Xylan Corp.

Xylan Corp. rode the boom in demand for computer networking to become one of the hottest initial public offerings of 1996, but its stock got battered after industrywide sales growth slowed.

Nonetheless, stock analysts still think the Calabasas-based company, which makes switches that move data over computer networks, is on its way to staking out a long-term market position. The industry, dominated by Cisco Systems Inc. and 3Com Corp., has several such potential niche leaders.

Analysts say Xylan has made a good bet by concentrating on the local area network, or LAN, the central line connecting an organization’s desktop computers. The $3.6-billion LAN market is one of the fastest-growing segments of the data-networking industry.

Xylan’s sales grew 333% to $128 million in 1996, putting it at the top of the Times 100 list of fastest-growing companies. And it also ranks eighth on the list of analysts’ expectations for earnings growth during the next three to five years.

Wall Street’s confidence in Xylan has been bolstered by the company’s broad alliance with IBM Corp. Big Blue ordered $30 million of Xylan products last summer and received an option to purchase 5% of the company. Earlier this year, the company lined up a three-year contract to sell switches to BellSouth Corp.

The company was founded four years ago by Steve Kim, who emigrated from Korea and earned an engineering degree from Cal State Los Angeles while working for Litton Industries Inc. and other area data technology companies.

Xylan has made a big push abroad, especially into Asia. More than half its current sales come from outside the United States. Investment analysts predict Xylan’s fast growth will continue in 1997, with sales of $260 million expected.

Xylan’s stock was caught in the pummeling of data-networking stocks earlier this year, dropping as low as $12.38, but it has recovered recently to about $20 on Nasdaq. After its IPO in March 1996, Xylan’s stock peaked at $76 in May of that year.

“The stock just got ahead of itself right before the frostiest part of the data-networking market,” Morgan Stanley analyst George Kelly says.

The company is considered an innovator for integrating hardware routing technology, as well as technology that allows both audio and visual data to travel over the same wire into its LAN switches.

“The path we’re on is integration,” says Kevin Walsh, Xylan’s vice president of marketing. “Take more and more technology and combine it into a single device. That’s what we’ve done so far.”