Extreme Makeover Network Edition

Extreme Networks is a company with a history of delivering high-performance, high-availability Ethernet switching technology. The company's very first product won Best of Show award at Networld+Interop, and by 2001 Extreme had won the award five consecutive years with one innovative 1Gb product after another. In 2002, the company introduced its BlackDiamond modular switches featuring leading-edge 10Gb technology. By 2002, annual revenues for Extreme rocketed to over $400 million. Between 2002 and 2009, the competition for Gigabit Ethernet stiffened as the technology commoditized, and a mass migration to 10Gb never materialized. Then, after being stuck in neutral between $300 and $400 million, the company underwent an extreme makeover in 2009.

The makeover started at the top. In October, 2009, after serving on the board for six years, Bob Corey was appointed acting CEO and chief financial officer. Familiar with the company, Mr. Corey promptly streamlined the organization to improve accountability and to accelerate decision making. Three business units overlaid with multiple corporate teams were replaced by Sales, Marketing and G&A units. Independent engineering teams in Santa Clara, CA, Research Triangle Park, NC and India were combined into a single global development team. The organizational makeover paid off almost immediately. For Extreme's fiscal Q2 ending March, 2010; the company posted 20 percent quarter-over-quarter revenue growth and delivered earnings of of 5 cents per share...beating analyst estimates by three cents. For the current quarter ending July, 2010, Extreme provided guidance of $82-85 million, including an 11 percent quarter-over-quarter increase in product revenue.

The good news for Extreme employees, customers and shareholders is it only took some fine-tuning of the organization to yield measurable improvements in both top-line and bottom-line results. The great news is that Extreme also executed a makeover of their technology portfolio which positions the company for a growth spurt in the near future.

This year marks a point in time when virtual machine sprawl is pervasive, and when 10GbE server and storage ports are finally taking off with shipments more than doubling year-over-year. Virtual machine sprawl has created the need for networks that can provision network resources on a per-virtual-machine basis and manage the virtual machines across a network with multiple switches from a central management console. In response, Extreme developed the unique ability to migrate individual virtual machines across switches as well as maintain a central inventory of virtual machines so that activity can be tracked across an entire network. The explosion in demand for 10Gb ports is creating demand for backbones with even higher speeds to switch all the 10Gb links. Extreme is one of the first companies with the solution: a 40GbE switch. Unlike the 10Gb technology that was an order of magnitude more expensive than 1Gb technology in 2002,  Extreme is offering 40Gb switches at about $1,000 per port, a price point close to the price-per-port of most enterprise-class 10Gb switches available today.

In this episode of Extreme Makeover Networking Edition, the company is left streamlined for profitability and first-to-market with technology that can be used to address two important growth markets. I expect Extreme's trajectory in fiscal 2011 to be up and to the right.