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Netgear's next year

Netgear's next year

As small- and home-office networks move from novelty to necessity, Taiwanese hardware vendors are enjoying strong growth, becoming household names, and making headlines. In June, Cisco Systems Inc. finalized its acquisition of market leader Linksys. And in August, Netgear Inc. completed a successful US$112 million IPO. Now as the former Nortel Networks Corp. subsidiary emerges from a quiet period, Toni Kistner spoke with Netgear chairman and CEO Patrick Lo about Linksys and his company's plans for the home and small to midsized business market.

On Cisco's acquisition of Linksys:

It's kind of funny. We worked for seven years to get out of Bay Networks, and Nortel and Linksys worked so hard to get into Cisco. It seems the grass is always greener.

What's your advantage?

We're faster, and we can have a much lower cost structure. If you travel down West Tasman Drive in San Jose, all those empty buildings, they're Cisco's. Somebody has to bear that cost. We came from that place. Even though we were left alone by Nortel to run our business - same as Cisco is leaving alone Linksys - the overhead still has to be borne by somebody. It's a corporate function of accounting. Cisco can say it's not going to allocate to the Linksys area, but that's funny accounting. It's like HP saying its PC business is profitable because it doesn't allocate some of the headquarters' cost to it. But at the end of the day investors will see through it.

Plans for the SMB:

You'll see us moving aggressively into the gigabit switch market. We shipped as many gigabit switches as 3Com last year, according to In-stat/MDR. Last year we introduced a slew of Layer 2 and Layer 3 switches. We believe it's a huge market that's very attractive. When you have more than 50 users, people start using managed switches. The dominant players there, Allied Telesyn and 3Com, well, you know what kind of state they're in. So the market is ripe for us to pick.

And voice over IP?

Certainly our Layer-3 switches can carry voice without any problem. Currently, we have one 24-port gigabit switch, which we'll follow up with a 12-port switch that will ship next month, followed by 10/100 (M bit/sec) products in the first quarter (2004). The next stage is to look at putting a voice port on our home gateway.

What about wireless?

We just introduced the industry's first 108M bit/sec wireless product set; we were first to introduce a wireless router that provides fully encrypted VPN from the client to the base station, ahead of SonicWall and WatchGuard by three or four months. We also introduced a very robust 802.11b class of business wireless access points with features you find in high-end products from Proxim and Cisco. We'll follow them up with an 802.11g version and an a/g version.

What else can customers expect?

We'll have a wireless switch by early next year. Coupled with dirt cheap access points, a wireless switch is the best way to implement load balancing, channel management, authentication and security. We have to do it, our customers want it. Eventually, wireless will encroach our entire product line. Sixty to 70 percent will have wireless built-in within the next 18 months.

Any plans to expand to the enterprise?

We're never gonna do it. Our major focus is servicing companies with 250 employees or less. But of course if an enterprise wants to use our products at the edge, we're more than happy to sell to them.

Plans for the home:

We're focusing on wiring up non-PC devices in the home - things like PDAs, TVs, game consoles and stereos. Today, we're the only one selling on a big scale the HomePlug Ethernet bridge, which is handy for connecting a game console or Internet radio to the home network. Next year, we'll provide connections that beam MPEG-3 video and MP3 music around the house to legacy devices like TVs and stereos.

So you're building a media adapter?

Yes. The audio version will be out for Christmas. The video version will have to wait until there's a legal means to get Internet video. Apple iTunes kicked open the door for audio, but the video demand isn't there yet. We need Steve Jobs to kick open the video door too, maybe.

And the home gateway?

We're putting a lot of emphasis on it. Today, our home gateway is selling well in Europe, and taking off here primarily through Time Warner Cable and other partners. The current version has a broadband modem, router, and wireless base station. When providers are ready to offer voice services, we'll add a voice port - likely early next year.


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