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A whole new menu

Guests at our third Gigabit Ethernet dinner get down to real business.

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Atlanta - Call it the "Gigabit Ethernet-is-for-real" meal. When we united six Gigabit Ethernet pioneers for dinner here to discuss the happenings in the high-speed LAN market, it was clear that Gigabit Ethernet has moved beyond hype and into reality. Dialogue at previous dinners in San Jose, Calif., and Las Vegas centered on venture funding, product development, competitive strategies and even the cost of commercial real estate. But at this NetWorld+Interop 97 get-together at La Grotta, a local Italian restaurant, discussion bounced from product shipments to customer deployments to pricing.

And, of course, Bay Networks, Inc.'s summer acquisition of Rapid City Communications came up a few times.

The one addition to our dinner guest list, Alteon Networks, Inc. CEO Dominic Orr, was not shy about letting his colleagues know that customer deployment of his company's gear has begun. "We've shipped 1,500 ports between [network interface cards] and switches," he said.

Extreme Networks, Inc.'s President and CEO Gordon Stitt also said the numbers look good. "I know of at least five customers who each have more than 10 switches in their sites run- ning gigabit-to-gigabit switching," he said.

So far, customers seem to be using Gigabit Ethernet in the same way they initially used Fast Ethernet, said Joe Kennedy, vice president of Bay Networks and former president and CEO of Rapid City Communications.

"It's just the same thing as 100Base-T," Kennedy said. He was sporting a maroon polo shirt touting Bay Networks, the company that snapped up Rapid City Communications for $155 million. "Now they are deploying gigabit risers, gigabit link-to-link connections and gigabit NICs."

While all of our dinner guests agreed that the Gigabit Ethernet market will be big, they argued over just how large it would become.

"I would bet easily north of $100 million worth of Gigabit Ethernet ports in 1997," Extreme's Stitt said, between bites of salmon with pesto.

"Hmmm, at about $2,000 per port, that's about 50,000 ports," Kennedy pointed out. "Heck, even if you charge $4,000 [a port], that's still 25,000 ports."

Foundry Networks, Inc. CEO Bobby Johnson, Prominet Corp.s president and CEO Menachem Abraham and Bay's Kennedy all thought $100 million sounded too high. The group settled on a range from 10,000 to 20,000 ports sold this year.

Suddenly, our meal was interrupted when a party of five Cisco employees (including a couple of former Crescendo Communications, Inc. folks) entered the restaurant and were seated at the table next to us.

"Hey, we're forecasting the number of Gigabit Ethernet ports that will ship this year, so feel free to jump in," Abraham said to the Cisco clan.

But all five Cisco employees fell silent, perhaps because even after Cisco's $220 million acquisition of start-up Granite Systems, Inc. last year, the internetwork giant still is Gigabit-less.

"But that Fast EtherChannel - now, that's the way to go," Stitt said, poking fun at Cisco's proprietary technology for aggregating bandwidth among multiple Fast Ethernet links and migrating users to Gigabit Ethernet.

Feeding frenzy

Speaking of Cisco, the Gigabit gang quickly moved the discussion to whether another acquisition will occur in this market.

"I predict there will be at least one before Interop [in Las Vegas]," Kennedy said, sipping Acacia Pinot Noir.

The others put on their poker faces and declined to divulge any tips, but Johnson said some days he gets a call every hour from investment bankers looking for him to sell. "I've yet to hear an acceptable offer," he said.

We wanted to know if our guests thought Cisco would have to make another purchase.

"It would be incredibly embarrassing," Stitt said.

'But that wouldn't necessarily keep them from doing it," Kennedy chimed in.

ATM attitudes

Packet Engines, Inc. President and CEO Bernard Daines, who was wearing a trademark bright yellow shirt, shifted the conversation toward ATM.

"Paine Webber had a report out on FORE Systems recently that talked about how FORE was doing better," Daines said. "They attributed part of the turnaround to the idea that the hype of Gigabit Ethernet was over and ATM was coming back."

That statement definitely stirred things up.

"Nobody is going to build an ATM LAN network from scratch today" Stitt said. "I just don't see it . . .not in the LAN backbone."

Alteon's Orr said he is not so sure about that. "There is a certain percentage of people who have made the decision to go [with] ATM, and they are going to stick with it," he said.

Kennedy broke into the discussion, saying "I have to wear my Bay hat here for a minute," which resulted in everybody else moaning and cutting him off. In fact, Kennedy took a fair amount of abuse all night long for "selling out" to Bay.

Quality conversation

Another key issue that came up was Quality of Service (QoS).

"I don't think QoS is a major buying consideration right now," Abraham said. "I just don't see the applications."

Extreme's Stitt, whose company emphasizes the QoS capabilities on its purple Summit boxes, disagreed. "It's a big buying consideration," he said. "Customers are using it to manage bandwidth."

While most of the evening's conversation centered around Gigabit Ethernet, it turned out that high-speed LAN technology was merely a sidekick to the real star in this market: Layer 3.

"I don't think Gigabit is the most important thing that's going on here," Kennedy said. "It's necessary, but wire-speed routing/switching is the key."

Everyone quickly agreed.

In fact, there was some disagreement regarding the value of Layer 3 vs. Layer 2 devices.

"There certainly will be a pricing premium over Layer 2 for a Layer 3 switch," Foundry's Johnson said.

Alteon's Orr predicted that 10M/100M bit/sec Ethernet prices will range from approximately $150 for a pure Layer 2 device to $600 for a routing switch port by the spring. Prominet's Abraham thought the high end would remain around $1,000 per port.

But Packet Engines' Daines shook his head. "You'll get very quickly to the point where people will not pay a premium for Layer 3," he said. "Most of the difference in pricing is who sells it, not what's in it."

Daines contends that within a year the marketplace will not place a higher value on Layer 3.

But Bay's Kennedy disagreed. "That's like saying there is no price difference between managed and unmanaged devices," Kennedy said. "You'd only give away Layer 3 if you've never done it."

So, what's next for the Gig gang? Prominet's Abraham summed it up nicely.

"The test now is that we all must deliver a product in volume that really works and is deployed in real production environments," he said.

That's exactly why the guests at Network World's next Gigabit Ethernet dinner - scheduled for NetWorld+Interop 98 in Las Vegas - will be customers, not vendors.

Each of the six vendor executives already has committed to sending one customer to the meal to find out the real deal on Gigabit Ethernet.

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