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Extreme WLAN Lags

Dan Jones
LR Mobile News Analysis
Dan Jones, Mobile Editor
1/26/2006

Extreme Networks Inc. (Nasdaq: EXTR) missed its numbers yesterday because of a shortfall in North American sales. And while CEO Gordon Stitt attributed part of the problem to turnover among salespeople, it's clear the vendor isn't getting the desired uptick it predicted for itself when it entered the wireless LAN market two years ago.

For its second quarter, ended January 1, Extreme reported profits of $5.7 million, or 5 cents per share, on revenues of $92.8 million, compared with profits of $4.4 million, or 3 cents per share, on revenues of $97.9 million the previous quarter. Twelve months ago, Extreme reported profits of $10 million, or 8 cents per share, on revenues of $100.3 million.

Extreme does not break out wireless LAN sales separately in its financial reporting. Nonetheless, centrally managed enterprise wireless LAN products were supposed to have been a hot new sector for Extreme. The firm entered the market in 2003 with an extremely bullish attitude, claiming it would wipe out the startups in the marketplace. (See Extreme's Crystal Balls.)

That's not how it's transpired. The 802.11 guru behind the wired/wireless integration strategy left Extreme late in 2004. Fast forward to the present and it is not even clear if Extreme actually makes the WiFi products it now sells as its own, with some in the industry saying that they are rebadged Siemens AG (NYSE: SI; Frankfurt: SIE)/Chantry products, a charge to which an Extreme spokesman replies "no comment."

The latest enterprise wireless LAN market share and sales figures available from Synergy Research Group Inc. , covering the third quarter of 2005, unsurprisingly have Cisco Systems Inc. (Nasdaq: CSCO) in the lead with 52 percent of the market. Symbol Technologies Inc. (NYSE: SBL) occupies its traditional No. 2 spot with a 14.5 percent share. Startup Aruba Networks Inc. (Nasdaq: ARUN) follows with 6.5 percent of the market and 3Com Corp. (Nasdaq: COMS) with 5.8 percent. Extreme trails the pack with 2.3 percent.

"They've been hovering right around the same revenue figure for several quarters now," says Synergy analyst Aaron Vance.

"Their brand name isn't helping them as much as they might have thought it would," notes Vance. He thinks that enterprise users haven't bought into Extreme's WLAN offerings because the firm hasn't shown "technology leadership" in this fast-paced market and is still perceived as a legacy wired networking company.

It was all supposed to be so different:

"I feel sorry for the startups," Vipin Jain -- who then headed up Extreme's WLAN unit -- jactitated to Unstrung when the company launched its first wireless LAN switching products in April 2003. "Customers don't want to go to a new player for this type of box." (See So Extremely Sorry, Startups.)

When it entered the market, Extreme offered a grand vision of unifying wired and wireless switching. (See Extreme Switches Both Ways.) But, so far at least, enterprise customers don't seem to want to cross the beams, preferring to use managed access points as a semi-separate wireless overlay for corporate networking. (See WLAN Switches Face Integration.)

By the middle of 2004 it was clear that the initial strategy wasn't working out, and Jain left Extreme later that year. (See Extreme's Jain Drain.) The firm launched a second wave of products focused on voice-over-wireless LAN applications in June 2005. (See Extreme's Second Wind .) But the new products don't seem to have made a real impact on the market yet, at least according to Synergy's numbers.

The questions for Extreme now center on what it can do to rebuild market momentum, how good a story its salespeople can tell customers, and how it can compete more effectively against other networking vendors -- wired or wireless, incumbent or startup.

— Dan Jones, Site Editor, Unstrung

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