us."

Extreme won Hologic's business, beating 3Com and Cisco to the punch.

Competitor Foundry has similar public aspirations, though it will likely wait to see how Extreme's offering fares in an Internet-centric stock market.

"We're planning on going public this year," said a Foundry spokeswoman.

Both firms are thought to be the first data networking companies go public since Xylan launched a successful offering in 1996.

"It doesn't say it's not a good market for hardware companies, it says that most of these hardware companies are snapped up before they're in a position to go public," Dataquest's Armstrong said.

As gigabit start-ups were gobbled by the likes of Nortel, Alcatel, Lucent Technologies, and Fore Systems, the market development slowed temporarily, according to some, given the integration issues involved with acquisitions.

"In this business, I think acquisitions and mergers can kind of be the kiss of death," said Ed Mier, analyst with Mier Communications.

The networking equipment hype has now moved on to another niche--the core of the Internet. That may make the timing just right for Gigabit Ethernet to gain a solid footing in the market, according to observers.

Beyond the projections, evidence is everywhere. Cisco, which once was viewed as a laggard in the market, has now made nine Gigabit Ethernet-related announcements in the past 12 months and boasts that 20 hardware chassis now support the technology.

According to a customer survey from analyst firm Cahners In-Stat Group shows that by the year 2000, 15 percent of so-called "backbones"--the network connection point between departments and buildings--will be built using Gigabit Ethernet, with another 55 percent using Fast Ethernet, the technology's previous version.

For Hologic, the need for the new technology hinged on a simple premise, one that may be echoed as other companies catch on. "Let's get the fastest technology we can," Calvo said.