By Julie Bort
Network World, 12/24/01

AT&T: Patents and data services

Although AT&T endured a bumpy 2001 (like most telecom providers), it smoothed over enough rough spots to ensure its continued presence among the power elite.

AT&T made headway in its plans to tread more heavily into business services and away from the go-nowhere long-distance market. AT&T Business gained traction in IP services, increasing revenue year-over-year in the third quarter by about 25%, according to financial reports. This included gains in IP connectivity, VPNs and especially hosting services.

While AT&T remained the No. 1 long-distance provider, the terminally ill prospects of that line of business has led gossipmongers to premature proclamations that AT&T is a goner. True, prices already have eroded, and the regional Bell operating companies will soon gobble up most of the market. That makes AT&T Consumer, which provides consumer long-distance and the fiscally difficult consumer DSL, ripe for a sale by year-end 2002, as AT&T finishes its restructuring.

AT&T's restructuring doesn't automatically diminish the company in the network industry. In fact, a well-executed restructuring should let AT&T focus more heavily on serving the enterprise, its best bet for growth. And with its state-of-the-art backbone and hosting facilities, among other services, AT&T should remain a premier and predominant data network service provider.

Likewise, AT&T Labs, long a center of network technology creation, continues to make important strides for AT&T's future. Tastes of that are the patents it earns, such as one this year on fraud management call-handling methods. The lab is currently working on advanced IP management, network visualization and 4G wireless streaming, as well as voice command and other consumer-oriented gambits.

Fun fact: AT&T has been working on speech-recognition technology since 1929, when its labs invented an artificial larynx.

Cisco: A stronghold on IT loyalty

Even mighty Cisco suffered a brutal year of painful financials, a major restructuring and big layoffs — it shed 8,000 employees, or about 11% of its workforce. 

But the company still inspires fanatic loyalty among network executives. For example, readers named Cisco products sweeping winners in every category in which they competed in our 2001 Best Products survey. And readers who participated in our annual Powerometer poll consider it more powerful than any other vendor in the industry but Microsoft.

Still, Cisco faces big challenges. It must convert itself from a New Economy technology buyer to an Old World-style research-and-development incubator. No longer can it acquire handfuls of start-ups to see which ones pan out. (This year Cisco introduced an IP storage router that came from its $450 million buyout of NuSpeed Internet Systems in July 2000, while lack of demand led it to kill an optical Internet router picked up in its $500 million acquisition of Monterey Networks in August 1999.) In 2001, Cisco bought only two companies: Allegro Systems, for VPN acceleration technology, and AuroraNetics, for 10 Gigabit chip designs, compared with nearly two dozen in 2000.

Still, $18 billion in cash is a thick cushion for restructuring into 11 technology business units. That cash also earns Cisco enough interest to pad revenue, getting Wall Street off its back while it builds R&D experience.

To that end, Cisco is racing after a boatload of emerging markets: telephony, Gigabit Ethernet in the enterprise, IP storage, 10G Ethernet in the MAN/WAN and wireless LANs. Beyond these, it has been tinkering with content networking, and more recently, disaster recovery.

Cisco also boosts its product power with frenetic standards-related activity. Nary a consortium exists without Cisco’s membership, be it the Optical Internetworking Forum or the Storage Networking Industry Association. And Cisco retains its influence at the Internet Engineering Task Force: Cisco Fellow Fred Baker this year handed over his longtime position as captain of the IETF to another Cisco engineer, Harald Alvestrand.

Fun fact: Cisco, founded in 1984 by two Stanford University professors, now has a chairman, John Morgridge, who teaches part time at Stanford's School of Business.

Dell: Master of commodities

Dell continues to reach beyond its traditional PC market. This year, it upped the ante of its network business by adding low-cost switching to its successful repertoire of servers and storage products.

When Dell moves, the industry takes notice. Its game plan is simple and effective. Rather than developing new technology, as IBM does and Cisco wants to do, Dell sells lower-cost commodity products then inches its customers up to higher-margin items such as storage and services. A case in point: In June, Dell partnered with Inktomi to create a Web caching device using Inktomi software and a pair of Dell servers. Voilá! An instant higher-margin device for PC customers, with hardly a penny spent on R&D.

Storage remains among Dell's strongholds. In 2001, it moved its storage lines beyond Windows and into Solaris shops, and it revamped its popular PowerVault network-attached storage (NAS) line. It then signed a multibillion-dollar deal to private label EMC's lower-end NAS product, Clariion.

In May, it cut desktop prices 10%, launching an old-fashioned PC price war against Compaq and Hewlett-Packard. This move typifies Dell's strategy as the No. 1 seller of PCs.  At the same time, the company scrutinized the bottom line. After Wall Street analysts skewered Dell for missing earnings-per-share expectations by 1 cent in January, the company was determined to meet its plan. To do so it had two rounds of layoffs, cutting 1,700 employees in January and another 4,000 in May, and revised its expectations downward.

Fun fact: In Q1 2001, Dell for the first time shipped the most servers worldwide, unseating longstanding No. 1 markeshare holder Compaq, according to IDC.

EMC: Storage star

Although suffering from the sluggish economy, EMC used 2001 to attack the midrange, step into open systems and engage high-profile - perhaps brilliant - partnerships.

EMC started the year by releasing a new Clariion line that took on lower-end NAS vendors. In February, EMC released multivendor storage management software, ESN Manager, for the first time acknowledging others' hardware and taking a major step toward open systems. In May, EMC partnered with then undisputed leader in the optical market, Nortel, to create optically networked storage systems.

In September, EMC hit Compaq and Dell where they live by launching a midrange Symmetrix box. And then not long after that, it shocked the storage world by partnering with those rivals. Dell will once again resell EMC products and market Clariion under its own label. This revives the reseller agreement of two years ago, before Dell slapped EMC in the face and went solo in storage. Compaq and EMC will cross-license each other's APIs in a move that sends EMC even further on the open systems road.

To offset effects of the sluggish economy and seriously reduce net income, EMC went on a cost-control diet in which it shed 2,400 employees, or 4% of its workforce, and reorganized into three business units. The stock price of this one-time Wall Street darling dove from the $70s in January to the teens at year-end. Still, EMC controls a market that will boom once IT departments start spending again.

Fun fact: EMC sponsors the EMC World Cup, the only team competition in the four-tournament PGA World Golf Championships.

IBM: Shining products and financials

IBM, the perennial powerhouse, often shined brightly in this otherwise dusky year. Throughout 2001, the vendor extended the breadth of its technology, pressured its competitors and made money.

Its massive R&D labs produced several creative products this year, such as the "pixie dust" hard drives launched in November. Based on atomic-sized storage media that IBM scientists had been working on since 1990, pixie dust is said to quadruple disk drive density. Then there's the eLiza Project, IBM's efforts to imbue its servers and software with self-healing, self-managing properties. IBM used this self-healing technology to attack Sun in October with the wirelessly managed, self-healing eServer p610, starting around $7,500. IBM claims the server is faster, more energy efficient and cheaper than the comparable Sun Fire 280R, introduced in September at $10,000 and up. The p610 employs new high-performance dual-chip technology and may be able to lower costs of per-processor software licensing fees by performing well with fewer chips. IBM initiated price wars with Sun on other products this year, too. It priced its four-way eServer p660 starting at $93,000 when the comparable Sun Fire 3800 costs about $175,000 and up.

IBM also focused on Linux, making it an option on virtually all midrange or low-end boxes, introducing Linux clustering software and donating a $40 million development platform tool to a Linux advocacy group. 

Voice over IP was also a thrust. In October, IBM partnered with Nortel to sell hardware and software for converged networks, and with Cisco to create and sell turnkey IP PBX systems.

True to its nickname, Big Blue stood out for its financials. Although sales were down from last year for most of its units, IBM met or beat expectations throughout the year. Even its layoffs hardly qualify as a workforce reduction. In 2001, IBM ditched 1,000 Global Services workers, 183 Lotus employees and about 250 Tivoli employees from a total workforce of 316,000 in 2000.

Fun fact: IBM employs five Nobel Prize winners at its research labs.

Microsoft: Nonstick vendor

Not even an antitrust case can keep Microsoft from industry power. By the end of 2001, Microsoft clearly came out the winner of the government's historic antitrust case - despite officially losing. The restrictions imposed amounted to a slap on the wrist,  although long-term implications are unclear. The immediate downside is that because the states have not wrapped up their complaints, this suit will remain a drag on Microsoft's attention and coffers into 2002.

Legal goings-on haven't diminished Microsoft in users' eyes. Readers who participated in our annual Powerometer poll named it the industry's most powerful company in 2001.

Microsoft remains as arrogant as ever, too. In May, it angered corporate customers worldwide with new, confusing and costly licensing schemes. Microsoft extended the deadlines for adoption when users balked, but it plans to march ahead anyway.

And it carried on its tradition of dressing up standards in proprietary code. Microsoft's Web services tools use the company's C# language and .Net framework, while all other Web services products rely on Sun's open Java language and Java 2 Platform Enterprise Edition framework.

The antitrust case didn't even deter Microsoft from bundling new features into its products. Even as it was awaiting word on punishment in October, it announced plans to bundle collaboration features into Windows .Net Server, perhaps damaging the emerging collaboration market in the process.

Microsoft stands alone as the industry's hardiest employer this year. It completed 2001 without a layoff.

Fun fact: A Popular Mechanics story inspired Paul Allen and Bill Gates in 1975 to create the BASIC compiler that would spawn the mighty Microsoft.

Network Associates: Antivirus voltage

Computer safety has long been in the thoughts of network executives, and viruses among the most worrisome aspect. Network Associates dominates the all-important area of corporate antivirus software, controlling 34% of the market, according to IDC.

This year, Network Associates extended its antivirus breadth by imbuing McAfee products with protection from Zombie code; shipping the e500, a speedy antivirus gateway appliance; and launching ePolicy Orchestrator 2.5, a management console that processes virus-detection alerts from McAfee and Norton AntiVirus from archrival Symantec. The company also controls 75% of the small, but emerging, managed antivirus services market, IDC says.

Add to that the outright dominance of its Sniffer product line, and Network Associates emerges as a powerhouse in critical areas of network management.

Network Associates' R&D labs - McAfee's Anti-Virus Emergency Response Team and the NAI Labs - have placed it among the most respected authorities on security, too. Its labs helped it add two key patents in 2001 for technologies that ease corporate software management and update software over the Internet.

In August, Network Associates elbowed into the emerging anti-distributed denial-of-service market by announcing it would collaborate with three start-ups to help create end-to-end protection. This after it was the target of a distributed denial-of-service attack in February. 

Another coup was the creation of a more secure version of Linux with the National Security Agency.

Still, Network Associates has shouldered ongoing, albeit improving, financial woes that led it to kill its struggling PGP firewall and encryption unit in October and to reshuffle its management team in December.

Fun fact: CEO George Samenuk played football for Brown University.

Oracle: Database, app power

In 2001 Oracle wobbled on the power tightrope, but safely crossed to the other side. While market researchers quibble on the exact numbers, most concur that Oracle's lead over No. 2 IBM in the Unix database market lessened in 2001. The reasons are many: IBM's purchase of Informix, the difficulty in doing business with a company as arrogant as Oracle, high prices, a fallout in Oracle's 2000 core growth markets (dot-com and ASP) and - critically important - Oracle's hands-off policy on its applications.

But competition can be a source of strength, and so it was for Oracle. The software maker showed the sense to shift its weight on several core issues. In June, Oracle met IBM's price-war challenge and dropped its controversial capacity-based pricing scheme for a more conventional processor-based one. Oracle claims such licensing makes 9i more affordable than DB2, and drops prices for its customers by as much as 18%. 

In August, Oracle promised to publish the APIs to its 11i E-Business suite. Customers have long pressured Oracle to open its applications, and in this case they got help from a class-action lawsuit filed in March on behalf of investors. The suit claims Oracle released 11i knowing it had major flaws.

Users hail any move that opens the Oracle APIs, which have been Superglued shut. But the company has certainly not yet rescinded its position that customers use it as a single source.

Fun fact: Oracle's initial funding was $2,000, all from founders' pockets.

Sun: Beefy servers plus Java

When most companies reach the size and power of Sun, they become the establishment. Yet, Sun, the top seller of Unix servers and operating systems, continues to act the rebel, constantly pursuing so-called disruptive technologies. Think of all that Java has become.

In 2001, Java grew beyond a straightforward attack on Microsoft's operating system dominance into a de facto standard for Web services. Vendors such as BEA Systems, IBM and Oracle have licensed J2EE for building their Web services development tools. That leaves Microsoft's .Net supported only in Redmond, Wash.

Yet sometimes Sun is so focused on trumping a rival that it loses track of the areas in which it already dominates. Sun continually rolls out faster scalable processor architecture (SPARC) chips for servers but has let its creativity lag. Analysts contend that it has fallen behind competitors such as IBM on CPU performance. IBM's price-war tactics this year also hit Sun in its sweetest spots - higher-margin servers. This on top of the pains of watching one of its major customer markets, telecom, implode. Sun joined the ranks of the layoff lords in August when it announced it would cut 300 jobs - although a pittance of its nearly 44,000-employee workforce.

In 2001 it again set its sights on usurping the midrange Wintel market by introducing the V880 SPARC server. Priced to compete with Dell's 64-bit servers, in most configurations it is still more expensive. This is not the best way to tackle a market known for its cost consciousness.  Still, Sun never plays the ostrich. It has always consciously decided it would rather own the high end than the low, and has so far executed according to plan.

Fun fact: Disney used more than 100 Sun Enterprise 4000 servers to create "Toy Story," the first fully computer-generated feature film.

Verizon: Telecom steamroller

Clearly, the New York financial markets can't operate without communications, and that means Verizon. That alone would be enough to name a network company among the nation's most powerful. But keeping the markets online is only a tiny portion of its influence. Its newfound stature in long-distance, coupled with massive wireless and consumer telephone share, ensure its power.

Verizon, the nation's largest RBOC, gained approval in 2001 to operate long-distance services in yet another state in its region, bringing the total to four: Connecticut, Massachusetts, New York and Pennsylvania. It offers long-distance in nearly all of its coverage area - 40 states so far - able to compete in those areas through the former GTE territories where it is not considered the incumbent local carrier. It expects to nab approval for New Jersey and Washington, D.C., in less than two years.

Verizon dominates in wireless, too. It claims 27 million wireless voice and data customers, and availability in 96 of the top 100 U.S. markets. That base will likely grow following the Federal Communications Commission's November decision to relax and ultimately drop the cap for the amount of spread spectrum one carrier can dominate. Verizon could acquire competitors or their spectrum licenses in high-margin populated areas.

While most of the telecom industry rocks from an economic kick in the stomach, Verizon continues to operate profitably, although it also has felt effects. In February it announced that it would trim 6,000 jobs, primarily through attrition, and cut the equivalent of another 4,000 jobs by eliminating overtime and contract work. In March it reorganized its wireless unit, cutting 800 jobs and postponing a planned IPO until next year.

Fun fact: Verizon set aside $70 million for
2001 philanthropy, as one of the top 10 U.S. corporate foundations.