The 10 most powerful companies in networking

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Among abundant open source movements was the much-touted delivery of a Linux-based, lower-cost mainframe in February.

As for security, in January IBM inked a deal with VeriSign to create a managed "entitlement service" that will combine online authentication, digital credentials and policy management with customer and partner data. In April, it again teamed with VeriSign and Microsoft to publish the Web services security specification, WS-Security; and released the ThinkPad T30 laptops, which feature, among a plethora of new technology, integrated encryption processing chips that store users' keys and certificates.

In storage, it forged a multiyear alliance in April with Hitachi for storage networks open-standards technologies, then sold its hard drive businesses to Hitachi for $2 billion in June. And, like EMC, it exchanged APIs with HP. In wireless, among other moves, IBM and Nextel agreed to co-develop enterprise mobile e-business products, a deal outlined as part of the outsourcing contract announced in January.

In grid computing, an area of obvious long-term use to server vendors, Big Blue released new software, storage and servers, a development framework known as grid services, and a promise in February to grid-enable its "entire product portfolio." IBM also inked two $200 million-plus supercomputer deals: a nine-year contract with the National Centers for Environmental Prediction, and one with the Department of Energy to build what IBM says will be the fastest supercomputer to date.

The downside of 2002 was weaker, albeit still profitable, financials. IBM laid off 1,400 microelectronics employees and 15,600 from Global Services, but gained 30,000 through the PricewaterhouseCoopers Consulting acquisition. Growth, it hopes, will come from the middle market.

IBM's research continues to blossom, too. In January it announced that it was the entity awarded the most U.S. patents for the ninth consecutive year. Its 3,411 patents in 2001 marked the first time more than 3,000 U.S. patents were granted to one holder in one year.

Plus, IBM launched its engrossing Autonomic Computing initiative for making all of its products able to configure, heal, optimize and protect themselves. Out of this, IBM says, will come on-demand computing for which, in October, Palmisano committed $10 billion. On-demand computing turns the infrastructure into a virtualized, utility-like service. It crosses borders between a company and its partners, is more flexible and views entire business services, not just hardware and bits of code, as its building blocks. IBM's iron-pumping moves throughout the year illustrate just how much muscle it has to flex.

Intel

Like a powerful engine, Intel's under-the-hood technologies continually move the network industry. Its ever-more-powerful chips have given Linux the oomph it needs to be looked at seriously by corporations. Its support for wireless, storage and blade servers has fueled emerging hot spots.

This year, Intel released the 2G Xeon Processor MP server chip (formerly known as Gallatin). Speedier, with more cache memory than the previous Xeon DP, it is the result of a new manufacturing process that creates thinner, thereby faster, connections between components. On the desktop side came the Pentium 4, with its Hyper-Threading technology and whopping 3.06-GHz CPU that lets PC makers build machines with exceptional performance. Intel says Hyper-Threading can boost speeds of multithreading applications by 25%.

Always a threat, Intel's speedy chips this year chased RISC-based vendors right off the course at times. The well-publicized move in January by securities firm E*Trade to yank out Sun systems for Linux/Intel-based systems is a case in point. Sun was forced to gear up by announcing an Intel Itanium-2 Linux server (which directly competes with its bread-and-butter RISC and Solaris wares). Then in October, Sun further bowed to heavy user pressure and agreed to port Solaris 9, launched in May, to the Intel platform.

In February, Intel released a controller that puts two Gigabit Ethernet ports on one chip. These smaller chips are sure to spur this technology's adoption. And in September, it agreed to collaborate with IBM on blade server chip manufacturing. Some analysts predict this partnership of silicon powerhouses could quickly lead to domination in the young blade server market.

As for wireless nets, particularly 802.11b, Intel means business - $150 million, to be exact. That's the sum the chip maker promised to invest in seeding wireless start-ups. When announced in October, Intel already had spent $25 million in support of more than 10 such companies. But that's a fraction of Intel's network technology venture moves. Its $500 million Intel Communications Fund, established in 1999, had made more than 80 investments in 17 countries as of October, Intel says.

Like most others, Intel rode some bumps in 2002. In October, it lost a second patent infringement suit over its Itanium processors to Intergraph. The first, in April, cost Intel $300 million; the second might cost $150 million to $250 million. These hits come on top of basically flat revenue this year over last.

As one result of weak financials, Intel pulled the plug in June on its Web hosting operations, which had grown from two data centers at the business' 1999 launch to eight in 2000. Intel says it will use the data centers internally. Also in June, Intel stepped away from InfiniBand, saying it would leave those chips to others, including Mellanox Technologies, in which it has an equity investment.

Speed bumps aside, Intel's work in the industry makes it a "stealth aggressor," Forrester Research says. The firm applies this term to companies that use technology to slingshot themselves ahead of competitors during turbulent times.

Microsoft

Microsoft's immense hoard of industry power remained as safe as ever in 2002.

The company's share of server and desktop operating systems is locked tight, and it is even gaining share in the PDA market. In the third quarter of 2002, it had a 30% share of that market, compared with 28% last year, with rival Palm dropping to 48.6% from 50%, Gartner says. And angry protests over the licensing scheme Microsoft announced in 2001 didn't hurt the company's power to implement it this year, albeit with a few tweaks.

Microsoft pushed hard into several emerging areas, namely handheld/wireless, Web services, CRM, instant messaging, even storage. Its move into smaller form factors itself took many forms, from the $96 million cash it spent for location-based services software maker Vicinity to the launch of the Tablet PC operating system. And it spent the year readying the world for Office 11, due out in mid-2003. This will be the software giant's pivotal move into its Internet-based applications strategy, .Net. The suite supports XML, which Microsoft says it hopes will turn Office into a universal client that could front-end any XML-supported back-end system.

To that end, Microsoft pounded on Web services doors, even though in April it lost a moving force behind .Net - its COO, Rick Belluzzo, who took the CEO position at Quantum. In September, Microsoft and HP signed a $50 billion joint marketing agreement to develop and promote .Net. And the ongoing saga of the Web Services Interoperability Organization (WS-I) underscored Microsoft's growing advantage over its biggest Web services rival, Sun. W-SI, which Microsoft, IBM, BEA Systems and others founded in February, now boasts 150 members. Microsoft holds one of nine permanent board positions and so far has kept Sun from that roster. (However, it seems likely that Sun will grab one of two new board seats next year.)

The software maker also shoved instant messaging further into the enterprise with announcements such as the one in November for MSN Messenger Connect for Enterprises, a service to extend and manage MSN Messenger across the firewall. Microsoft stepped into CRM, too, announcing in July an application for small and midsize businesses. Gunning for storage, in September it announced storage management software, expected to ship with .Net Server in 2003.

Perhaps the best example of Microsoft's unflagging power is its continuously black-ink financials. It reported revenue for fiscal 2002, which ended in June, up 12% over 2001, at $28 billion, with a net income of $8 billion. For its first-quarter 2003, which maps to the calendar-year third-quarter 2002, it reported a 26% year-over-year increase in revenue. And as rivals such as IBM, HP and Sun choked out news of more layoffs, Microsoft laid out plans in mid-July to hire 5,000.

Symantec

Symantec graces this year's list of most powerful companies because of its growing dominance of the security market and its improved service to the enterprise in these times of need.

In the cutthroat security market, Symantec is expanding its presence. Last year, Symantec established itself as the vendor with the largest share of worldwide security licensing revenue - a status Gartner and IDC expect it to hold for 2002, too. Even President Bush understands that kind of power - in September, he appointed Symantec CEO John Thompson to his security advisory organization, the National Infrastructure Assurance Council (see story, "Symantec's safe pair of hands" ).

But the trifecta of acquisitions Symantec pulled off in August tops the list of the company's 2002 accomplishments. It bought Recourse Technologies, Riptech and SecurityFocus. From these it grabbed technology for stronger intrusion detection, security monitoring and security alerts, respectively. This after its first acquisition of the year, only a month earlier, of Mountain Wave, which gave it a security information management tool.

Symantec wasted little time incorporating these purchases into sellable products and services. In October, it announced its Security Management System 2.0, based on the Mountain Wave technology. A new version of the security alerts subscription service, DeepSight Alert Services 4.0, from the SecurityFocus acquisition, rolled out in November. While Symantec already had an intrusion-detection system of its own, it ditched it in favor of Recourse's ManHunt technology. It showed strength by acquiring what was shaping up to be its most formidable rival in this promising, emerging field and recognizing better technology when it saw it.

Products such as Symantec Enterprise Firewall 7.0 also are helping the company push its edge in more traditional wares. The full-inspection firewall, released in February, supports the Advanced Encryption Standard, speeds of up to 1.5G bit/sec, easier VPN deployment and secure videoconferencing through the firewall.

True, Symantec suffered a couple of black eyes when security watchers issued alerts on holes found in its firewall products in the summer and fall. But Symantec responded quickly with patches and its own alerts, or in one case, worked with the alerting organization to postpone sounding the general alarm until it had patches at the ready.

On the desktop side, Symantec began offering a client that integrates antivirus, personal firewall and intrusion-detection technologies. This product will help companies shore up network clients, which are "the most-

costly and least-secure IT asset," the company says. Managed security, the emerging area that pundits had been quick to dismiss, has been booming for Symantec, too. It signed 55 new deals in its third quarter, ended Sept. 27.

With business booming, strong financials and a hand on the security technologies of the future, Symantec is a power on the rise.

Verizon

The momentum of Verizon's power carried it through 2002 like a tropical storm heading for shore. If all goes as Verizon's direction indicates, companies soon will get another financially stable national provider from which to buy services. In November, this incumbent of the Northeast's local phone service announced plans to launch business-class, voice and data long-distance services in its traditional territory early next year. It has won approval to offer long-distance services in all of its 15 local service areas except for three - Maryland, West Virginia and the District of Columbia. Those it expects to add during the next several months, officials say.

It then wants to invade 56 markets nationwide with a premium business-class service, competing head to head with the likes of AT&T, WorldCom and Sprint. In addition to basic voice and data, it will offer integration services such as network management, data storage, business recovery and security. This, on top of other enterprise data services it announced this year, such as a managed service to provide companies with the use of a Cisco-based voice-over-IP network. Verizon made international headway, too. In March, it rolled out frame relay and private line on its international network, which lets multinational companies connect to branch offices in select cities throughout Europe, Asia and Latin America.

Through its subsidiary, Verizon Wireless, the carrier whirled all over wireless and 3G. In February, it launched its limited-availability high-speed service, and is racing against AT&T and Sprint to bring 3G coverage to cities nationwide. Gateway, through a deal inked in October, is reselling this Code Division Multiple Access service. Also this year, Verizon Wireless forged a couple of agreements with AOL. The first brings AOL content and services, from headline news to e-mail access to cell phones. The second offers Instant Messenger to its wireless subscribers, letting chat occur between buddies on PCs or phones.

Verizon's run-in with the Recording Industry Association of America (RIAA) has powerful implications, too. In July, the RIAA subpoenaed Verizon, pressing it to reveal the identity of an ISP subscriber accused of giving away copyrighted music as MP3 files. Verizon refused to snitch, and in October, 12 groups, including Yahoo and other large ISPs, submitted arguments in support of Verizon's position. Web privacy has gained a powerful ally.

The one downer is Verizon's crashed plans to own a Tier-1 backbone. Its main partner in that arena, Genuity, is now in Chapter 11 bankruptcy, as part of a purchase plan that Level 3 Communications announced in late November. Verizon this summer walked away from its opportunity to buy 80% of Genuity, although it is still a lender to it.

Fiscally, these moves are paying off. Although revenue was essentially flat for most of the year, even as it poured on the capital investments. In the third quarter, the company reported $17.1 billion in total operating revenue and $2.1 billion before nonrecurring items in earnings. Revenue rose by a little less than 1% overall.

Telephone company competitors had better grab their raincoats.

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Copyright © 2002 IDG Communications, Inc.

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