This Week, Industry Snapshot Looks
the WAN Connection
ALEXANDRIA, VA (September 19, 1997) -- The following is anabbreviated
version of the Motley Fool's "Industry Snapshot," an educational subscription
product available for delivery via e-mail or fax. We feel that it is the
best tool available for learning how to invest in stocks.
of the full length subscription product is available for download, as well
surounding its genesis. To the right subscribers and non-subscribers alike
are invited to peruse the companies that are featured in this week's Industry
Snapshot. In addition, we urge existing subscribers to take advantage of
"Subscribers Online," it's chock full of helpful research and follow-up
information on the industries and companies featured in previous Snapshots.
Every week we will offer up a taste of what is available to Industry Snapshot
subscribers by providing a short summation of the industry and the companies
that appear in the most curent issue.
This Week's Industry
Luddites try to put us down,
Talkin' 'bout my WAN connection,
Just for getting bits around,
Talkin' 'bout my WAN connection
--apologies to The Who
If there's a capital equipment industry that best defines the bull market
of the 1990s, it is the companies that manufacture data networking equipment.
For the purposes of this week's Snapshot, we're most concerned with the companies
operating in the Wide Area Network (WAN) space. These are the companies that
package, route, and forward data from one local area network (LAN) to another
and from one node or point in the telco cloud (the backbone and ether of
the telecommunications system) to other nodes and points. Cisco Systems,
a leader in both the LAN and WAN sectors of data networking, has been the
biggest success by far, which has resulted in share price appreciation of
about 20,000%, or around 100% compounded each year since early 1990.
Ascend Communications, a pure-play in the WAN industry, has returned just
about 150% per year since its initial public offering in 1994. 3Com, better
known in the LAN space, greatly increased its presence in WAN through its
recent acquisition of U.S. Robotics. U.S. Robotics has always been thought
of as just a modem maker, but its Total Control remote access products gave
it the same sort of presence in the WAN space that Ascend could claim. Other
members in the focus group include Pairgain Technologies, Newbridge Networks,
and Yurie Systems, lesser-known names to some investors, but all very important
companies in their own fields.
WAN Functions and the Router
A "Wide Area Network" is a network of networks, either connected through
private, enterprise-owned WANs or the Internet, which is itself just a huge
WAN. The companies in our focus group make the plumbing for these networks,
providing what are sometimes referred to as the "fat pipes" of the Internet.
While it would be more appropriate to call the fiber optic lines the pipes
and the things that Cisco makes the valves and other junctures, you get the
picture. These companies are the manufacturers of the infrastructures of
the Internet and enterprise (corporate) WANs and the equipment necessary
to access those infrastructures. At the heart of the WAN industry lies the
router, which was born at Stanford University, the spawning ground of many
of Silicon Valley's eventual commercial hits.
Leonard and Sandra Bosack both worked at the university and wanted to be
able to communicate across local area networks on the campus. This led to
the invention of a specialized computer -- the router -- that acts as a
translator of computer languages and connects different LANS, much as the
Channel Tunnel connects England with the European continent. The router still
serves the translation and tunneling functions, serving up and addressing
data to the WAN from the LAN and sorting through and forwarding data traffic
from the WAN to the LAN. As far as routers go, Cisco is the king of the hill,
and routers are the company's franchise product. Vital to both the public
telecom infrastructure and enterprise networks, routers are not the only
part of the WAN, and they're not really the key battleground of the WAN equipment
business, since Cisco's dominance in this area has yet to be cracked.
(c) Copyright 1997, The Motley Fool. All rights reserved. This
material is for personal use only. Republication and redissemination, including
posting to news groups, is expressly prohibited without the prior written
consent of The Motley Fool.