Bay Networks' failed expectations

Bay Networks (BAY) is the Marlon Brando of networking companies. Its motto may as well be, "I coulda been a contenda."

A pioneer in high-speed networking technology and once one of the highest flyers of the high-tech stock market, Bay Networks has all the qualities needed to dominate the markets for both LAN (local area network) and ATM (asynchronous transfer mode) switching--two bulwarks of the internetworking business. But in both arenas, analysts say it's been edged out of the spotlight by other players. Somehow, things just haven't come together for this troubled company.

"They should be number one in a number of markets, but they're not. It's not that they haven't grown; it's just that, given their opportunity, they should have done more," said Don Miller, principal analyst for networking service at market research firm Dataquest.

That assessment was brought into clear focus last week when the company announced that its first-quarter earnings had plummeted 91 percent and its chief executive had resigned, replaced by an acting CEO who says he doesn't want the job permanently. News of the poor quarter pushed the networking equipment maker's stock to its 52-week low of 20-1/4 a share, far below the 40 points that followed its 3-2 split a year ago. This week, the company is down even further, closing under 20.

Founded in 1994, Bay Networks gained wide attention early on as one of the first companies to specialize in the production of ATM switches, a technology that provides high-speed network connections for local networks. The company now has a wide-ranging portfolio of networking and internetworking technologies, from LAN switches to high-end routers.

But despite its reputation as one the chief promoters of ATM technology, the company now ranks only fifth in the $219 million market, according to the most recent figures from Dataquest. (See chart below.) Fore Systems, a competitor that entered the market about the same time Bay Networks did, is now the market leader. Cisco Systems stepped into the arena even later but now has 17 percent of the market.