Extreme Networks: Providing Economic Shelter?

Extreme Networks isn’t a networking giant. Instead, the company quietly focuses on four core vertical markets: Higher education, government, health care and hospitality. Think about that for a minute… At a time when everybody is concerned about an IT spending slowdown, three of Extreme’s four target markets are somewhat insulated from economic turbulence. That’s a pretty compelling message for partners seeking to maintain healthy revenue pipelines.

Missing from Extreme’s primary target list is the financial services sector. Over the short-term, that’s a good thing. The sub-prime mortgage meltdown has rocked financial giants like Bank of America, Citigroup and Merrill Lynch. Many pundits now expect Wall Street to cut its IT investments this year, and industry watchers such as Forrester Research have cut their overall IT spending estimates for 2008. The upshot: IT spending is expected to grow this year, but not as rapidly as earlier projections had indicated.

Meanwhile, Extreme has been undergoing a quiet evolution. Former Sun Microsystems Inc. executive Mark Canepa was named CEO of the company in August 2006, and has since delivered four consecutive quarters of revenue growth. Extreme isn’t setting the world on fire, but revenues did grow 7 percent to $92.5 million in the most recent quarter, and profits topped $4.1 million.

The VAR Guy isn’t suggesting that Extreme can — or will — bruise sales at Cisco Systems. But that’s not the point. Rather, a lengthy list of small to mid-size networking companies has found a niche in this industry. Adtran, Digium (Number two on our list of open source companies to watch), F5 Networks (which is striving to become a $1 billion business) and ShoreTel (a recent VoIP partner with Microsoft) come to mind. Extreme seems to be clawing its way onto that niche list.

Betting On Partners

And Extreme is pretty darn committed to the channel, with 93 percent of worldwide business and 80 percent of North America sales flowing through partners. The company has roughly 400 North American partners, and plans to meet with a few dozen of them in California later this month — as part of an effort to gain clear feedback from solutions providers, according to Christopher Rajiah, director of North American Channels for Extreme. (Rajiah succeeded Dan Sibille, who now works on channel development for TelePresence startup LifeSize Communications.)

Looking ahead, Extreme on April 1 plans to launch an enhanced Channel Program for its North American partners. It features a:

• New Diamond Elite partner level for top partners to qualify for additional financial incentives.
• Uniform MDF program for all registered channel partners; it’s based on the program level and revenue achieve.
• Loyalty Rebate program that gives partners additional incentives for achieving the required revenue, certification, and training credits.
• Bounty program that provides partners with increased rewards for unassisted, qualified, high volume deals.
• Lead Generation program that rewards top performing partners that have invested in inside sales, service and support.

All those bullets are a fancy way of saying Extreme is committed to the channel. Apparently, CEO Canepa has stabilized the company.  And by focusing on vertical markets like heath care, government and higher education, Extreme may be less susceptible to the economic turbulence ahead.