April 14, 1997 1:30 PM PDT

Gigabit Ethernet shakeout looms

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As newcomers continue to flood the market with gigabit-speed Ethernet networking hardware, the question remains: Who will survive?

Venture capitalists have spread seed money to start-ups working on gigabit-speed gear for the past couple of years at a ferocious clip, hoping to reap the benefits of a market that is expected to grow from nothing to between $1.5 billion and $3 billion by the year 2000, analysts say.

Now that actual products are beginning to ship from the dozen or so start-ups, analysts expect a quick shakeout of the Gigabit Ethernet market over the next two years to separate the players from the pretenders.

The flurry of product activity in recent weeks stems, in part, from the state of the standards process for Gigabit Ethernet. The technology is the next generation of the dominant networking pipe to connect PCs and servers over a local network. Consensus has come to the standard within the Gigabit Ethernet Alliance, and all that's left in the process is ratification. A final vote should allow the final standard to be released in the first half of next year.

Gigabit Ethernet moves data at 1,000 mbps as opposed to the current 100 mbps speeds of Fast Ethernet. The draw of the latest Ethernet incarnation is that the technology will fit into existing networks and satisfy their ravenous appetites for bandwidth. But some analysts believe the market is ahead of the network at this point.

"We're still in the early part of the switching phenomenon," noted Michael Howard, president of the Infonetics Research consultancy.

A recent study by the consulting firm found that over 80 percent of Ethernet-based desktops remain microsegmented. That is, 80 percent of networks that tie desktops with Ethernet use a hub to attach several desktops to one port on a multiport switch. This means that Gigabit Ethernet might not even be needed on today's networks.

"The demand for gigabit is not really there yet," added Howard. "Most of these [Gigabit Ethernet start-ups] will tell you they're not a gigabit company."

The essential keys to survival for fledgling companies--like Extreme Networks, who announced products today, and Xlnt Designs, who will debut products next month at Networld+Interop in Las Vegas, Nevada--include competitive technology and pricing, aggressive marketing, and broad distribution strategies and partner programs. A broad product line that incorporates gigabit-speed gear into an overall Ethernet strategy should also make things easier for the start-ups in what is sure to be a cutthroat, price-conscious marketplace, according to industry observers.

The biggest fear for small firms--others entries include Prominet, Acacia Networks, and Alteon Networks--are the big players.

But this fear is tempered by the recognition that these embryonic players may need the networking giants to survive. The start-ups are entering the market early ? some might say prematurely ? in order to gain recognition in the eyes of customers and possible suitors. "The ones that will be successful are the ones that get bought out," said Esmerelda Silva, analyst with market researcher International Data Corporation.

3Com recently announced a gigabit-speed Ethernet strategy that ties the new equipment into existing Ethernet and other popular network topologies, such as ATM (asynchronous transfer mode). Cisco Systems has already gobbled up gigabit upstart Granite Systems, and most analysts think that could just be the beginning. Both Bay Networks and Cabletron Systems also appear to be ready to open their wallets.

Gigabit technology will take center stage at Spring Networld+Interop, when a number of vendors will demonstrate interoperability of their gigabit gear. An announcement assault at the show is also expected.

Though some analysts are wary of the gigabit hype, others see a rapid adoption of the technology once it proves to be ready for use on production networks. Once this occurs, it may be hard to keep track of the various partnerships start-ups will need to gain a foothold in the market, as well as follow the various acquisitions the multibillion-dollar networking companies will make to fill holes in their gigabit strategies.

 

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