Foundry's Verio Deal Lacks Teeth
The announcement, however, stimulated yawns on Wall Street, primarily because it included little new information about how the deal would contribute to the company's fundamentals.
For one, Verio is already using Foundry’s BigIron gigabit Ethernet switching products in its Web hosting facilities and backbone aggregation points of presence (POPs).
Verio is even listed on Foundry’s Website as a key “partner." Foundry and Verio’s predecessor Hiway Technologies have been working together since 1998. The service provider has installed Foundry's BigIron 4000 Layer 3 switches and FastIron stackable workgroup switches in their primary data center, according to the Website.
“It’s been an ongoing deal,” says James Wood an analyst with Deutsche Banc Alex Brown LLC.
So what's new about this deal? Verio is now using Foundry's NetIron Internet routers.
But some analysts are skeptical about any announcements involving Foundry’s NetIron router (see Judgment Day for Foundry Core Router).
“I’ve seen ten or a dozen press releases from Foundry saying they won router contracts, and usually when I call around it turns out the contracts are for Layer 3 switches,” says Paul Johnson, senior technology analyst for Robertson Stephens.
“When I talk to people at Juniper they say, ‘We never see Foundry in bids,' " says Johnson. “From what we hear, their BGP4 and OSPF products are not mature.”
Ken Cheng, VP of marketing for Foundry admits that the company's strength lies in its Layer 2 and Layer 3 switching products, but he adds that the company's goal is to get into the Internet router business, starting at the edge rather than the core.
This strategy is being played out in the Verio network, where smaller NetIron 400 and 800 routers are being used at the edge of the network, instead of the core NetIron 1500 router, says Cheng.
"We definitely aren't being used as a core router in this particular installation," he says. "I don't want to be misleading. Verio is using the NetIrons as their BGP4 and OSPF routers, not as their core Internet backbone routers."
Cheng also admits that the NetIron products will not be used as core routers until features like MPLS (multiprotocol label switching) and OC192 interfaces are added.
"There aren't that many backbone provider customers out there," he says. "We've gotten some interested customers and we're making good progress, but we definitely need to get some MPLS wins under our belt."
In reality, Foundry has sold few, if any, NetIron 1500 core routers since the product was first announced back in May 2000.
This seems to makes sense in light of recent findings published by The Dell'Oro Group last month. According to The Dell 'Oro report, Cisco Systems Inc. (Nasdaq: CSCO) garnered 68 percent of the core router market, while Juniper Networks Inc. (Nasdaq: JNPR) grabbed 29 percent for the period July through September (see Juniper Eats Into Cisco's Lunch). That only leaves about 3 percent for “other." And Foundry isn’t the only one in that category. According to the report, core routing vendor Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) has also been making significant inroads in the market.
After announcing a few weeks ago that it would fall short of earnings expectations for its next quarter, the company’s stock fell roughly 50 percent and has been hovering around the $15 mark ever since. The company has also been slapped with a couple of nasty lawsuits — none of which bode well for a fast recovery (see Foundry Slapped With Shareholder Suit and Ex Foundry VP Sues Company, CEO).
As for the timing of this announcement, Cheng says that Verio has had the routers deployed for three months, but the approval process didn't make it possible to release the news until this week.
-- Marguerite Reardon, senior editor, and Matt Malina, research associate, Light Reading, http://www.lightreading.com