Samsung Event: Everything Announced Disney Plus Price Hike NFL Preseason Schedule Deals on Galaxy Z Fold 4 Best 65-Inch TV Origin PC Evo17-S Review Best Buy Anniversary Sale Monkeypox Myths
Want CNET to notify you of price drops and the latest stories?
No, thank you

Networking start-ups vie with Cisco, other giants

Foundry Networks and Extreme Networks are young, emerging companies, but they're not afraid to take on bigger, more established rivals.

Foundry Networks and Extreme Networks are young, emerging companies, but they're not afraid to take on bigger, more established rivals.

The two companies have made names for themselves by selling high-speed networking equipment to businesses and Internet service providers (ISPs) such as America Online and PSINet, which use the technology to handle the explosion of Net traffic on their networks.

After successful initial public offerings and profitable quarters, the two high-flyers are expanding the technology to tackle new, lucrative markets. The moves will pit them further against Cisco Systems, Nortel Networks and other rivals--and could represent the first serious tests to their sustainability as independent companies.

"When both started, their focus was very much aimed at the corporate market," said Burton Group analyst Dave Passmore. "But they realize like everybody else that the corporate market can only take you so far. Every vendor is trying to bail out of the enterprise and focus more on service providers."

Foundry has previously targeted ISPs at the edge of their networks, where they connect with other networks. The 3-year-old company today unveiled plans to ship new high-end router models targeted at the Internet "backbone," where most Net data travels and stakes are higher. A router sends Internet traffic from point to point along a network at high speeds.

Two versions of the Foundry devices will ship in two weeks, according to the company. The third--and fastest--version is scheduled for delivery this summer.

With the new strategy, Foundry will compete against Cisco, the dominant maker of routers with 85 percent of the market, and Juniper Networks, a young company that has captured the remaining 15 percent of the market with prominent customers such as MCI WorldCom and Cable & Wireless.

Extreme today released new equipment aimed at high-speed fiber-optic networks in metropolitan areas, hoping to extend its presence into the ISP equipment market. see story: Cashing in on fiber optics

Extreme plans to sell the equipment to new entrants in the communications market such as Yipes, a San Francisco start-up. Yipes offers high-speed Net access and eventually will provide voice services to businesses at cheaper rates. Extreme's new equipment uses the Ethernet protocol at gigabits-per-second speeds.

The technology lets Yipes offer twice the bandwidth of corporate "T1" connections at 80 percent of the cost, the start-up's executives said.

Extreme chief executive Gordon Stitt said the equipment will allow service providers to offer a range of new options to business customers, such as the ability to add more bandwidth if a company plans to do a video conference for an hour.

"You can have a 1 megabit (per second) connection. But if you need to do a video conference, you can ask the service provider to provision 10 megabits (per second) for that period of time," Stitt said.

Analysts believe it will be important for the two companies to continue tackling new markets and expanding sales. Analysts say neither company is assured success in the new markets, but both have a good chance of grabbing some market share.

Foundry, for example, is entering a market that is expected to grow from $2.1 billion this year to $12 billion in 2003, according to market research and consulting firm Ryan Hankin Kent. Other networking companies, including Nortel and Lucent Technologies, also plan to offer high-end routing technology.

"Foundry is trying to expand into the higher levels of routing, but Cisco clearly dominates," said Dataquest analyst Tim Smith. "It's hard to envision Foundry making a significant market share play in the market, but it's possible."

Extreme's move into metropolitan networking has a more significant chance of success because it's still emerging, Smith said. Extreme is one of the first to enter the market, although larger rivals Cisco and Nortel are also vying for a piece of the niche.

"The metropolitan area network is less well defined at this point, so there's more room for creativity and new approaches to doing things," he said.

Despite Extreme's and Foundry's forays into the lucrative ISP market, both companies still chase after sales to the corporate market. For example, 3Com recently exited the high-end corporate market, giving Extreme access to hundreds of 3Com's corporate customers and sales staff.

Burton Group's Passmore said Extreme and Foundry have surprised many in the industry with their successes thus far.

When both started several years ago, there were a dozen start-ups aimed at the same high-speed switching market. Most of them were gobbled by larger companies, he said. Xylan and Packet Engines were purchased by French telecommunications equipment company Alcatel, Granite Systems was acquired by Cisco, while Bay Networks, now part of Nortel, bought Rapid City Communications, for example.

"For a while, people thought whoever was left and didn't find a partner would be out of luck--and the folks left behind were Foundry and Extreme," Passmore said. "Most of the companies all sold in the $100 million to $200 million range. But these guys held out, were able to IPO, and rather than being the losers, they've become the big winners."