Madge Networks - Corporate History - Expansion

Expansion

In the 1990s Madge continued to expand its international presence, opening new offices in South Africa, Germany, Hong Kong, Japan and France and building its San Jose office into a second headquarters. To fuel the company's growth, Madge Networks went public in 1993, offering more than six million shares on the NASDAQ stock exchange. By 1994 Madge Networks' revenues had topped $213 million, an impressive growth, but still minor in comparison with its main market competitors, Cisco Systems, 3Com Corp., Bay Networks, and Cabletron Systems. In addition, many Fortune 1000 companies sought a broader range of networking products than Madge could offer. Although Madge had performed well in the Token Ring arena, its Ethernet capability was lacking – even as Ethernet became the networking technology of choice in the mid-1990s.

In 1995 Madge Networks and Lannet Data Communications (of the RAD Group of companies), an Israel-based networking specialist with a focus on LAN switches for Ethernet-based networks, agreed to merge operations in a stock swap valued at some $300 million. Lannet's operations were merged into Madge Networks, creating Madge's Ethernet division. With combined revenues of $283 million, Madge and Lannet were the smallest of the top five networking market leaders, but the combined company's product line offered a complete array of Token Ring and Ethernet products.

The merger gave Madge the ability to combine the rival networking technologies into hybrid systems and the capacity to bridge the company's products into the latest networking technology, ATM, or asynchronous transfer mode. By the mid-1990s companies were straining the limits of the existing networking technologies. As corporations joined more and more of their work force to the company network, their networks quickly ran short of bandwidth for transmitting data. The arrival of new networking applications – in particular, video conferencing and video data transfers, not only pushed bandwidth needs to the extreme, but threatened to cripple networks entirely. ATM's more efficient use of packet technology offered the prospective of dramatic bandwidth gains. Adoption of the technology would require corporations to rebuild their networking infrastructure, and Madge Networks readied not only its own ATM products, but also the hubs and switches needed to bridge existing Token Ring and Ethernet equipment to the new technology. The Lannet merger enhanced Madge's portfolio of LAN switches, needed to connect Ethernet and Token Ring stations to corporate ATM installations. An important consideration is that Madge focussed on ATM as a Local Area Network (LAN) technology, and not as a carrier backbone Wide-Area Network (WAN) solution. In fact, Madge bet on ATM replacing not just Token-Ring and Ethernet, but even TCP/IP as THE desktop PC and laptop networking technology. This proved to be a costly mistake, when enterprise customers did not adopt ATM, opting to go to switched Ethernet instead. The company's ATM products were mostly unsuitable for the Carrier market, and so most of the company's investment in future products did not produce any returns. This wrong market/technology focus was a large factor in Madge's eventual failure.

Aiding Madge's growth was the 1995 agreement with Cisco Systems, by then global networking leader, to incorporate Madge's Token Ring switches into Cisco's products and to license other parts of Madge's Token Ring technology for future Cisco designs. At the same time, Madge gained access to Cisco-developed LAN and WAN switching software. Following on the Cisco agreement, Madge also prepared to step up its manufacturing capacity, with a new facility in Ireland.

By the end of 1995, the merged Madge-Lannet contained some 1,400 employees and achieved revenues of more than $400 million, all but 15 per cent of which coming from outside its UK base. The company's entry into 1996 continued its expansion efforts, including adding to its Israeli manufacturing capacity with a new $10 million plant in Jerusalem. In February 1996, acquired Teleos Communications Inc., along with that company's ISDN and WAN access products. Based in Eatontown, Teleos, which posted revenues of $24 million in 1995, cost Madge $165 million in a pooling of interests transactions. At the same time, Madge again deepened its relationship with Cisco Systems, broadening the company's licensing agreements to include Cisco's IOS software. This agreement never extended beyond the Sefton Park R&D facility and few customers were even aware of it or ever saw benefits from it; neither did their own support engineers.

At the end of 1996 Madge rolled out a new line of products to enhance its portfolio and bring the company into a new and increasingly important market: video conferencing. Madge's products placed the company in position to offer bridge solutions between the formerly independent data and video transmission technologies. Although the video conferencing market had yet to mature, Madge's move appeared to place it firmly near the lead to compete for what analysts considered a future boom market.