Networks Is the Word

It is a common belief that "technology almost alwaysleads policy". Finance leads technology, if we may add. Throughout 1999 andin the early 2000, two types of companies appealed to the financial communities–stockmarkets as well as Venture Capital (VC) firms. They were dotcoms andnew-generation carrier network equipment builders. And the year 1999 saw mostIPOs in these categories.

Both promised heaven. But it soon became apparent that whilethe dotcoms were indulging only in promising, the carrier network equipmentbuilders were actually working towards fulfilling those promises.

Call them the Networks, though strictly speaking, they arethe builders of the components for the New Networks, not operators of thosenetworks themselves. Most of them have the common suffix "Networks".So you have Sycamore Networks, Juniper Networks, Redback Networks, FoundryNetworks, Copper Mountain Networks, Sonus Networks… All of them listed in1999, except Sonus, which went to the stock markets in May this year.

And even when the dotcom/Internet software craze was on, someof these carrier equipment makers created IPO history. Redback, which listed inMay 1999, had a 265.8 percent growth on its offer price on the very first day oftrading. Foundry, which opened in June, had a whopping 525 percent rise over itsoffer price the first day. Juniper, first listed in September 1999, doubled onthe opening day. Sycamore, whose offer price despite being almost doubled at thelast moment before listing also had an impressive first day.

"What is important," says the promoter of a SiliconValley carrier equipment start-up, which is yet to take to the stock markets,"is that these companies maintain that pace. Even today, they continue togrow."

He is right. Just consider these facts. Copper Mountain, amaker of DSL equipment, listed in May ’99 at an offer price of $21 on NASDAQ.On 1 September 2000, it was trading at $58. Redback, which was offered at $23the same month traded at $148.75 on 1 September. There are many more, which havegrown even after the great NASDAQ crash happened (see the table above).

"Networks" is the hot word in the Valley today.While the listed companies are going strong, VCs just love to invest in the newstart-ups. So you have EmpowerTel Networks, which makes a single box that caneffectively handle both TDM and packet switching, as a VC favourite. Sonus, thefirst company that addressed the same space before EmpowerTel, has listed sincethen. Amber Networks, which makes what it calls the Edge routers to take care ofthe bandwidth bottleneck in the edge of the network, is also a hot company.Another one is Chromatis Networks, an optical networking equipment maker. Thelatest to join the bandwagon is Bigband Networks, which is building multimediarouters for converged networks.

Other technology companies who are not into the carriernetworks space but have Networks in their name, have also gained from the trend.Examples include companies like Cobalt Networks, which makes Linux servers; RampNetworks, which makes networking products for the SOHO space; and SpeederaNetworks, which sells high-speed content delivery solutions to content providersand ISPs.

Why the Investors Love the Techies?

For one, they are sincere. They all started with a objectiveof addressing an existing, emerging, or expected need in the market-place. Mostdotcoms, on the other hand, tried to create a market for their ideas and morethan solving any problem, actually tried to showcase the power of the Internet.

Two, they were taking logical steps, had definite time framesand milestones. Today, they are achieving those milestones. They are now showingstrong financial performances. In other words, through the New World smartnessand flexibility, they are conforming to the solid, established Old Worldparameters. They are actually making money. A few of them are beginning to makeprofits. Others are on their logical path to profitable times. Hence thesustained market confidence in them.

Three, most of these equipment companies are being promotedby veterans from the industry, who understand the needs of the carrier networksthoroughly. So all the teams are excellent. Most of the new companies likeBigband, EmpowerTel, and Chromatis are getting VC money because of their teams.

The I-Factor

"I" is for the Internet. There is no business whereInternet is not playing a role. When NASDAQ crashed in April, it was beingreferred to as the crash of Internet stocks. It affected not only the dotcoms,but also the builders of Internet infrastructure like Cisco and Juniper.

However, while for dotcoms P2P (path to profitability) becamea buzzword, and many who did not have that, are struggling till today, thecarrier networking equipment companies bounced back. The performance is foreveryone to see.

Interestingly, it is the Internet that has helped them tobounce back and thrive. Thanks to the power and convenience, Internet is today apart of business life for business users and addictive for others. No surprise,even in developing countries, communication infrastructure is a priority. ChinaUnicom is deploying the biggest IP infrastructure. Korea tops the world in DSLpenetration. India is likely to follow China in its Domestic Long Distance (DLD)infrastructure. Competitive, deregulatory forces are creating technologydisruption, forcing the carriers to look for technologies that can create directcompetitive advantage. All these companies are trying to address that need.

The Other "I"

What else? It is India. Take a close look at the list ofcompanies. You will find half of them are promoted by Indians? The joke in theValley is if you want to get VC funding, it helps if you have an Indian surname.

Why Is That So?

First of all, Indians are good at technology. Most of thesepromoters–Gururaj Deshpande, Pradeep Sindhu, Raj Saksena, Vivek Raghavan–aretechies. And techies are low on hype. That brings in the confidence.

Two, India now is the unquestionable leader in the Englishspeaking technical manpower. So expansion through manpower is not an issue forIndian companies. They can simply open a development centre in Bangalore orGurgaon much more easily than other start-ups. Juniper is already here. GururajDeshpande is an investor and Sycamore a partner to Tejas Networks, an Indiancompany. EmpowerTel has hired a country boss and is all set to build a bigdevelopment centre. Amber Networks is also here.

This trend has its catalyst effect. Now, it has become almosta multiplier effect. There are Indian technology start-ups coming every month,if not everyday. Most of them are looking global. Examples include AlopaNetworks and Tejas Networks, apart from other carrier network space players likeXybridge, Baypackets, and Ionic Micro.

It seems ICE is about India, Carrier Networks, andEntrepreneurship.

Shyamanuja Das