| Changing Telecommunications Technologies
Current Communications Technology:
Parallel Voice and Data Networks
The typical on-premise communications system consists of two parallel networks, each with its own cabling and infrastructure, wide area network links, and management functions. One network serves traditional copper-based, voice communications. A second separate network for data and video communications utilizes both fiber optic and copper technologies. Today, countless companies incur the considerable expense of maintaining parallel infrastructures for voice and data.
Convergence of Voice, Data and Video
The technology now exists for the next revolution in telecommunications: the convergence of voice, video and data. This single "pipeline" or multi-media convergence infrastructure enables users in offices and homes to access voice, video and computer data networks. Maintaining a single multi-media infrastructure is far less costly in comparison to multiple, non-integrated, single-media infrastructures. In addition, the convergence of voice, data and video provides the user with significantly greater flexibility in accessing, creating, editing and transmitting information. Reflecting these benefits, Infonetics Research, Inc., a market research company focusing on the computer networking industry, recently forecasted that the convergence market will grow from an estimated $1.5 billion in 1998 to more than $13 billion in 2002; a growth rate of nearly 800%.
CSI: Leading the Way in the Changing Telecommunications Industry
Traditional Business: Physical Connectivity Systems for Voice Communications
Over the years, CSI has developed a commanding position in the traditional analog voice communications market, where our connecting devices and wiring systems hold an estimated 80% share of the U.S. market. In recent years, we have also added a growing range of high-speed copper wire systems that carry data at speeds up to 150 megabits (Category 5e) as well as fiber optic capabilities. In these ways, CSI already has been providing a significant amount of the physical connectivity systems (wall connectors, multi-media boxes, patch panels, etc.) that are requisite components of most networks; analog or data.
New Physical Connectivity Capabilities for the Convergence Market
Through a series of strategic acquisitions, we have expanded our capabilities to the next level to position CSI with a growing package physical infrastructure enabling tools and services for the rapidly growing convergence market:
- August 1998: CSI acquired JDL Technolgies, Inc., which provides network design, specification and training services to the K-12 education market. JDL also provides high-speed Internet access software to schools.
- December 1998: CSI acquired Transition Networks, Inc., one of the industry's leading designers and manufacturers of media conversion products. By enabling the seamless transition from fiber to copper cabling within a single network, Transition Networks' products permit the deployment of new high-speed fiber technology, while retaining the copper-based infrastructure already embedded in the network. Transition Networks has recorded strong growth in recent years, and that is expected to continue in 1999.
- April 1999: CSI acquired LANart Corporation, a technology leader in the conversion market. LANart has been merged with Transition Networks, making Transition Networks the industry's largest supplier of conversion devices. LANart designs and produces the application-specific integrated circuits (ASIC chips) for its conversion products. Incorporating LANart's ASIC chips into Transition Networks' product line will enable the combined entity to realize considerable cost savings going forward.
- March 2002: CSI announced the acquisition of substantially all of the assets of Digi International's (Nasdaq:DGII) MiLAN business in an all-cash transaction valued at about $8.3 million. With sales of approximately $20 million for the fiscal year ended September 30, 2001, MiLAN is a growing provider of leading edge wireless telecommunications products, managed and unmanaged LAN switches, media conversion products and print servers. The MiLAN acquisition strengthens our strategic emphasis on physical connectivity infrastructure for cost-effective broadband solutions. This transaction also represents a continuation of our strategy for
moving CSI into related telecommunications markets with significant long-term growth potential.
Strategic Emphasis on Open Architecture
Our physical connectivity infrastructure is designed for open architecture environments. As a result, CSI's connectors, wiring systems and converters can support the shared hubs, switches and routers of major networking vendors, including Cisco, 3Com, Nortel and Lucent. By offering network managers this added flexibility, we believe our strategic emphasis on open architecture will provide CSI with a competitive advantage in the physical connectivity marketplace. In addition, our open architecture capability positions CSI to pursue strategic alliances with major suppliers of hubs, switches and routers.
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