The networking channel is poised for further turmoil this year after Cisco last week announced strong second quarter results and claimed the news signals trouble for rivals 3Com and Cabletron.
Cisco reported a sales increase of 53 per cent for fiscal Q2 2000 from $US2.85 billion last year to $4.35 billion. The company now has a market capitalisation of around $US450 billion, second only to Microsoft at over $US560 billion.
Joel Martin, senior analyst at International Data Corp (IDC), said Cisco was the strongest performer in a strong performing market. `Its 1999 performance was extraordinary and in Australia the vendor dominates both the routing and LAN switching markets with over 50 per cent market share.'
`Unlike the plethora of virtual companies using `e' to fuel the `e' era of crazy stock valuations and extend their market cap, Cisco has shown how `I' & `P' are key letters in IPO,' he said.
Martin expects Cisco to continue to lead the market in Australia, particu-larly taking into account its purchase of IBM's IP networking division and subsequent partnership with IBM Global Services.
`Nonetheless, the vendor is likely to come up against increased competition in enterprise switching from Nortel, 3Com, and Alcatel. In 2000, VoIP will come closer to reality for everyday businesses and Alcatel and Nortel are expected to tout their proven expertise in this technology.'
Speaking at a Cisco meeting briefing, Cisco Systems Australia/New Zealand managing director Terry Walsh claimed Cabletron and 3Com would be lucky to survive another 12 months as stand-alone companies.
Walsh said networking companies that have not yet been acquired may be `in serious trouble' in the future or `will just go away quietly. I do believe Cabletron and 3Com will be struggling to survive unless they are acquired.'
Walsh added that Cisco's main competitors will be Lucent and Nortel who are `not going away' but face transitional hurdles as they continue to merge with acquired companies and transform from circuit-switched based vendors to the IP-centric world.
3Com's local MD, Archie Wilson, disputed Walsh's comments. `Vendors often say this about competitors when important contracts are about to be signed,' he offered as an explanation for the outburst.
Wilson said `uninformed speculation by the Australian MD of one company' was not an accurate gauge of 3Com's situation. He said reports from industry analysts and Wall Street indicated 3Com stock is actually `heavily undervalued', in direct contrast to Walsh's claims.
Ian Fewtrell, Cabletron's Australian managing director, dismissed Walsh's comments as `childish rhetoric' saying Cabletron is performing strongly, especially in the ISP space and will be investing heavily in Australia.
`We may not be a $400 billion company, but we're certainly a $7 billion company and we have more cash in the bank than all the network integrators in Australia - it's not like we're going to go bust,' Fewtrell said.
`Every company on the stockmarket is a potential for acquisition - it just depends on what price. When dealing with a multibillion-dollar company, it doesn't matter if they are going to be acquired or not because it's the solutions that matter,' he said.
When asked for his opinion on the comments, IDC analyst Joel Martin said 3Com was still the number two vendor worldwide in the networking space. `I think the chances of 3Com being acquired by anyone would be very slim given their size,' Martin said.
Martin said the SME market in the Asia-Pacific region is likely to be the fastest, or the second fastest growing sector in networking, and 3Com was a leader in that space.
Commenting on Walsh's remarks about Cabletron, Martin said it would continue to have wins and continue to be a player, but agreed with Walsh that Cabletron would see increasing competition in that space from other networking vendors.