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Nokia catches a falling Ipsilon

Finnish manufacturer snags IP switching inventor.

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Sunnyvale, Calif. - A year ago, they were the Beatles.

When Ipsilon Networks, Inc. touched down in March 1996, it whipped the industry into a frenzy with its hooky melodies and breezy harmonies on IP switching. Ipsilon's chart-busters included tunes on establishing cut-through IP routes over ATM, snubbing complex routing dogma from standards groups, and divorcing enterprise nets from the self-centered Cisco Systems, Inc.

The industry was transformed into a screaming, blubbering mess, tearing its locks out pleading for more, more IP switching.

But that was yesterday. Today, Ipsilon is but a nostalgic footnote, another victim of industry consolidation. The IP switching pioneer last week was scooped up by Finnish telecommunications equipment manufacturer Nokia Corp. for what seems a paltry $120 million, given the commotion it caused (NW, March 4, 1996, page 1).

The deal will let Nokia develop new IP-based network equipment for voice and data, the company said. Nokia last June acquired a minority stake in Ipsilon, and the companies had been collaborating on IP switching and ATM product development.

Ipsilon generated a lot of hype but, unlike the Beatles, not a lot of sales. For all of the swagger, strident antistandard rhetoric, best-of-show recognition and financial backing from Cabletron Systems, Inc. and Digital Equipment Corp., Ipsilon just could not establish a beachhead in the enterprise.

"We bet on the fundamental premise that corporate network backbones are congested and that routers were the bottleneck," said Ipsilon President and CEO Brian NeSmith. "We found that most corporate backbones weren't congested."

Ipsilon also discovered that shortly after turning everyone on to IP switching, Cisco froze the market with Tag Switching and Multi-protocol Label Switching.

And Ipsilon's value plummeted because proprietary Layer 3 switching technologies in vogue 21 months ago - such as IP switching - became pass‚, analysts said.

"It's obvious that Ipsilon basically failed in their mission to establish IP switching," said David Passmore, president of Decisys, Inc., in Herndon, Va. "Quite frankly, the whole cut-through routing technique em-bodied by IP switching, 3Com [Corp.'s] FastIP and Cabletron's SecureFast [doesnt] make sense anymore in this era of gigabit, wire-speed routers."

Ipsilon's strident marketing messages also did not help its cause. Ipsilon had a good idea, but it was wrapped in so much Cisco and ATM Forum bashing that people got turned off.

"Everybody loves the David and Goliath mentality," said Craig Johnson, principal analyst at Dataquest, Inc. "But that doesn't necessarily help win business. What really matters in the end is business and generating revenue."

"You can only attack the competition so much before people start to ask, 'Well, what do you have?,' " said Fred McClimans, president of Current Analysis, in Sterling, Va.

Others say talk was Ipsilon's biggest asset.

"They helped themselves from all the publicity; it got them in a lot of doors," said Eric Hindin, an analyst with The Yankee Group, in Boston. "Where they fell down was
simply that they couldn't measure up."

Bunk, NeSmith said.

"Companies don't buy other companies based on hype," he said. "Typically, when you buy a private company you spend a lot of time and energy understanding the technology and the people and the products that they have."

You also spend a lot of time understanding the customers, which Ipsilon did not do enough of. Though Ipsilon claimed that its customer base continually was expanding - between 60 and 80 at last count - Vice President of Marketing Larry Blair kept referring reporters to the same three or four until two months ago.

"I'm kind of depressed," said Phil Emer, assistant director for network technology development at North Carolina State University in Raleigh, and one of the three or four users on Blair's list. "They just proved it's going to take more than a good idea and a bunch of smart guys to dethrone Cisco."

Perhaps customer count was an indication that Ipsilon had to tone down its hype quite a bit before heading into the telco/service provider market.

I don't expect we're looking to make a full frontal assault" into that market, NeSmith said. "We're saying, 'How can you deliver high-performance, lower cost solutions for customers going forward?' We believe that we have good products for ser-vicing those types of customers."

And Nokia gets Ipsilon at a good price. Analysts say that a year ago, Ipsilon's value was close to a half billion dollars.

"They should have sold before they shipped any product. Then they could've gotten more," Hindin said.

"It's interesting that an organization that got that much hype has sold for that little," said Thomas Nolle, president of CIMI Corp., in Voorhees, N.J. "There's no relationship be-tween image and substance anymore."

NeSmith believes the price is right for Nokia and Ipsilon.

"What we're being compared to in many cases are companies that were acquired with currencies that in the last year have plummeted. They're typically one-third to one-fifth of their value," he said.

Ipsilon will become part of Nokia Telecommunications. Nokia plans to retain Ipsilon's 100 employees and maintain operations in Sunnyvale.

Founder and Chief Technology Officer Tom Lyon will continue to orchestrate technical development, and NeSmith will become a Nokia vice president in charge of routing products.

NeSmith said the IP switching song now is an old one.

"We're pigeonholed as a battle between IP switching and Tag Switching," NeSmith said. "[But] we've been focused on a completely different segment of the market with a very different strategy than was originally announced.

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