Networks and Networking Equipment Companies

Ascend (ASND) CEO Mory Ejabat

Bought By Lucent

· High speed remote networking products

· Bandwidth on demand

· ISDN ports

· LAN, WAN

· Bought Cascade Communications in March 97’ for $3.7B for its line of products to go against Cisco

· Communication gear used by telephone carriers and Internet service providers

· Bought Stratus Computer, makes high-end computers that operate 24hrs a day. Runs signaling system 7 or SS7. Software that is the heart of the voice network, sells computers that specialize to telephone carriers for use in their network

Brokerage	Recommendation	Sentiment
Morgan Stanley
Lehman Brothers

Avici Systems (AVCI) North Billerica, MA CEO Steven Kaufman http://www.avici.com

· Internet Core Routers

· Doesn’t have Fixed Configurations

· Scalable architecture- Carriers can plug in more capacity rather than have to buy completely new systems

Bay Networks (BAY) CEO David House (Intel exec) - Santa Clara

Bought by Northern Telecom

· Bought TVewoak Communication – internet security equipment

· Accelar switch

· Set up Wan for 911 emergency in Austin TX

· Bought by Northern Telecom for $7.68B

Brokerage	Recommendation	Sentiment
Merrill Lynch
Goldman Sachs
UBS

Cisco Systems (CSCO) San Jose CEO John T. Chambers http://www.cicso.com/

· No.1 supplier of switches and routers to connect PC’s to Internet

Cisco Market Share:

· Routers: For Telecom and Internet Applications

• 1998 - 62%, Lucent No.2 with 5%
• 2001 - 69%
• 2004 – 71% (Juniper 22%) – 2Q2204
• 3Q2004 – 57% (Juniper 38%)

· Switches:

• 2000 – 56% (First Half 2000)

• 2Q2004 – 71%

· Wireless gear for business networks – 34% - 2003

Cisco Acquisitions:

· Cisco acquired 71 companies between 1993 and 2000

· Acquired 23 companies alone in 2000 – From January 2001 to May 2003 – only 10

· Bought Granite Systems in 1996 for $220M which made witches that Cisco used to get where they are today

· Bought Net Speed – high-speed internet technology used in DSL existing phone lines

· Bought Monterrey Networks for $500M – optical networking maker

· Bought Precept software for $84M – allows video signal to be transmitted over computer networks

· Bought Komodo – develops voice over IP – allows analog phones to call over IP networks

· In 1999 bought 100% stake in Pirelli’s terrestrial optic components business, a 10% stake in its optical components, and a 10% stake in its submarine optic unit

· Bought Cernet Corp. – Its first entry into fiber optics – will account for more than $1B in 2000 sales

· Bought PixStream of Canada for $380M in stock – technology for video over the internet

· Acquiring the Broadband Subscriber-Management unit of CAIS Internet for $170M

· Cisco Systems Capital – Financing Diyixian.com – Chinese internet provider with a loan and option to purchase an equity stake at a later date

· Acquired Radiata of Sydney, AUS for $295M – makes chips for wireless communications

· Joint marketing and product development agreement with Corning for fiber gear

· Bought Exio Communications for $155M – focuses on CDMA wireless standards

· Bought a 1% sake in Softbank of Japan for $200M and investing $1.05B over several years in a n Asian venture capital fund run by Softbank

· Acquired Aurora Netics for $150M – makes semiconductors that CSCO uses in some of their products

· Bought the 60% of Allegro Systems that it already doesn’t own for $118M – Allegro makes software and hardware to improve security of high speed networks

· Bought Linksys for $500M

o Linksys makes networking equipment for homes and small offices, and WiFi gear – had sales of $429M in 2002

o Cisco using Linksys to re-enter the consumer market – previous attempt failed with their cable and DSL modems

o Linksys though has slim margins

o Will keep Linksys name

o Taking a compete hands off approach with Linksys

· Acquired Latitude Communication for $80M – makes software for internet based conferencing – November 2003

· Acquired Andiamo Systems for $750 (the part that it didn’t already own) – February 2004

· Acquired RiverHead Networks for $39M – March 2004 – CSCO already had a 10% stake – makes software for security attacks and denial of service

· Acquired several asset from Procket Networks for $89M – June 2004

· Buying Actora Tech for $82M – Data storage for Wide Area Networks

· Acquired P-Cube for $200M – September 2004 – Analyzes and prioritizes traffic on Telecom Networks – Also detects P to P traffic and reroutes it to slower bandwidths

· Acquiring Net Solve for $129M, a 29% premium- September 2004 – Network Management Services – Remotely monitors computer networks

· Acquiring Dynamicsoft for $51.2M – September 2004 - Session Initiation Protocol – Interactive communication for teleconferencing over different end devices such as PC to cell phones

· Acquiring Protego Networks for $65M – December 2004

o Protego makes security monitoring and threat management software

o Purchase will help boost Cisco’s Self-Defending Network Initiative

· Acquiring Airespace for $450M – January 2005

o Airespace makes WiFi gear and tech to manage wireless networks

· Acquiring Topspin Communications for $250M – April 2005

o Specializes in computer sever networks that connect data storage computers – Will help strengthen Cisco’s Andiamo acquisition

· Buying KiSS Technology of Denmark for $61M – July 2005

o Technology to network home electronic components such as DVD’s and Digital Video Recorders

· Scientific Atlanta – December 2005 – paid a 20% premium

o Cisco’s 2^nd largest acquisition to date

o Scientific Atlanta specialize in set-top boxes, with a 40% marketshare in the US, and Cisco will now compete directly with Motorola in set-top boxes

Cisco General Info:

· Has 12 products that account for more than $1B in annual sales

· Had 11 consecutive quarters of accelerated revenue growth and topped analysts earnings by a penny for 13 consecutive quarters until October 2000

· Has never failed to meet analysts expectations in its 11 years until 2Q2001

· Historic:

· In first half of 2000 had 56% of the $10B plus annual switch market

· Annual revenue growth target of 30%-50% for the next 3-5 years (from January 2001)

· Cisco Notables:

· 97% of orders done through the internet

· The US accounts for 52% of their business – China is 4% (Chambers wants China to be 10% in 3-5 years)

· Fiscal year begins July 29^th

· Cisco usually only gives financial guidance for the quarter, if they give guidance beyond a quarter, its usually a good sign

· Prominent opponent of the proposal to treat stock options as an expense

· 24 of the 25 world’s largest networks have equipment from both Cisco and Juniper housed right next to each other in 2004

· Third quarter is usually its weakest quarter

· Huawei – Cisco’s biggest rival in China

· The Tech Bust of 2001:

o 2ndQ2001 – Missed analysts expectations by a penny

§ 1^st time in 7 yrs to miss expectations

§ Warned that revenue could decline 5% in the current quarter ending in April 2001

§ Sales to automakers over the next 6 months to be $100M less than projected

§ Sales to dot-com’s – ½ of last years levels

§ ALL CONFINED TO THE US

§ Outside of US – orders grew 51% from 48% in fiscal 1stQ2001

§ Revenue not likely to grow for six months

o May 9^th 2001 – 1^st quarter to quarter loss in its 11 year history

o Had to reducing or eliminating its investments in certain products such as optical switching platforms, areas that weren’t contributing enough to profit or where it would take to long for the company to achieve the top spot in those market

o September 2001 – announced a $3B stock buyback program

o June 2002 – Had $21.5B in cash

· Cisco Switches:

· Andiamo – In-house start-up for switching gear to connect corporate data centers

· Storage switches – Sold through primarily through Andiamo unit

· Started selling storage switches in 2002, In 2003 had only 7% market share

· Network Appliance will begin selling their storage chips – November 2003

· CEO John Chambers Vision:

· “We are very optimistic for the long run, but there are lots of obstacles in the short run” – CEO John Chambers – November 2002

· Chambers – We have 6 “advanced technologies” that Cisco wants to generate $1B in sales with – November 2003

· Federal Government accounts represented more than 20% of sales in 3Q2003

· Expecting Linksys to lower Cisco’s overall profit margin

· Advanced Technologies Unit – Home networking, Internet and Telephone Security, and Wireless

· 2002 – Unit represented 8% of sales

· 2003 –Pulls in 16% of sales

· Has six business in 2004

· May 2004 – Launched new software for its routers that are built on modules that can be upgraded without shutting down the whole system

· No.2 seller of VoIP phone gear in 2004

· Made first hone system in 1999

· Seventh largest maker of business phone switches in 2004

· Linksys exclusive supplier to Verizon for VoIP adapters – Announced 2004

· VoIP – Has a 16% market share for corporate Internet calling – October 2004

· Avaya is Cisco’s biggest competitor for VoIP gear

· Large customers include Bank of America and Ford

· Cisco has sold over 4M VoIP with almost $1B in annual sales – Ending 2004

· VoIP expected to produce over $6B in free cash flow in 2005

· Revenue breakdown in 2003: Routers 26%, Switches 41%, Advanced Technology Unit 11%, Service 17%, Other 5%

· Cash and Short Term Investments:

· $17.7B – Fiscal 1Q2005

· $16.1B – May 2005

· Margin 67.2% - Fiscal 1Q2005

· Cisco on growth:

· “We are a growth company” – CFO Dennis Powell – December 2004

· “We’d like to see more growth…We’re doing everything within our power to make it happen” CEO John Chambers – February 2005

· Revenue growth:

· Looking for revenue to grow 15% annually from 2005 to 2009 - gross margin may decline though

· First time since 2001 Cisco has given a forward looking statement longer than one quarter

· Cisco’s WiFi Gear Market Share – January 2005 – Roughly 55%

· Video Messaging for Business – Similar to a business version of YouTube – In development by Cisco’s Digital Media System

· Cisco TelePresense Meeting solution – Video conferencing and virtual meeting – used with a touch pad phone

· Video to the Home – New focus for Cicso with the purchase of Scientific Atalnat and Kiss Technology (who’s focus is on the European Market). Cicso expects Interet traffic to increase

Cobalt Networks (COBT) Mountain View, CA CEO Stephen DeWitt http://www.cobalt.com/

· Server appliances

· Low-end servers that exclusively use AMD microprocessors

· Qube and RaQ products – for file serving, web hosting, e-mail, e-commerce, and storage

· Servers based on Linux

· Acquired by Sun Microsystems for $1.8B

Brokerage	Recommendation	Sentiment
S.G. Cowen
Merrill Lynch
CIBC World Mkts.

Extreme Networks (EXTR) Santa Clara, CA CEO Gordon Stitt http://www.extremenetworks.com

· Broad band switching – focus on Layer 3 switching in Ethernet and IP solutions

· Is the #1 player in Layer 3 switching and controls 30% of the market

· Multi-layer switching for ISP’s and corporate enterprises

· 45% of sales outside of the US

· In 1999 Compaq accounted for 21% of its revs – Hitachi Cable – 13%

· Acquired Optranet for $55.2M – makes high speed broadband equipment

· Summit switch – fixed configuration

· Alpine switch – unfixed and remote configuration

· Black Diamond – configured for Data Centers

Brokerage	Recommendation	Sentiment
Piper Jaffray
S.G. Cowen
UBS

Foundry Networks (FDRY) San Jose, CA CEO Bobby Johnson JR. http://www.foundrynet.com/

· High Speed Internet Access Switches and Routers

· Clients: AOL, Earthlink, AT&T, MSN, Cable &Wireless, Univ. of Washington, Lucas Film, Yahoo, LTV, Incyte Pharmaceutical, US Army, Air Force, Navy, NASA

Fore Systems (FORE)

· Bought by Marconi PLC (MONI)

· Makes LAN’s based on ATM technology

Brokerage	Recommendation	Sentiment
Goldman Sachs
Bear Stearns
Morgan Stanley

Juniper Networks (JNPR) Mountain View, CA CEO Scott Kriess http.www.juniper.net

· Makes routers and high end routers primarily for large telecom companies

Juniper Acquisitions:

· Juniper is growing internally and not by buying companies left and right like CSCO – 2001

· Acquired Unisphere Networks for $700M from Siemen’s – now around $585M in 2000

· Acquired Pacific Broadband in 2001

· Acquiring NetScreen for $3.63B – a 51% premium – makes firewalls and is located basically across the street from Juniper – February 2004

· This price represented was almost equal to one quarter of Juniper total capitalization

· Acquiring Kagoor Networks for $67.5M – April 2005

· Kagoor makes session-border controllers used for transferring VoIP calls across networks

· Acquiring Peribit Networks for $337M – April 2005

· Acquiring Redline Networks for $132M – April 2005

· Funk Sortware for $112M – protection of networks from attacks - 2005

Juniper Router Market Share:

· August 2000 - 24% market share

· 2001

· Jan 2001- 35%

· Full year 2001 - 27% (Cisco 69%) for high end routers

· Jan 2002 – has 32% market share for high end routers

· 2003 - 34% (Cisco 59%)

· 1Q2004 – 34% Market Share (CSCO 59%)

· 3Q2004 – 38% (CSCO 57%)

Juniper General Info:

· Claims their routers are the only ones that can communicate with Cisco’s and that their switches are faster than Cisco’s

· Routers for ISP’s – Put the once believed impossible task of putting routing functions into hardware – Had fixed configurations though

· Router Products of the past:

· M-40 Flagship router – also M20, M160 – their “core” routers

· Now M320 – Released March 2002

· New “edge” routers for business offices – routers that connect offices to the internet – called M5 and M10 – cost around $25,000 per router

· Claimed to have a 12 month technology lead in the new router market in 2001

· Branching out from enterprise market and into cable and wireless infrastructure equipment (IP)

· May 2003 – New alliance with Lucent to develop, design and maintain broadband and optical systems

· CEO and other executives bonus for the year 2004 is tied to “entry into new business by means of acquisitions” – without any acquisitions, they will not receive a bonus

· CEO Scott Kriess owns 17.2M shares, a 4.6% stake and Juniper’s largest shareholder

· “If you went out and bought a bullet proof vest, you probably wouldn’t be shopping for the cheapest one – you’d be shopping for the best one. Cheap security is an expensive mistake” – Scott Kriess on Junipers entry into Security – September 2004

· 24 of the 25 world’s largest networks have equipment from both Cisco and Juniper housed right next to each other in 2004

· 2004 – Siemens accounted for more than 10% of Juniper’s revenue

Mylex (MYLX) (IBM)

· Bought by IBM

· Networking products

Novell (NOVL)

See General Tech page

Brokerage	Recommendation	Sentiment
Goldman Sachs
Merrill Lynch
Lehman Brothers

PMC-Sierra (PMCS) Burnaby, Canada, BC CEO Robert Bailey http://www.pmc-sierra.com/

· Focus on all areas of broadband

· Designs chips used to accelerate telecom transmission

· IP Protocol (IP), ATM (Asynchronous Transfer Mode), SONET/SDH, T1/E1/T3/E3, voice over packet solutions, DLSLAMS network chips

PMC-Sierra Acquisitions and Stakes:

· Bought Malleable Tech. For $229.3M

· Bought AAnetcome

· Bought Extreme Packet devices

· Bought Toucan Tech. – Ireland – integrated circuit design

· Bought Datum Telegraphic – 3^rd Generation (G3) data wireless chip set architecture and Digital Signal Processing

· Bought Quantum Effect Devices (QEDI) for $2.41B - gives them the last critical chip so they may offer a complete end to end solution for telecom networks

· Buying SwitchOn Networks for $450M – makes technology that analyzes Internet packets as they go through the internet – PMC wants to expand this tech. To their semiconductors

PMC-Sierra General Info:

· Lucent and Cisco are some of their larger clients

· New high speed chip for metropolitan Ethernet networks for cities

· Has $275M in debt due August 2006

Brokerage	Recommendation	Sentiment
Lehman Brothers
Morgan Stanley
Smith Barney

Sycamore Networks (SCMR) Chelmsford, MD. CEO Dan Smith http://www.scamorenet.com/

· Optical network communication and Fiber gear

· Lots of employees from Cascade Communications

· Got a big order from 360 Networks

· Switch SN160000 - simultaneously processes the equivalent of more than 2 million phone calls. 2X more than existing devices but huge difference, automatically reroutes data along shortest path available. Will automatically detect breaks in lines are reroute traffic

· Williams is testing it and likes it more than Ciena’s

· Infineon AG makes some of its lasers

· Buying Sirocco Systems for $2.28B

· Only large client is Williams

Brokerage	Recommendation	Sentiment
Morgan Stanley
Piper Jaffray
Lehman Brothers

3Com (COMS) Santa Clara, CA CEO Eric Benhamou http://www.3com.com/

· 2^nd largest supplier of routers, switches and hubs in 1999

3Com Acquisitions and Stakes:

· Acquired the high speed networking card unit of Nortel for $110M

· With Huawei Technologies (Asia’s largest networking equipment maker) – Formed in 2003

· New venture for networking gear to supply China and Japan

· 3Com to own 49% of venture

· April 2005 – 3Com increased their stake to 51%

· Acquiring TippingPoint Technology for $430M – December 2004

· TippingPoint makes security software and 3Com’s first purchase in security

3Com General Info:

· 30% market share in N. America for modems in the 1990’s

· CEO Eric Benhamou will be stepped down from the CEO spot on Jan. 1^st 2001 – will be replaced by COO Bruce Clafin

· Internet appliance “Audrey” – a 9” by 12” box for surfing the web

· Kerbango – new multimedia device to play radio stations over the internet with a PC

· March 2001 – Dropped both Audrey and Kerbango

· Moved headquarters to Massachusetts

· New focus and push towards Enterprise Networking

AMEX Networking Index (NWX)

General odds and ends:

· Server and network start up companies

o Fibercycle

o EGenera

o RLX Technologies – IBM backed

o Zetari