Chapter 12 - Networking: Market Order: LANs 1983-1986
12.1 Alex Brown & Sons Conference: March 1983
In March 1983, Alex Brown & Sons, a leading investment bank specializing in raising capital for high technology companies, held a three-day conference at the Hyatt Hotel in Baltimore, MD. Prominent Data Communication firms and firms focusing on the emerging networking market made presentations (See Exhibit 12.1.1 Selected Alex. Brown & Sons Presenters). In an opening presentation, an Alex. Brown partner encouraged investors to view the time as “unique” to buy communication stocks.
Exhibit 12.1.1 Selected Alex. Brown & Sons Presenters
|Data Communication Firms||CBX Firms||Networking Firms|
|Micom Systems, Inc.||Rolm Corp.||Ungermann-Bass|
|Digital Communications Associates||Intecom||Sytek|
|Gandalf Technologies, Inc.||CXC Corp.||Network Systems Corp.|
The executives of some of the companies had the following to say:1
William Norred, President and CEO of Micom Systems, Inc.: Micom’s story would remain the same: marketing-oriented, profit-driven. Their strategy: product not network oriented; and while they wanted to remain the leader in concentrators (multiplexers), they were now focusing on local connections, i.e. port selectors. Port selectors, or dataPBXs, constituted 16% of their sales and would grow at 30-50% over the next few years. Norred asserted the dataPBX was the LAN of today.
Robert Wiggins, Chairman, President and CEO of Paradyne Corp.: Paradyne’s mission was changing from data communications to networking. The driving force for networking was the need for information. Communications of data would become as popular as voice. Local networking was coming into promise. In response to a question, Wiggins said he did not worry about competition: product development cycles precluded that concern. (Interestingly, Wiggins did not mention the risks of the large Social Security Administration contract they had recently won - a contract soon to turn into a nightmare.)
Edward Botwinick, President and CEO of Timeplex, Inc.: Timeplex’s market was private, distributed data networks. The three laws of data communications were: networks never get smaller, slower, nor remain the same. Timeplex’s most important product was the Evolution II, a switching multiplexer, also known as a port selector or dataPBX. He outlined how it was leading Timeplex into large system orders.
Ken Oshmann, President Rolm Corp.: Rolm was the largest supplier of digital PBXs (CBXs) in the world. AT&T and IBM were their competitors. Rolm delivered integrated voice data switching. Data could be switched at 19,200 bps: today’s need!
Ralph Ungermann, President and CEO, Ungermann-Bass, Inc.: Ungermann-Bass was in the communications system market selling LAN products. The market in 1984 would be $386 million. The three technological issues for LANs were: baseband vs. broadband; CSMA/CD vs. token passing; and rings vs. buses vs. stars.
Mike Pliner, President, Sytek, Inc.: Sytek’s competition was Ungermann-Bass. Their LocalNet LAN was a broadband LAN as was their MetroNet introduced in 1982. Their strategy: provide turnkey network/data communication solutions. (They used Paradyne modems and multiplexers when needed.) Pliner believed that once they reached $25 million in revenue, Sytek would go public.
Networking remained caught in the confusion between what technology best served the needs of computer communications: LANs or PBXs. The year ahead would see a steady flow of articles extolling which technology was better. Few saw the profound effect the personal computer revolution would have on the needs of the ultimate communication system. PBX companies would continue to introduce CBXs;2 all kinds of products would be introduced so CBXs could support data devices; new start-ups like CXC and Ztel, along with computer company Datapoint, would announce CBXs with integrated LANs;3 PBX companies would announce technologies to interface to minicomputers;4 and workstations integrating voice and data would be announced.5 In all, no consensus was clear as vendors attempted to stake out market leadership with press releases and product announcements.
And how prescient was the investment thesis of Alex. Brown & Sons? Mixed, with the share prices of most companies markedly lower. (See Exhibit 12.1.2 Alex. Brown & Sons Table of Performance) Ungermann-Bass would float its IPO and IBM purchased 15% of Rolm.
Exhibit 12.1.2 Alex. Brown & Sons Table of Performance
|Company||Price Per Share 18-Feb||Price Per Share 28-Dec||Price Change 28-Dec||Market Capital ($ millions)|
Remarks are paraphrased from the author’s notes taken at the meeting.
“Handicapping the heavies in the great PBX derby”, Data Communications, April 1983, pp. 58-59
“Fourth Generation CBX for 1984”, Data Communications, April 1983, p.15
“Rolm CBX now has IBM 3270 gateway,” Data Communications, May 1983, p. 254; “Minis fighting way into office market,” Electronics, May 5, 1983, pp. 101-102; “I, Computer, take thee, PBX”, Datamation, Mar. 1984, pp. 134-149; “Comparing the two PBX-to-computer specifications,” Data Communications, May 1984, pp. 215-222
“Workstation supports voice at 64kbit/s; data and graphics too,” Data Communications, May 1983, p. 234; “Networks expand as PbXs get smarter,” Computer Design, Feb. 1984, pp. 149-168