One good year can't disguise Bay's problems

One good year can't disguise Bay's problems

People running for high office often ask the question, "Are you better off than you were 'X' years ago?" Bay Networks is better off than it was a year ago. That is the consensus of analysts, users and the company CEO himself Twelve months after former Intel executive David House took the reins of the foundering Bay Networks, the company is back on track. Fiscal year 1998 earnings are expected to be approximately double those of fiscal 1997. House has restructured management, retained customer and reseller loyalty, and instilled confidence and a sense of united purpose among employees.

In Australia, the music has stopped on Bay's management merry-go-round and the vendor is now planning for next year under the helm of former Apple general manager Steve Rust. Rust replaced Rob Willis as area director for Australia and New Zealand with the latter promoted to become Bay's regional business director for Asia Pacific.

"Nothing ever happens as quickly as you want it to, but this turnaround has happened a little more quickly than I had anticipated," said House, chairman, president and CEO of Bay.

But pundits are yet to bet their house - for want of another word - on Bay's long-term security. There are significant challenges ahead for Bay that, if not met and overcome, could leave the company in the same precarious position that former chairman Paul Severino and president Andy Ludwick left it in after they merged SynOptics Communications and Wellfleet Communication more than three years ago.

Challenges ahead

Among the challenges ahead for Bay: defining a strategy and product line for addressing the Internet core; filling out its Adaptive Networking blueprint; and winning new business through "system" sales rather than individual product sales.

"They're selling a lot of Bay-Stack 350 workgroup switches, but the money is going to be in the systems business," said Craig Johnson, an analyst at Current Analysis.

Bay now has to build on the momentum of House's first year, and he and the company realise that. To build, Bay has to recognise where its gaps are and aggressively commit to filling them, observers say.

The first gap is a lack of presence in the Internet backbone. Bay has yet to unveil a product and strategy for addressing the opportunity at the Internet core.

Every day that Bay does not have a product to sell into Internet service provider backbones is another day that rival Cisco comes closer to locking up that market.

Esmeralda Silva, market analyst at IDC, said Bay needs to produce a Gigabit switch router-like product for service providers. Current's Johnson agreed.

"Bay really doesn't have a story there," he said. "Their routers are good, but the core of the backbones are going to be these high-end giga-switched ATM whatever animals."

Bay has a plan to address this market, but House would not discuss it.

Another loose end is Bay's Adaptive Networking strategy. Announced by House in May as Bay's product development and marketing sales blueprint, it still is mostly marketing babble with little product substance.

Bay also must hone its systems story - selling an entire enterprise network, from the desktop to the data centre - in order to augment installed base sales with some new customer wins, analysts said.

House claims the BayStack 350 is bringing in a lot of new business but concurs on the system assessment.

"We don't have the big network centre switch to complement the 350 from a complete solutions standpoint," House said.

"The Rapid City acquisition is the answer to that and a network switch will ship in December."

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