At Gilder Conference, Extreme CEO Extols the Joys of Simplicity - TheStreet

LAKE TAHOE, Calif. -- Gordon Stitt, CEO of

Extreme Networks

(EXTR) - Get Report

, likes his networks simple. That's making him a popular man here.

Wearing a Barney-purple Extreme shirt and reading off a teleprompter, Stitt spoke Thursday to open the fourth annual

Gilder/Forbes Telecosm Conference

. His message: A long-established technology called Ethernet can simplify the Internet, by eliminating at least two layers of clutter.

While his is a highly debatable proposition (there's no agreed-upon Ethernet standard, for one thing), Stitt knows that 3-decade-old Ethernet is a comfortable concept amid the challenging mishmash of ever-evolving acronyms. Clearly, harmony and simplicity are the messages this crowd wanted to hear. That helps to explain Extreme's prosperity as the networking revolution has bubbled through telecom networks and the

Nasdaq.

Gaining
Extreme's solid gains

Source: BigCharts

Simplicity

Telecosm's high priest, George Gilder, chose Stitt to kick off his conference to help strike a theme of simple interoperability. The event also showcased executives from some 38 network technology companies, each giving their worldview. Gilder likes Extreme partly because it competes with

Cisco

(CSCO) - Get Report

, which Gilder openly loathes for reasons philosophical and financial.

Maybe it was the thin mountain air, or the giddy sense that high-capacity gigabit Ethernet could be the glue to hold all the disparate networking elements together. But envision a networking rock star playing to a roomful of groupies. No undergarments were thrown on stage, but wherever he turned, people too numerous to count hailed Stitt with "great talk" and quick pats on the shoulder. Stitt's speech spoke to an underlying fear that all this competing optical-electronic brilliance will amount to little if it can't all work together.

"It means a lot," says Stitt of the accolades. "This is a very sophisticated crowd. I think you've got a collection of the most important people from all aspects of the industry here and a lot of our investors."

Those investors have been a happy lot, as the chart above shows. Extreme has more than 1,000 customers, and it showed a profit of $20 million on $262 million in revenue for the fiscal year ended June 30. The company has a $9.5 billion

market capitalization. Of its 700 employees, 480 are in sales and 130 are engineers.

The Dilemma

But back to networks. Here is the dilemma: Old networks are largely electronic and dedicated to carrying phone traffic. New networks are largely optical- and data-oriented, meaning traffic travels mostly on lightwaves. To modernize, network owners have gradually added gear based on the ATM, or asynchronous transfer mode, and SONET, synchronous optical network, protocols. But as optical networks take over greater portions of the transport, some of the interim infrastructure can be dismantled. Enter a more universally accepted standard: Ethernet.

"Extreme attacks a vulnerability in Cisco, which is their complexity," says Gilder, shortly after Stitt's talk, as he sprint-walked his way across the hotel complex to the coffee bar for a double latte. "I'm sorry we never got them into our newsletter," says Gilder, referring to the $300-per-year monthly

Gilder Technology Report

, which has helped make him one of technology's most influential and controversial stock pickers.

As with much of networking, the best way to break down the lingo is through a transportation analogy. Gigabit refers to the amount of freight that can be shipped. Ethernet, a 28-year-old computer-cabling technology, is the standard-gauge railroad the freight is hauled on.

"Gigabit Ethernet looks like it's coming out of the blue, but once this gets going it will seem like it was obvious all the time," says Steve Russell, president and co-founder of

Telseon

, a closely held Palo Alto, Calif.-based network service provider.

Stephen Alexander,

Ciena's

chief technology officer, calls the emerging networkwide Ethernet standard a huge opportunity. "Here is a chance to develop an interface that could displace SONET and all the other crappy interface standards that lie inside the network," the executive says.

Complexity

Simple, however, may not be all that simple. Not all Ethernet was created equal, says

Merrill Lynch

analyst Michael Ching, who attended the event. "These gigabit Ethernet advocates can't agree on a framing technology standard, and the more players that get involved, the more controversy you have," says Ching, who has no rating on Extreme. Merrill Lynch has no banking ties to Extreme. Ching has a buy on Extreme rival

Foundry

(FDRY)

and Cisco. Merrill Lynch was a lead underwriter for Foundry.

In an interview after his talk, Stitt said the debate about competing Ethernet standards has been overblown, but went on to say that "our best talent is focused on where this is going. We want to be the first to deliver fully interoperable products."

Though Gilder applauded Stitt's mission to strip away complexity in the network, he says Extreme's challenge will be to avoid the temptation to create its own complexity.

"Once they go down that road," says Gilder, "they will start to take on the encumbrances of the very companies they are trying to beat."

No worries, replies Stitt. "We've watched tech companies fail because they try to address too many things," the networking rock star explained. "We think the $12.4 billion market we're targeting is big enough."