Cisco snaps up Granite Systems for $220M

     San Jose, Calif.
     Cisco Systems, Inc. last week gave its customers another reason to
delay moving to ATM by agreeing to acquire Gigabit Ethernet start-up
Granite Systems, Inc. for $220 million in stock.
     Cisco's intent in acquiring the Palo Alto, Calif., company is to give
customers a wider choice of backbone network technologies. Gigabit Ethernet
switching may help alleviate traffic congestion on network backbones
resulting from a growing number of end users, bandwidth-hungry applications
such as multimedia, Internet access and groupware, and higher performance
servers, according to Cisco.
     The high-speed technology may also help to keep Cisco's routers around
a little while longer. ATM switches, too, are supposed to alleviate traffic
congestion and handle multimedia applications, but they do not require
routers for interconnecting ATM LAN segments.
     'Gigabit Ethernet is the best thing to happen to Cisco,' said
Esmeralda Silva, a senior analyst at International Data Corp. in
Framingham, Mass. 'It keeps on delaying the migration away from routers.'
     For this reason, Gigabit Ethernet will become Cisco's 'strategic'
backbone technology, ac- cording to brokerage firm Montgomery Securities,
Inc. in San Francisco. Cisco maintains that it is just offering customers a
choice.
     'For those who have installed a lot of Ethernet to the desktop,
Gigabit Ethernet is going to be a great, scalable aggregation point,' said
Jayshree Ullal, director of marketing for Cisco's Workgroup business unit.
ATM's appeal is in the wide area, where users are upgrading old X.25
infrastructures and integrating voice, video and data over a single pipe,
she said.
     Nonetheless, Cisco will continue to offer its ATM workgroup and campus
backbone switches, and ATM uplinks on its frame switches, Ullal said.
     Granite Systems Chief Executive Officer Andy Bechtolsheim - one of Sun
Microsystems, Inc.'s founders - has a reputation as an ATM basher. Now that
he'll be working for Cisco, his tune will have to change.
     'They told me I can be passionate but nonreligious,' Bechtolsheim
said.
     The catch is Granite is not even shipping products.
     Some observers expected the company to release products in mid-1997,
but Bechtolsheim characterized those expectations as rumors.
     So Cisco essentially paid $220 million for Bechtolsheim, his
Application Specific Integrated Circuit designs and the 50 employees to
build products for a market that research firm Dataquest, Inc. expects to
account for multibillions of dollars before long.
     Bechtolsheim will become a vice president of engineering within
Cisco's Workgroup business unit.