Foundry offers new midrange switching products to push gigabit-over-copper and 10-GigE into the enterprise

November 5, 2002

4 Min Read
Foundry Broadens Its Market

Foundry Networks Inc. (Nasdaq: FDRY) is rounding out its product offering by introducing a new suite of midrange enterprise data-center switches that support gigabit over copper and 10-Gbit/s Ethernet interfaces (see Foundry Extends GigE Over Copper).

Foundry already has a solid portfolio of products, as demonstrated by its latest quarterly earnings. Revenues for the third quarter of 2002 came in at $76.6 million, slightly up (yes, up) from $74.7 million a year earlier (see Foundry Bucks the Trend). It also reported its fifteenth consecutive quarter of profits.

Foundry has gained a reputation for selling high-end, high-performance switches to Web hosters and other service providers with large data centers. But over the past year and a half, Foundry has worked hard to increase its presence in enterprise accounts. Judging from the market figures it released during its third-quarter earnings call, the company has made significant progress. It generated 80 percent of its business from enterprise customers last quarter, compared to only 50 percent back in 2000 when it went public.

These new midrange products announced today are another indication that Foundry is targeting the enterprise. They are designed for small to medium-sized enterprises that don't need a large ServerIron or FastIron. It also gives customers an alternative to fixed configuration products.

“I think this is consistent with Foundry’s strategy, which is to be a top switching company,” says Zeus Kerravala, an analyst with Yankee Group. “They aren’t trying to be a service provider switching company or an enterprise switching company: They want to address both markets equally well.”

The new products include:

  • EdgeIron 24G, a mid-range fixed-configuration Layer 2 Gigabit Ethernet switch.

  • FastIron 3208RGC, an advanced Layer 2/3 modular switch with 10- Gigabit Ethernet expandability

  • ServerIron 100-8GC02F, a mid-range Layer 4/7 Gigabit Copper system for load-balancing servers, firewalls, and caches.

These new products will expand Foundry’s gigabit-over-copper and 10-Gbit/s Ethernet product lines. Currently, it sells low-end, fixed configuration Layer 2 switches that compete with boxes from Cisco Systems Inc. (Nasdaq: CSCO) and Extreme Networks Inc. (Nasdaq: EXTR). It also sells highly scaleable, modular Layer 3 switches that compete with gear from Cisco. And it sells high-end Layer 4-7 load balancing switches, a market that generates roughly 15 percent of the company’s quarterly revenues, notes Mark Sue an analyst with CE Unterberg Towbin.

But until now, the company has not offered products to address the midrange market. As more and more enterprises build out their own data centers, this has become an important market to address. Foundry has already offered 10-Gbit/s Ethernet interfaces on its high-end FastIron products. Now it will also be offering these interfaces to the new midrange FastIron product, too.

“I don’t see demand for 10 Gbit/s in any meaningful way for another 12 months,” says Kerravala. “But as PC manufacturers start putting 10/100/1000 interfaces on desktops the demand will grow.”

Foundry, Extreme, and Cisco are all offering 10-Gbit/s Ethernet interfaces. But at the moment, the products each have only one 10-Gbit/s uplink. Force10 Networks Inc. is the only company to offer multiple 10-Gbit/s Ethernet interfaces, according to Kerravala (see First 10-Gig Ethernet Switch Arrives). Foundry is working on a denser product code named “Mucho Grande.”

“Dense 10-Gbit/s Ethernet interfaces will eventually be important on service provider gear as Gigabit Ethernet propagates throughout the enterprise,” says Kevin Mitchell, an analyst with Infonetics Research Inc.

Processing power of desktops and of servers is increasing dramatically, making gigabit-over-copper in the enterprise a cost-effective means for boosting bandwidth. From the first quarter of 2002 until the second quarter of 2002, 1-Gbit/s Ethernet interface shipments with LAN on the motherboard have increased by one million units, according to market research firm Dell'Oro Group. What’s more, prices on gigabit-over-copper network adapters for the servers and desktops have declined dramatically to below $100 per adapter. This, coupled with the availability of 10-Gigabit Ethernet interfaces, makes gigabit-speed networking in the enterprise a reality. Foundry’s new line of products helps position the company to cash in on this windfall.

In a research note issued this morning by Unterberg Towbin's Sue, he reiterated his positive stance on the company.

“With continued momentum from its existing products and new product launches combined with record backlog, we are reiterating our N/T and L/T BUY ratings,” he writes. “Our 12-24 month price target remains unchanged at $12 or 46x our CY03 earnings of $0.26.”But he warns that a prolonged lag to recovery in both enterprise IT spending and service provider capital expenditures could hurt the company’s ability to reach these targets.

Foundry was trading down $0.27 (3.47%) to $7.52 per share.

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.comWant to know more? The big cheeses of the optical networking industry will be discussing 10-Gig Ethernet at Lightspeed Europe. Check it out at Lightspeed Europe 02.

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