He Put Spokane in the Fast Lane

ASSOCIATED PRESS

Bernard Daines is one Californian Spokane was happy to embrace.

The Silicon Valley refugee founded a computer company that is racing to capture the market for gigabit ethernet systems.

Packet Engines Inc.--founded by Daines in California in 1994 and moved to Spokane in '95--is creating systems that would allow Fortune 500-scale companies to move vast volumes of data at 10 times current speed.

The market for such products is estimated at up to $3 billion a year.

Spokane may seem an unlikely place for Daines, a national pioneer in the technology of linking personal computers into a network. In April, Newsweek magazine listed him as one of 100 Americans to watch in the 21st century.

But Daines, 53, grew up in the Spokane Valley before leaving for the high-tech battlefield of the Silicon Valley. In between, he graduated from Brigham Young University, where he helped establish the computer-science department.

Daines was working for computer giant 3Com, of Santa Clara, Calif., when he helped develop the first high-speed networking products in the early 1980s. Those networks moved at 10 megabits per second, quite adequate for text-based work.

But the expanding use of pictures and graphics requires greater computer speeds. In 1992, Daines helped found Grand Junction Systems, which made equipment that boosted ethernet speed to 100 megabits per second, 10 times as fast. Ethernet is the name given to technology for connecting computers within a building or group of buildings.

Grand Junction, founded for $4 million, was sold three years later to Cisco Systems, a Silicon Valley giant, for $350 million and absorbed into the larger company.

But after some 30 years in the Silicon Valley, Daines began thinking of Spokane.

"I wanted to come back," he said. "At Central Valley High School, I built my first computer out of old telephone relay equipment."

Far from the high-tech hotbeds of San Jose or Boston, Packet Engines is a little mysterious, which can be an advantage, Daines said.

Out here, many people don't even know what the company does. Its logo features a steaming train locomotive, and many people mistake the company for a railroad manufacturer.

But in computer lingo, "packets" are units of information.

Since 1995, Daines has been working on systems that would reach speeds of 1,000 megabits or1 gigabit per second--capable of moving a billion bits per second through fiber optic cables--another tenfold reduction in the amount of time it takes to download a file.

It may help to think of Daines as a high-tech plumber, trying to create bigger pipes so information can flow more quickly down the drain.

Many experts wonder how many customers really need and would be willing to pay for such a fast system.

"Anywhere that has a high concentration of data is a candidate for gigabit," Daines said--from Boeing to people who predict earthquakes.

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There are 124 companies in the Gigabit Ethernet Alliance, which Packet Engines helped found to promote the technology and agree on technical standards. About two dozen are in direct competition with Packet Engines to market gigabit-ethernet hardware.

Computer analyst Brandon Hannigan of Forrester Research in Cambridge, Mass., believes Packet Engines may be slipping behind some larger rivals.

"There is a fatal oversupply of these companies," said Hannigan, who contends the best bet for survival would be for some competing companies to merge.

But Daines has a long history of success in the computer business, which has made it relatively easy for Packet Engines to raise funds from venture capitalists. He has created 38 successful application circuit designs, as well as numerous circuit boards, systems and test equipment products.

Packet Engines initially raised $7.5 million, and recently raised $13 million more from venture capitalists in a second round of financing. About $3 million of those funds came from in-state investors and groups.

"Packet Engines offers a nontraditional high-tech setting and the strength of a solid and experienced team headed by Bernard Daines," said Yogen Dalal, general partner of the Mayfield Fund of Palo Alto, Calif., one of the investors.

Daines said the company plans to go public in a year, assuming the market for initial public offerings improves.

The company is based in a generic office building in the Spokane Valley, just east of the city, though Daines is looking for bigger quarters.

In one of the disadvantages of being off the beaten path, local real estate developers--unaccustomed to working with high-tech start-up companies--demand things like 10-year leases that Daines is not prepared to sign.

In the Silicon Valley, developers have learned to take some risks with start-ups in return for profits from stock options if the companies make it big, he said.

"They don't try to get every drop of blood," Daines said.

Venture capitalists don't want to see young companies spending their money on bricks and mortar, and Spokane developers must learn to be more flexible if they want to attract more high-tech firms, he said.

Also, the lack of high-tech support manufacturers means parts will have to be made in Seattle, with final assembly and testing in Spokane, Daines said.

The company unveiled its first products--a 64-bit card and a Gigabit Ethernet repeater, which directs traffic among the huge volume of packets--at the key Networld+Interop trade show in Las Vegas in early May.

A "getting started" kit of Packet Engines equipment, priced at $19,900, will be ready for shipment in July.

Packet Engines has 75 employees and expects to have 125 by year's end.

The company has been able to lure managers away from companies like Microsoft and Intel who are hoping to get in early on a financial bonanza.

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