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Stretching the Ethernet niche

A new generation of more flexible Ethernet devices is changing the market and contributing to what is sure to be a price and feature war.

A new generation of more flexible Ethernet devices is changing the market and contributing to what is sure to be an ongoing price and feature war.

New releases of Ethernet hardware from the likes of Cabletron Systems, Bay Networks, and Hewlett-Packard this week highlight ongoing attempts to differentiate equipment, as Ethernet gear profit margins shrink and the market becomes dominated by commodity products.

Others affected by the rapid market transformation include Cisco Systems, 3Com, and Intel, among others.

"Everyone is pitching value and pricing, but in reality everyone is trying to find ways to play in an ever increasing commodity market and at the same time trying to keep margins up--so by putting 'more functionality' into each succeeding product offering they are trying to somehow differentiate themselves from others in the space," noted Craig Johnson, principal analyst with the Portland, Oregon-based PITA Group.

"In the end users win, but at the same time the cycles between product offerings continues to shrink and we may be moving into a mode where the customer just waits for the next cycle before they buy--similar to the PC space--and we know what is happening in that space," Johnson said.

Bay Networks announced a new line of Ethernet switches that can run independently or be strung together to act like a more sophisticated networking device. The company is pitching the new line as the final piece of a puzzle to connect multiple departments in an organization.

The new 450 line starts at $149 per port for a 24-port switch and can grow to a more than 200-port box if several devices are strung together. The 450 line, in conjunction with the company's gigabit-speed Accelar switch line, is being trumpeted as an alternative to Cisco's new 8500 and existing modular Ethernet-based 5500 switch, company executives said.

The line includes enterprise-class capabilities and advanced software, two elements Bay hopes will attract customers who may not have previously thought of stackable hardware as an alternative to larger, modular models.

Alternatively, Cabletron Systems announced updates to its own line of switches for departments within an organization today that are up to 50 percent cheaper than previous models. The announcement follows the initial launch of new functions for the popular line in May.

The updates, available this month, include a variety of new Ethernet-based modules for the multipurpose SmartSwitch line, which can handle a variety of traffic beyond Ethernet.

Taking a slightly different tack, Hewlett-Packard announced two new gigabit-speed models focused on the high-speed desktop switching market and including gigabit-speed uplinks, with prices-per-port starting at $99. In conjunction with the hardware, HP announced that a new Web-based version of its TopTools management software will be bundled with all hubs and switches sold by the firm.

Separately, Allied Telesyn--an increasingly aggressive Ethernet-based hardware specialist--will start shipping two gigabit-speed models as part of a new family of stackable gear.

All these moves coincide with the rapid development of the gigabit-speed Ethernet market, a standard that is expected to be a key growth driver in networking equipment sales over the next few years. In order to differentiate themselves, various companies are tying their new high-speed technology options to existing hardware and software so that one device--or a series connected together--can offer everything a business customer might need.

Due to this trend, low-end segments of the Ethernet market are rapidly seeing commodification. Prices-per-port for 10/100 mbps switches were around $300 at the start of 1997--now they are sold at a street price of about $100, according to Esmerelda Silva, analyst with International Data Corporation (IDC).

Nevertheless, the market remains lucrative, with more than $1 billion in 100 mbps and 10/100 mbps Ethernet ports sold last year, according to IDC figures.

To a certain extent, the commodity environment can be pegged at price wars and fast growth in the 10/100 networking card market for PCs, with the primary instigators being 3Com and Intel. With that bandwidth available at the desktop, organizations can then upgrade their connection on the back-end to an internal network via the use of switching.

Intel's mere presence in the market has singled a commodity environment, even though the chip giant has not made a significant dent yet, in terms of market share, in the switching space.