Foundry Retreats from the Core
Foundry Networks Inc. (Nasdaq: FDRY) is backing away from its claim that it can compete with goliaths Juniper Networks Inc. (Nasdaq: JNPR) and Cisco Systems Inc. (Nasdaq: CSCO) in the core routing market.
On yesterday’s conference call with analysts, CEO Bobby Johnson admitted that the company doesn’t have the right elements to compete in the core routing market. Instead of competing in the core, Johnson said that the company is targeting the edge of the network and metro networks, areas where the box is better suited.
“We began as a LAN switching company feeding into the core infrastructure,” said Johnson. “It’s a natural evolution for us to sit at the edge.”
It's an about-face from Foundry’s previous marketing strategy when the NetIron 1500 Internet router was first introduced (see Judgment Day for Foundry Core Router). At the time, company officials downplayed the difficulty of building a carrier class core router, describing a competitive encounter with Juniper and Cisco as a piece of cake.
Wednesday night, however, Johnson was forced to eat humble pie when he admitted that without multiprotocol label switching (MPLS) or OC192 interfaces -- two key pieces that are still missing from the NetIron 1500 -- it’s been difficult to compete in the core market. He said that MPLS is now in its alpha stage of testing and will be available sometime in the first quarter.
"When MPLS is the single criteria, we can’t be invited to the contest," said Johnson, when asked about OC192 interfaces. "Our first focus is to get MPLS complete. In the short term we’re focusing in OC 48 in the metro core and we’re putting more resources in 10 Gbit/s Ethernet. So OC192 isn’t the biggest priority for us, right now."
"We’ve always been honest that our strength is at the OC48 Sonet core and in our edge solutions,” he said.
The company also recently changed its marketing spin on its Web site, listing the NetIron family of switch/routers as “Internet and MAN Core Routers”.
The core routing campaign may be a case of marketing muscle fighting a futile battle against public perception. Many analysts say they never believed the story in the first place.
"We never thought the box was designed to be in the core," says Christin Armacost, a data networking equity research analyst with SG Cowen. "If you look at its primary competencies, it was clear then and now that this was designed for the metro core and edge, but never a Juniper M160 or Cisco GSR 12000 killer. There’s a reason why the Nortel’s, Lucent’s and Alcatel’s of the world couldn’t get it right."
Internet core routing is one of the toughest markets in which to compete. Despite the fact that Cisco and Juniper alone control almost 100 percent of the market, a slew of startups such as Pluris Inc., IronBridge Networks Inc., and Charlotte’s Networks along with established companies like Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU) and recent IPO Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) still vie for a piece of the routing pie.
Some analysts say it was a right move, in the face of Foundry's recent siege on Wall Street. The company had to preannounce its quarterly results, delivering results that were lower than expectations (see LR Index Stocks Pummeled).
“Once you’ve over-marketed a product launch, the worst thing you can do is not deliver on time, says Frank Dzubeck, president of Communications Network Architects Inc. "I’m sure he [Johnson] saw the stock get clobbered and didn’t want to add to it by missing on a perception."
In its quarterly earnings release, Foundry met its lowered earnings and revenue target, and the stock gained 1.06 (5.07%) to 22.00 (see Foundry Reports Solid Year-End Results). --Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com