Networking upstart takes on Cisco with new hardware

Foundry sells high-speed networking gear to businesses and service providers like America Online, a company that uses the technology to speed up traffic and ease congestion on its network.

Historically, three-year-old Foundry has targeted service providers at the "edge" of the Internet, where providers connect separate networks together. Now, Foundry wants to tackle the "core" of the Internet, or network "backbone," where most Net information travels and where the stakes are much higher.

With its new strategy, the company believes it can compete with Cisco Systems and Juniper Networks, two of the most established players in the market. The networking equipment market 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.

Foundry decided to jump into this highly competitive market after finding some of its customers were already using its router for the core of the network, chief executive Bob Johnson said.

"The market there is huge and expanding, (so) we decided to beef up our product specifically for the core," he said. "It's a move meant to increase our market coverage, increase our revenue and make us a more strategic vendor to our customers."

As the need for increased network bandwidth has grown, service providers, communications companies and corporations have increasingly tapped Foundry and other networking equipment firms to upgrade their networks. As a result, networking equipment companies have watched their businesses and stock prices skyrocket.

Foundry's new high-speed routing equipment is set to ship in April, according to Johnson.

The networking equipment upstart's success in the market may not be a given, however. Cisco is by far the dominant maker of routing equipment, but recently start-up Juniper has nipped at its heels, winning deals with prominent communications firms such as MCI WorldCom and PSINet.

"This makes us clearly No. 2 only to Cisco in terms of overall high-performance and product breadth," Johnson said.

"Obviously, there's a lot of people trying to compete in our space," said Joe Fergerson, vice president of marketing for Juniper.

Analysts say Foundry's new focus makes sense as the company expands its product line to a more profitable portion of the service provider market.

But they question whether Foundry can create technology reliable and fast enough to meet service providers' stringent requirements. The company must prove that its technology can work with existing equipment installed in service providers' networks.

The equipment is difficult to build, but the market is still young enough for firms--from the likes of Foundry or Nortel Networks--to enter, according to analysts.

Foundry executives said several customers, including Web hosting outfit Exodus Communications, are currently testing new technology for the Internet's core.

If successful, Foundry will continue its fast rise in the networking market. Since going public in September, it's stock has jumped 11-fold to about $150. Foundry split its stock earlier this month.

"It's clearly an entrenched market, dominated by Cisco and Juniper. But it's still a nascent market," RHK analyst Raj Mehta said.

Nortel Networks is close to coming out with a similar product, he noted.

Dataquest analyst Todd Hanson said service providers should consider Foundry as an option for their networking needs.

"Service providers are much more willing to scrutinize a pitch from a smaller company," he said. "Foundry doesn't have the name cachet as Nortel Networks or Cisco, but service providers don't care as long as they can deliver the price and performance with their gear."