This Week, Industry Snapshot Looks at
the WAN Connection

Ascend Communciations, Inc. Cisco Systems, Inc. Newbridge Networks Corporation PairGain Technologies, Inc. 3Com Corporation Yurie Systems, Inc. Subscribers Online Discuss Industry Snapshot

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.

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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 Snapshot

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.

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