The Technology Case, Part II

Last week, we began our series on Cisco’s technological drivers and challenges in the service provider market with an assessment of the company’s IP Telephony strategy. In Part II of this series, we eye Cisco’s optical business.

Last week, we began our series on Cisco’s technological drivers and challenges in the service provider market with an assessment of the company’s IP Telephony strategy. In Part II of this series, we eye Cisco’s optical business.

In metro optical, Cisco’s ONS 15454 SONET transport system is a popular product, with more than 900 customers and 30,000 systems deployed worldwide. But long-haul optical is another story.

Rumors are rampant that Cisco will exit the long-haul optical market where its ONS 15800 DWDM platforms have languished in the market. The long-haul optical space, however, has been the hardest hit of the optical markets during the three-year telecom slump as service providers have cut off spending on these platforms due to transport overcapacity in the core of their networks.

Indeed, Roland Acra, Cisco senior vice president and service provider CTO, did not mention long-haul optical as an area of targeted investment for Cisco. And when asked if Cisco is still committed to the market, he was less than ebullient.

“It’s an area where the sands are not shifting too much today,” Acra says. “When something is static in nature due to overinvestment and overcapacity, it’s less furtive for innovation right now. We’re still in the areas that we’re in, the products are on the market. The market is not growing fast, but we’re in that market.”

Cisco will continue to market its optical long-haul products in pockets where there is demand, such as the eastern European bloc, India and China, says Sameer Padhye, Cisco vice president of service provider marketing. In the U.S., however, “our challenge is expanding our portfolio and making it available for the RBOCs and ILECs.”

That may be easier said than done, according to analysts.

“The long-haul DWDM market is very depressed and currently favors incumbent vendors, with purchasing behavior consisting primarily of channel upgrades on existing systems,” states Current Analysis Analyst Dave Dunphy in an assessment of Cisco’s optical operations. “Long haul [is] seeming less important as Cisco redoubles its focus on the metro.”

The telecom slump offers Cisco an opportunity to rebound in optical, though, Dunphy notes, after some acquisitions failed to produce desired results

“Cisco is playing it conservative after having been burnt on an optical acquisition or two, and its redoubled focus on the metro seems to put optical into somewhat of a supporting role as providing high-bandwidth transport for Cisco’s data strategy,” Dunphy states. “The economic slowdown and associated fall-out in competitors’ reorganizations have given Cisco a grace period in which to regroup its optical efforts, and if it so chooses it has the means to acquire significant optical technology and staff over the next three to five quarters.”

Next week: Edge router edginess.