Ascend Communications, Inc.

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Ascend Communications, Inc.

1 Ascend Plaza, 1701 Harbor Bay Parkway
Alameda, California 94502-3002
U.S.A.
(510) 769-6001
(800) ASCEND-4
Fax: (510) 747-2300
Web site: http://www.ascend.com

Public Company
Incorporated: 1989 as Aria Communications, Inc.
Employees: 1,800
Sales: $1.16 billion (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: ASND
SICs: 3577 Computer Peripheral Equipment, Not Elsewhere Classified; 3669 Communications Equipment, Not Elsewhere Classified; 7371 Computer Programming Services; 7372 Prepackaged Software; 7373 Computer Integrated Systems Design; 8711 Engineering Services

Ascend Communications, Inc. is a leading developer, manufacturer and marketer of high-speed digital remote-networking access technology and equipment solutions for telecommunications (telco) companies and corporate customers worldwide. Since its inception, Ascend has quickly gained extensive experience manufacturing comprehensive product families necessary to build high-performance, cost-effective public and private network infrastructures from end-to-end, whether a wide area network (WAN), local area network (LAN), carrier, or ISP network.

The products are termed “bandwidth-on-demand” because they establish high-speed switched digital connections with adjustable bandwidth, duration, and destination configurable to application needs. They support existing digital and analog networks, and are used for videoconferencing remote access, Internet access, bulk-file transfer, and imaging and integrated voice, video, and data access. Bandwidth-on-demand is also utilized for automatic emergency backup and bandwidth capacity for peak-period overflow to complement private-leased line, frame relay, and Asynchronous Transfer Mode (ATM)—a high-bandwidth, cell-switching technology enabling reliable, ultra-high-speed transmission for voice, video and data service—networks. Some products include: The MAX products, designed as a concentration layer for the Internet, Corporate Remote Access (CRA), and Carrier Infrastructure (CI) markets, combine the functionality of a router, modem bank, terminal server, ISDN switch and frame relay concentrator in a single hardware platform.

The GRF (Goes Real Fast) line, designed as a backbone layer for the Internet, CRA and CI markets, are high-performance devices providing scalable, high-bandwidth Layer-3 IP (Internet Protocol) switching for remote access.

The award-winning Pipeline and NetWarp families, designed as an access layer for the Telecommuting/SOHO and CRA markets, provide remote access for the Internet, remote offices, home offices and telecommuters. NetWarp products provide PC users with plug-and-play solutions for implementing high-speed digital links.

The Secure Access family, designed for access, concentration and backbone layers to the Internet, Telecommuting/ SOHO, CI and CRA markets, are integrated into all MAX and Pipeline products, bringing industrial-strength security to remote networks.

As of 1998, most leading international post and telephone companies, global carriers, and network service providers offered Internet access using Ascend equipment, and Ascend had installed over 3.5 million access concentrator ports at ISP, carrier and corporate enterprise sites worldwide.

The Beginnings, 1989-94

Armed with $3 million in venture capital, four employees at Hayes Micro’s ISDN research facility—Robert Ryan, Jennette Symons, Jay Duncanson, and Steven Speckenbach—incorporated Aria Communications, Inc. in California in February 1989.

Aria’s early products targeted the ISDN aggregator market when ISDN was poised to explode. Telco systems vendors were pushing it as the wave of the future but, as one industry analyst noted, “the early introduction of ISDN in North America was a spectacular non-event.” Aria changed its name to Ascend Communications, Inc. in May 1990.

In 1991, Ascend shifted directions, introducing the Multiband line. Designed as an access layer to the Videoconferencing/Multimedia Access market, the inverse multiplexer established high-quality desktop, room, and multi-point videoconferencing operations. A less-expensive version, Multiband Plus, was introduced in 1992. Net sales for 1991 reached $3.2 million, with a net loss of $2.4 million; in 1992, net sales reached $7.2 million, with $3.8 million in losses.

From 1993 to 1996, Ascend entered the datacentric Remote Access Server (RAS) market with its central site and Customer Premise Equipment (CPE) MAX and Pipeline products. Net income for Ascend in 1993 reached $16.2 million, with a net income of $1.4 million.

Ascend was reincorporated in Delaware in May 1994, with its initial public offering netting $25.2 million in proceeds. Concurrently, Ascend formulated a hybrid distribution channel strategy. Revenues for 1994 were $39.3 million, with net income at $8.7 million.

Transitioning in 1995

In 1995, Ascend moved further from a singular focus on the videoconferencing access market (where it had long held the lead) to a broader focus on multiple expanding market segments (Internet access and infrastructure, CRA, Telecommuting/ SOHO access and multimedia access).

New products released included the Multiband VSX, which supported scalable bandwidths for single-session videoconferencing, letting users construct economical multimedia-access networks for videoconferencing, distance learning, electronic banking or publishing and telemedicine; the MAX 4000 WAN access switch, which aggregated simultaneous incoming calls from analog, ISDN and frame relay circuits onto a single high-speed digital line; the MAX 1800, which provided the functionality of larger MAX products on a smaller scale; and user-friendly MAXLink software, which turned remote PCs into nodes on an enterprise network connecting to any MAX product.

In June, Ascend introduced the Pipeline 25, an ISDN remote-access bridge/router for Telecommuting/SOHO applications. New EtherFrame products included a low-cost Pipeline frame relay access router, plus software that added frame relay concentration capabilities to Pipeline and MAX products.

Acquisitions and Partnerships

Ascend developed a strategy to acquire technologies which enhanced its core product capabilities. In September 1995, Ascend made its first acquisition, buying from Dayna Communications, Inc. technology and related assets of the DaynaLINK product family for approximately $3 million. The acquisition expanded the MAX line and, a month later, the MAX 200, offering dial-up network connectivity for small and remote offices, was introduced.

In the third quarter of 1995, Ascend completed another successful public offering, providing capital resources needed to meet its growth objectives, and the stock split two-for-one three times between May 1995 and January 1996.

Ascend also began partnering with other industry leaders, establishing alliances with several Regional Bell Operating Companies and their subsidiaries, including Bell South Network Solutions, Pacific Bell, Pacific Bell Internet Services and Southwestern Bell Telephone Company. Ascend created a service agreement with AT&T Paradyne’s Customer Support Organization; expanded its resale alliance with AT&T Global Business Communications Systems; and GTE Telephone Operations, the largest U.S.-based local telco company, began reselling Ascend products. Ascend also expanded existing relationships with leading independent ISPs like PSINet and UUNET.

Ascend also began implementing its distribution strategy in North America, establishing a two-tier structure which used national distributors to supply products to more value-added resellers than Ascend could handle directly. Merisel Inc. and Tech Data, two leading worldwide computer and network products distributors, and Sprint/North Supply, a leading national distributor of videoconferencing equipment, participated in the program.

Fueled by the growth of Internet access services and expansion of CRA networking, the remote-access equipment market jumped 146 percent from 1994 to $1 billion in 1995. Revenues for Ascend in 1995 reached $149.6 million, with net income at $30.6 million.

Continuing with New Products in 1996

New products for 1996 included the Pipeline 130 family of remote-access routers in January, which provided unparalleled hardware integration and software support, and combined ISDN and frame relay technology for maximum flexibility; the MAX 200Plus in February; and the Pipeline 25-Fx, Pipeline 25-Px and Pipeline 75, and bundled options into the Multiband Plus and Multiband VSX systems in April. June saw the Secure Access Firewall and Secure Access Manager products released.

In September, Ascend launched the high-density MAX TNT—a central site carrier-class WAN access switch that delivered unprecedented network capacity and supported more services in one system (including analog, ISDN, frame relay and digital subscriber line (DSL)) than any other WAN access switch on the carrier and ISP markets at the time. The NetWarp product family for the SOHO market followed in October, and a Java-based configurator was bundled with all Pipeline products in December.

The Telecommunications Act

The passage of The Telecommunications Act of 1996 changed restrictions on the industry, altering the structure and markets for local, long-distance, cable and other telco companies. A violent shake-up was on the horizon for technologically related fields and experts predicted a plethora of mergers and consolidations in the telco, ISP and database industries. In order to stay at the forefront of changing remote networking requirements Ascend, which had already proven itself adept at adapting to market trends and changes, formed even more alliances to extend and enhance access to Internet and intranet functions.

In January, Ascend teamed up with telco giant MCI to demonstrate wireless remote LAN access. March saw Ascend ally with Microsoft to create new technology allowing users to create secure, multi-protocol virtual private networks (VPNs) over the Internet for global data communications without the need for long-distance connections, and Bell Atlantic selected Ascend’s Pipeline products for its residential ISDN remote LAN access.

In April, Ascend entered a strategic alliance with Panasonic for improved Videoconferencing/Multimedia Access capabilities, and PictureTel began reselling Multiband products. In June, Lucent Technologies, a premier global provider of networking software and systems, selected the Ascend RAS platform as a component for their Access Gateway product.

In July, ZipLink standardized its network on Ascend’s MAX platform and North American Internet upgraded its network with MAX products. The following month, Ascend entered a multi-phase development and marketing alliance with NetManage Inc., the leading provider of standards-based intranet and Internet software applications to the corporate marketplace, and UUNET Technologies, one of the nation’s leading ISPs, certified the Pipeline 130 family of integrated ISDN, frame relay and leased-line remote-access routers for resale to its corporate customers.

Ascend entered a joint development agreement with Rockwell Semiconductor Systems in November to create a fully integrated central-site modem solution supporting 56Kbps transmission speeds. Ascend and 27 other leaders from segments of the communications and computer industries, joined forces to create the Open 56K Forum, an industry-wide coalition dedicated to achieving widespread implementation of 56Kbps analog modem technology. In December, Ascend allied with Alcatel, a telco systems integrator, to further carrier-class Internet services, and U.S. West’s INTERPRISE Networking Services organization chose Ascend’s IDSL product to provide high-speed Internet access for their customers.

Ascend was honored in 1996 with numerous awards, including Network World’s “World Class Award” for the MAX 1800, and PC/Computing magazine’s MVP Award for the Pipeline 50. The Secure Access Firewall Control Protocol (FCP) received certification from the National Computer Security Association, and eight leading security vendors endorsed it.

Acquisitions in 1996

In March 1996, Ascend acquired Morning Star Technologies Inc. for approximately 440,000 shares of stock. Morning Star’s industry-leading firewall security technology was integrated across Ascend’s remote networking MAX and Pipeline families, providing the only remote networking products with reliable, cost-effective built-in security.

NetStar Inc. was acquired in August for approximately $300 million in stock. By applying NetStar’s high-speed switching technology, Ascend was able to deliver the next generation of IP switching products. A month later, the GRF 400 high-speed hybrid IP Switch/Router, the first product to utilize the technology acquired from NetStar, was released, bringing Ascend equipment into the backbone layer of the remote networking infrastructure, delivering throughput capabilities that were orders of magnitude larger and faster than then-conventional backbone routers, and marking an aggressive entry into the carrier-based switching/routing market dominated by Cisco. By integrating the GRF 400 with the MAX TNT, Ascend created the first MegaPOP solution, designed to alleviate increasingly critical congestion problems on carrier and Internet networks.

Subspace Communications, Inc. was also acquired in August. Subspace products extended Ascend’s offerings for the SOHO market, providing cost-effective performance optimizations and advanced ease-of-use features to enhance Internet access, remote LAN access and telecommuting capabilities for PC users.

December saw Ascend acquiring StonyBrook Services Inc. for nearly 480,000 shares of stock. StonyBrook’s acquisition strengthened Ascend’s sophisticated network management software, which was incorporated into all Ascend products, creating a total end-to-end network solution, easily manageable using a single network management platform.

New distributors for 1996 included Tech Data, ALLTEL Supply and Ingram Micro; Martin Lee Schoffstall, cofounder of the world’s first commercial ISP, PSINet, and one of four coauthors of SNMP, an industry standard for network management, was named to the Board of Directors in June; two Technical Assistance Centers were opened—in Japan to serve the Pacific Rim, and in France to serve Europe, the Middle East and Africa; the number of employees jumped from 304 to 721; construction was completed on a 250,000 square-foot, four-building campus in Alameda, California, which included principal administrative, engineering, manufacturing, marketing and sales facilities; sales offices were established in Belgium, Italy, Korea, Malaysia, Singapore and Sweden; and Ascend’s net sales grew 260 percent to $549.3 million, and net income rose 311 percent to $113.1 million.

New Products for 1997

In January 1997, Ascend launched a line of bandwidth-on-demand Multiband MAX controllers to provide software to support multimedia applications and a migration path for future upgrading to remote access. Ascend also continued making remote access more cost-effective for telecommuters and home users with the MAX 4048 WAN Access Switch, Pipeline 15 External Terminal Adapter, with dynamic bandwidth allocation and integrated analog/digital support providing high-speed dialup access to a corporate headquarters intranet or the Internet.

Other releases included a MAX and Series56 Digital Modem for central site customers so corporations and network service providers could offer users the ability to download data from the Internet or a corporate network at almost twice the speed of their old modems. As of mid-1997, MAX products accounted for over 50 percent of the worldwide market share in access concentrator analog ports, 62 percent of access concentrator ISDN PRI ports and 33 percent of access concentrator TI DSOs, and supported over 30 million Internet connections daily.

In February, Ascend released the ISDN DSL (IDSL), an innovative solution developed with one of Ascend’s customers, MFS Communications, and its subsidiary, UUNET Technologies, reflecting Ascend’s long-standing tradition of delivering custom, state-of-the-art products. Ascend also expanded its Net-Warp family with the NetWarp Pro ISDN Terminal Adapter, featuring a single analog port providing plain-old telephone services with full-ring and dial-tone generation capabilities, letting users connect a phone, fax or answering machine to NetWarp Pro and simultaneously surf the Internet and make analog calls over a single ISDN BRI line.

Growth continued when Ascend acquired Whitetree Inc., a privately held provider of high-speed switching products, for approximately 1.1 million shares of stock. Ascend also acquired substantially all the outstanding stock of InterCon Systems Corporation for approximately $12 million in cash and the assumption of nearly $9 million in liabilities.

In March, Ascend was strengthened by the acquisition of competitor Cascade Communications, Inc. for approximately $3.7 billion in stock. Besides having numerous mutual customers, the companies had each established dominant positions in the ISP and carrier markets. With the acquisition, Ascend became the leading provider of frame relay and ATM equipment to ISPs worldwide, with over 40 percent of frame relay WAN switch connections and 20 percent of ATM WAN switch connections, creating a huge disparity between Ascend and its competitors.

Following the acquisition, Ascend reorganized into four business units. The Core Switching Systems Unit, under Cascade CEO Dan Smith, focused on the Cascade frame relay and ATM switches and the Ascend IP switch/router; The Access and Concentrator Products Unit, on the remote-access concentrator product lines (MAX, MAX TNT; Cascade’s AX 800/ 1600); The Remote Products Unit, on SOHO connectivity products (Pipeline, NetWarp products); and The Multimedia Access Products Unit, to leverage existing leadership in videoconferencing access and to pioneer the design and marketing of innovative multimedia access products.

Also in March, Ascend began shipping SDSL Line Cards for the MAX TNT and DSLPipe-S for remote users accessing SDSL services. These products offered support for high-speed services and unsurpassed speeds over the local loop. Ascend surpassed its own performance benchmark with the GRF 1600, the only IP switch capable of delivering 10 million packets per second throughput with a fully-loaded 16-slot configuration of high-speed media cards.

When GTE acquired BBN Corp., primary systems integrator for AOL and a large Ascend customer, in May 1997, there was some excitement in the industry because GTE agreed to start using Cisco gear on its own network and reselling Cisco hardware to its customers. But, with Newbridge acquiring UB Networks, 3Com picking up U.S. Robotics, and Cisco buying Stratacom, it was merely par for the course for market consolidation following the passage of the Telecommunications Act.

In July, PSINet Inc.—a worldwide leading provider of turnkey corporate Internet and intranet access, wholesale access services to telco and ISP companies, electronic commerce solutions and Web-hosting services, which managed one of the world’s largest, most advanced fast-packet networks—announced the deployment of MAX TNT WAN access switches, expanding the ISP’s capacity by 40,000 ports, adding them to its base of MAX 4000 WAN access switches and GRF 400 high-performance routers which supported over 21,000 customers through 350 POPs worldwide.

In August, Ascend joined Bay Networks and Cisco to support AimQuest Corp.’s GRIC-Ready Program. The alliance gave Ascend access to 150 of the world’s largest ISPs and teleos—including Chungwha Telecom, Cybernet AG, DTI Mitsubishi, Finland Telecom, FranceNet, Fujitsu, Hong Kong Telecom, Hyundai, KDD, Korea PC Telecom, Malaysia Telecom, NEC, NETCOM, Prodigy, Samsung, Singapore Telecom, and Telstra—to deploy value-added global Internet communication services throughout the GRIC network, which extended throughout 150 countries, over 1,300 POPs and served more than 13 million dialup subscribers and 20 million corporate users.

VPNet Technologies Inc.—the first company formed with a singular focus on VPNs, dedicated to developing and marketing cost-effective products and technologies for implementing high-performance VPNs—released new hardware for high-performance site-to-site connectivity and remote access, which supported RADIUS authentication technology, including Ascend’s Access Control implementation.

Electric Lightwave Inc.—a telco company offering local and long-distance telephone, videoconferencing and data and Internet access services, and prepaid debit cards—in a major upgrade to its broadband network infrastructure, selected Ascend’s CBX 500 switches for ATM backbone support for various network services and ATM-based services. ELI would use the switches with its installed base of Ascend B-STDX 9000 Frame Relay multiservice switches and the CascadeView network management system to manage the switches as a single network from one management platform. This gave Ascend access to ELI’s parent company, Citizens, a full-service telco company, and its subsidiaries, Citizens Communications, the United States’ 15th largest independent telco company; Centennial Cellular Corp.; and Hungarian Telephone and Cable Corp.

Ascend also introduced the Ascend Certified Technical Expert Program to test internetworking expertise to ensure quality and proficiency levels requiring standardized testing for anyone wishing recognition as an Ascend networking expert.

August continued to be busy, as Ascend released the Pipeline 220, the first router capable of delivering Secure Access dynamic firewall technology, IP Layer Security Protocol-compliant encryption, a draft standard which defines encryption, packet authentication, and key management services for VPNs, multi-protocol routing and bridging, and VPN tunneling capabilities from a single device; and the Pipeline 85 CPE dialup router, created to address the SOHO market’s need for an economical, all-in-one solution for LAN-to-LAN and Internet connectivity.

By mid-1998, with surging demand for increased bandwidth being fueled by rapid growth of the Internet and the urgency to upgrade corporate networks, Ascend was the unquestioned market leader. Cicso made a stab at Ascend when it released its Gigabit Switch Router at Networld + Interop in Las Vegas in mid-1997, but no one could compete with Ascend for speed and product density, the TNT was without competition in the marketplace, and the competition, excepting 3Com Corporation, was far behind in remote-access technology and market thrusts. With the Internet, CRA, Telecommuting/SOHO and Videoconferencing/Multimedia Access markets all expanding, Ascend showed no sign of stopping to provide integrated remote networking solutions.

Principal Subsidiaries

Ascend Communications Europe Ltd.; Ascend Communications GmbH; Ascend Credit Corp.; Ascend Foreign Sales Corp.; InterCon Systems Corp.; Morning Star Technologies Inc.; Whitetree Inc.