The 10 most powerful companies in networking

Innovative. Acquisitive. Assertive. Influential. Our 2002 picks continue to push the technological edge. Not even a prolonged down economy can stop their power moves.


Two years into a reorganization that included the recent sell-off of debt-ridden cable operations, AT&T seems anchored in granite compared with the slippery mud in which many of its competitors - especially WorldCom - sit.

AT&T is showing particularly well in enterprise data, the future for carriers of all types. These days, companies only want to place their precious packets with tried-and-true providers - preferably those that own their own facilities. That AT&T fits that description well is starting to become apparent in the company's financials. In the third quarter, a 7% growth in data, IP and managed services helped offset voice losses enough for the carrier to declare a profit for the period.

Hosting, in particular, has become a power point for AT&T. With the crash of several hosting specialists in 2001 and 2002, including that of market leader USinternetworking, AT&T has positioned itself for growth in this business.

In January, it wrapped a homegrown, $200 million network management suite around hosting customers' Web sites, adding oomph to encourage collocation users to move up to managed services. With the suite's event-correlation functions, AT&T says, it can fix performance problems before they affect a customer's Web site. And in July, the carrier struck a deal that has Sun selling AT&T Web hosting services through its massive reseller channel. By September, it even won the contract to host one of the most-visited Internet sites, the federal government's Web portal,

Other technology high points in enterprise data came throughout the year. In April, AT&T beefed up its voice-over-ATM management options to help enterprise users operate hybrid voice and data networks more easily, even when using a combination of ATM, frame relay and IP. In July, it announced the expansion of its global network to 20 sites beyond the original 120 planned for the year; confirmed plans to deploy new worldwide end-to-end private-line services by April 2003; and said it was "on track" for global availability of its Enhanced Virtual Private Network service. And throughout the year, it boosted its metropolitan Gigabit Ethernet network and now boasts availability in 100 cities in 38 states (although some question any incumbent carrier's true commitment to Gigabit Ethernet services - see story, "Why old data services thrive while new ones wither" ).

And, the carrier promises continued upgrades to get its network to an all-optical state. AT&T CTO Hossein Eslambolchi has been a vocal evangelist for creation of next-generation intelligent networks. He speaks of elaborate plans to make AT&T's backbone so intelligent it will run and fix itself. A lofty vision, perhaps, but one in line with the company's power stature.


Cisco remains a gale-strength force in the enterprise market.

Illustrations by Noah Jones

For starters, the company continues to be a buyer among a sea of for-sale signs, even if it has slowed its pace of acquisitions from the dizzying frenzy in 2000. From May though mid-October, it bought five companies in stock deals valued at approximately $385 million. It gained Andiamo Systems, for Fibre Channel storage switches; AYR Networks, for distributed routing; Hammerhead Networks, for IP aggregation software; Navarro Networks, for Ethernet switching ASIC designs; and Psionic Software, for intrusion-detection systems.

The Andiamo and Psionic acquisitions, in particular, represent moves into hot market areas - storage and intrusion detection - for which Cisco set its course in 2001. Success in these, plus wireless networking, are crucial to Cisco's long-term growth.

Of course, buying a start-up always has been the easy part. Turning the acquired technology into viable products and those products into market leaders - that's another story. In IP telephony, the story is finally shaping up to be a good one for Cisco. The worldwide market for enterprise IP telephony, including IP phones, hit $171 million in the second quarter, 21% growth over the same period last year, Synergy Research Group says. Cisco's market share was 46%.

To an industrywide sigh of relief, the router chieftain posted good financials throughout the year, with a downright stellar third quarter of $729 million in net income, compared with a net loss of $2.7 billion for last year's third quarter (operating profit more than tripled). For fiscal year 2002, ended in July, the company reported net income of $1.9 billion per generally accepted accounting principals (GAAP), compared with a net loss via the same accounting method of $1 billion in fiscal 2001 (pro forma income figures vary to the point of showing a net income of $3.1 billion in 2001). And for the first quarter of fiscal 2003, which maps to the calendar's 2002 third quarter, Cisco reported net income, via GAAP, of $618 million vs. a net loss of $268 million for the first quarter of fiscal 2002.

Yet, Cisco remains cautious. In May, it quietly reorganized, dropping from 11 to eight technology groups, in what the company calls a natural evolution. And, in September, it dropped Dell as a reseller, reclassifying the company as a competitor on the low end.

Cisco remains the network industry's bellwether.


The gusto with which Dell successfully has attacked the enterprise network market is a testament to its industry power.

Hardly a month went by without Dell claiming more ground. Some highlights: In February, it announced that its servers would be the heart of a new cluster-based supercomputer to be marketed by Cray. In March, Dell and EMC released a trio of management software for EMC's Clariion servers. In April, Dell came out with its first blade server. In May, it released a PC with a Gigabit Ethernet-equipped motherboard and completed its second-ever acquisition, that of network services company Plural. In June, it teamed with Oracle and Red Hat to create enterprise-ready Linux.

In October, Dell and EMC announced a jointly manufactured Fibre Channel switch. By November, Dell had shipped its 2 millionth PowerConnect Ethernet switch port, having jumped into the market only a little more than a year before. And Dell threw two gauntlets at archrival Hewlett-Packard, first by signing an agreement with Lexmark to develop and produce Dell-branded inkjet and laser printers. Then, confirming summer-long rumors, it showcased its first PocketPC handheld. This after besting IBM and HP worldwide for third-quarter PC market share.

Financially, Dell was golden in 2002. In the second quarter, its worldwide product shipments rose 18%, year over year, in what was essentially still a flat market for IT spending. Like Cisco, Dell posted a whopper of a third quarter, with $9.1 billion in total revenue, up 22%.

Others met Dell's success with wary eyes. Cisco, 3Com and HP reclassified Dell as a competitor, canceling their reseller agreements with it.

Dell is biting into the networking industry with relish.


EMC furiously defended its perch atop the storage hill in 2002 against marauders IBM, Hitachi and HP.

Losing little time in capitalizing on a relationship formed late last year, EMC in March announced a souped-up trio of management software partly designed and tested by Dell. The software boosts the features of EMC's Clariion servers, which Dell now resells. The pair struck again in October, on the one-year anniversary of their partnership, with the announcement of a worldwide manufacturing agreement and development of a new entry-level storage-area network system.

This latter move gives credence to EMC's years-long assertion that it will gobble up the low-end storage market, while the former gives EMC an entry into Dell's internal business and manufacturing efficiencies - widely acknowledged as the best in the business. Lessons learned from Dell here should prove valuable, as financials remain EMC's Achilles' heel. It is burdened with two years of red ink, ongoing layoffs and a steadily dropping stock price that hovered around $6 in mid-December from a high of about $18 in January.

Still, EMC got a jump on competitors in September when it released a version of ControlCenter that automatically provisions capacity from a pool of multivendor storage devices based on predefined business rules and application needs. ControlCenter is one of four products comprising Automated Information Storage multivendor management software, the obvious main hope for EMC's goal of having software account for 30% of sales by 2004, compared with less than 25% today.

EMC has called in some heavy hitters to help it meet that software goal. This year, it hired Chris Gahagan, a respected storage industry veteran most recently with BMC Software, and Mark Lewis, formerly a storage executive with major rival HP. Gahagan is senior vice president for EMC's Storage Infrastructure Software; Lewis is executive vice president of new ventures and CTO.

Such moves led users to expect EMC to sweep power away from its rivals in 2003, according to this year's Powerometer survey.


Maybe this new behemoth of a computer manufacturer has a lot to prove. But for the moment, HP can bask in the glory of a hard fight won and the sheer size of its new self. The merger with Compaq, completed in May, instantly gave the computer vendor revenue comparable to only one other in this industry, IBM.

Still, HP was not so distracted by its new self to ignore its technological future. It defended itself in storage and progressed well in network management, Linux and wireless.

In storage, the year's notables include the November announcement of software that delivers on the concept of industry-standard, automated management of multivendor storage. At that time, HP also showcased products that comply with the Storage Networking Industry Association's Storage Management Interface Specification, once known as Bluefin. And separately, HP inked an agreement to swap APIs with Hitachi to enable multivendor management.

In network management, HP began pitching a powerful service-management ideology for OpenView. The gist is to convert OpenView into a business process management system that tracks a business service, such as e-commerce, across applications and hardware, rather than as independent and unrelated pieces. This dovetails with its Utility Data Center (UDC) architecture for combining grid computing with system management and security software. UDC, which HP promoted heavily this year, is intended for companies that build their own grids, rather than those using the hosted model that IBM promotes.

In servers, HP introduced a single-port 10G bit/sec blade that helps position it as a high-end switching player. This moves it away from the growing image that it merely was duking it out with Dell for the low-end, commodity market.

As for Linux, HP underscored its commitment with numerous yearlong product moves: a disaster-recovery storage-product package; a more secure version of the operating system; various servers; and a service to help migrate users from Unix to Linux. However, the company sustained a blow to its image as an open systems vendor when Bruce Perens, senior strategist for Linux and open source code, left in September, citing conflicts with management over his open source political activism.

Partnerships also flavored HP's year. It inked two agreements with Microsoft, one a multiyear, multimillion contract to manage product technical support and the other a $50 billion joint marketing agreement to develop and promote .Net. In April, it demonstrated streaming media on mobile phones from its partnership with NTT DoCoMo; in November, it partnered with Nokia to create a package for remote-asset management over wireless links.

But HP still has much to do to smooth out the merger. In November, former Compaq CEO Michael Capellas resigned his post as HP president to become CEO of beleaguered WorldCom. Some pundits think the move was disadvantageous to the newly merged company, which could have used Capellas' operational skills. This announcement followed news from a September filing with the Securities and Exchange Commission that the total number of jobs HP will cut by October 2003 would be 16,800 (8,200 from HP divisions and 8,600 from Compaq units), some 12% more than the 15,000 jobs that Fiorina announced at the deal's close.

When it comes to the networking industry, size isn't everything, but it sure helps.


Among all the vendors on this list of power elite, IBM has best used this period of industry unrest to improve its relative power position. Under the leadership of new CEO Sam Palmisano, Big Blue heaved forward in all the industry hot spots this year: integration services, Linux, security, storage, Web services, wireless and grid computing.

Clearly, the biggest muscle it built in 2002 is in integration services, with the $3.5 billion acquisition of PricewaterhouseCoopers Consulting in July. Other feats here include winning a $4 billion outsourcing contract from American Express and securing an eight-year, $1.2 billion outsourcing deal from Nextel.

1 2 Page 1
Page 1 of 2
IT Salary Survey: The results are in