Fore Systems, Inc. Business Information, Profile, and History

Company Perspectives:

FORE Systems, a leading global supplier of networking solutions based on an Intelligent Infrastructure, designs, manufactures and sells products designed to handle the networked applications of today and tomorrow. FORE's Networks of Steel deliver the increased capacity, reduced complexity and unparalleled flexibility and scalability necessary to build networks that last.

History of Fore Systems, Inc.

FORE Systems, Inc. is a major player in the niche market of Asynchronous Transfer Mode (ATM) computer network switches, and was the first company to commercially develop such a switch, in 1992. Since that time FORE has broadened its product range, partly through acquisitions of other companies, to include a variety of different types of switch and networking products, with the company's emphasis remaining on ATM technology. Having experienced dramatic growth every year since its founding, FORE has become a large and established force in the still-expanding field of computer network switching equipment.

1990 Founding by Carnegie-Mellon Researchers

FORE Systems was the creation of four computer science research colleagues at Carnegie-Mellon University in Pittsburgh, Pennsylvania. The founders, Francois Bitz, Onat Menzilcioglu, Robert Sansom, and Eric Cooper, had been working in the late 1980s on developing a custom high-speed computer network and decided that a business that marketed the Asynchronous Transfer Mode (ATM) switches they were using could be profitable. ATM is a technology in which identical-sized packets of information are routed across a computer network in a way that allows efficient use of network bandwidth, and is also capable of great speed, allowing simultaneous transmission of different types of information including data, video, and audio. Taking the first letters of each of their names to name the corporation, the four founders started their new business in April 1990 with a minimal amount of capital. Eric Cooper would be chosen to serve as the company's president, while the other founders focused on development of the company's products. Reportedly, the partners were so frugal that they sometimes scavenged computers and office furniture from dumpsters. FORE's first product, a network interface adapter card for Sun Microsystems computers, was introduced in late 1991. Sales during the company's first year amounted to only slightly more than $100,000.

FORE signed its first development contract in 1991, with the U.S. Navy, and delivery of the company's first ATM switch came in June 1992. The Navy's response was enthusiastic, and word soon spread to other potential customers, with new orders coming from universities and other owners of large computer networks. FORE's ForeRunner brand of ATM switches were much faster than other types of data switching devices in use at the time, such as Ethernet, which used data packets of varying, rather than fixed, length, and which was then unable to handle multimedia input. Other products from the company, in addition to the ATM switches and interface cards, included the software which was needed to operate the ATM equipment. Early on, FORE began distributing its products to foreign markets, and within several years over one-third of sales came from overseas, with particularly strong interest shown in Japan.

The company soon began opening sales offices in a number of key locations. Although several other companies had begun developing ATM switches, the initial lead established by FORE enabled it to continue to control the majority of the market. The company's ATM switches were expensive items, priced anywhere from the low five figures range to over $100,000, depending on the application, with sales amounting to only a few hundred switches over a span of several years. In many cases, early sales were made as part of pilot programs, with customers often taking only a single switch at first. Once the company learned the benefits of ATM, FORE would end up selling the customer additional units.

In January 1993 FORE received an infusion of $5 million from a venture capital group to expand the company's sales, manufacturing, and marketing efforts. Soon thereafter, the company was able to triple its number of employees. Around this time FORE also had begun establishing partnerships with other companies, including US Sprint, the long-distance telephone carrier, and Cabletron Systems, Inc., a large developer of computer local area network (LAN) systems. In January 1994 FORE signed a $10 million, three-year agreement with Cabletron to develop components for Cabletron's computer network hubs.

1994: IPO and a Second Generation of ATMs

Having seen its annual sales leap to $1 million in 1992, $5.5 million in 1993, and $23.5 million for the fiscal year ending in 1994, the next logical step for FORE was to issue stock to raise money to fuel further growth. The stock was offered on the NASDAQ exchange in May 1994, and the price quickly soared. At the time, the company was selling its switches to a variety of customers, including the U.S. government, universities, and other users of LANs and wide area networks (WANs) such as health care providers, computer-aided design and modeling firms, telephone companies, and more.

In mid-1994 FORE also released its second generation of ATM products, and sales of the updated ForeRunner ASX-200 series of switches were strong. FORE products won a number of computer industry awards for excellence, a trend that would continue in the future. The company also lowered its prices frequently, which it would continue doing over time, as more competitors began to enter the ATM market. The increase in sales volume was great enough that revenues, as well as profits, continued to increase dramatically. In fact, FORE was named the fourth fastest growing company of 1994 by Fortune magazine.

As FORE grew, it also continued to become involved with other companies through partnerships and acquisitions. The ForeThought Partners program was started to create strategic alliances with a number of companies involved in different aspects of computer networking, with almost three dozen signing on within the first year.

FORE also began a series of acquisitions. In early 1995 the company bought both Applied Network Technology, Inc., a maker of Ethernet switches, and RainbowBridge Communications, Inc., a routing software developer. A few months later CellAccess Technology, Inc., a maker of digital access products for ATM and Frame Relay networks, was added. The company's largest acquisition followed in February 1996, when ALANTEC Corporation was merged into FORE. ALANTEC, a designer and manufacturer of intelligent switching hubs for Ethernet and Fiber Distributed Data Interface (FDDI) local area networks, was almost half the size of FORE, and it, along with the other acquisitions, greatly broadened the scope of FORE's operations. As FORE had grown, the company had recognized the need to offer a variety of ways to integrate ATM-based products with Ethernet, FDDI, and Token Ring systems, to allow the company's customers to preserve their investments in existing technology while making use of the advantages offered by ATM. The new companies FORE had bought provided it, and its customers, with an improved "on-ramp" from existing technologies to ATM.

FORE's revenues were continuing to grow dramatically, with annual sales of $75.6 million in the 1994-95 fiscal year, almost four times that of the previous year, climbing to $235.2 million in the fiscal year ending in March 1996. The company's pilot programs and pricing strategies were paying off. International sales continued to account for one-third or more of total revenues, and the company was responsible for nearly two-thirds of global ATM product sales. While competition from Cisco Systems, IBM, 3Com and other large companies was increasing, the rapidly expanding market ensured that there was still room for multiple players. The company began planning a new corporate headquarters, a dramatic building to be located in the Pittsburgh suburb of Warrendale. The ForeRunner line of switches had now been through several generations of design improvements and was still being cited in computer industry publications, along with other products from FORE, as being among the best of their type.

The Later 1990s: Further Growth

FORE Systems continued its aggressive growth with the rapid-fire acquisition of three companies in late 1996. In November it announced agreements to purchase Nemesys Research Ltd. of England, a developer of ATM video conferencing products, and Scalable Networks, Inc., makers of Fast Ethernet connections. Soon thereafter, in December, Cadia Networks, Inc., a WAN technology company, was also acquired.

As FORE's international sales continued to be a major part of its business, the company opened a manufacturing plant in Dublin, Ireland, in May 1997. FORE's manufacturing process consisted generally of final assembly of components purchased from third party manufacturers. Research and Development efforts were a priority, with as much as 12 to 14 percent of revenues turned back into this area. The second-largest category of employees, after sales, was engineering, with only about one-third of this number employed in the actual manufacturing process.

Among the many users of FORE's ATM switches were such industry giants as Microsoft (which used ATM switches for their own internal data network), several large cable television companies and newspapers, and a number of movie industry editing and special effects houses. For the latter, the need to process and transfer huge amounts of video and audio information required the use of the fastest, most capacious network backbone switches that could be had, with ATM considered the best choice available. FORE even received onscreen credit in several major Hollywood films for the assistance it provided.

At the start of 1998, with FORE just moved into its new headquarters building in Warrendale, the company installed a new president and CEO: Thomas Gill, formerly the company's chief financial officer and chief operating officer. Exiting CEO Eric Cooper retained his role of chairman of the board. Of the company's other founders, only Francois Bitz had left the company, with former company president Onat Menzilcioglu still on the company's Board, and Robert Sansom continuing in his position of senior vice-president and chief technology officer.

FORE also announced two new marketing strategies, Intelligent Infrastructure and Networks of Steel. Intelligent Infrastructure highlighted the company's concept of a network design which could be flexible and expandable without requiring major re-tooling or "ripping out and replacing" of components. Networks of Steel was the company's first major advertising campaign, and included television spots and newspaper ads. Playing on the Pittsburgh area's renown as the center of the American steel industry, FORE sought to tie in its own reputation for reliability in a bid for wider recognition among the mainstream of computer users, and not just with networking experts. In conjunction with the advertising, the company was expanding its sales efforts and offering hands-on seminars to potential customers.

As it neared the end of its first decade in business, FORE Systems had seen incredible growth, widespread acceptance of its products, and virtually continuous profitability. The company offered a wide range of computer network switching products, but still focused on the ATM standard which it had started with. As more and more customers worldwide turned to ATM as the backbone of their computer networks, FORE became more deeply entrenched in its position as the leader in its field, despite strong competition from a number of latecomers. With the potential market for its products far from saturated, the company seemed certain to continue to prosper for the foreseeable future.