Cisco Systems Inc. (Nasdaq: CSCO) and Extreme Networks Inc. (Nasdaq: EXTR) have discovered a new revenue source that's got some customers steamed, and a grass-roots effort is attempting to intercept the trend before it spreads to other equipment vendors, Light Reading has learned.
It has to do with optical modules, the doodads that connect a line card to an optical fiber. These are frequently purchased from the equipment vendor, and they conform to multiservice agreements (MSAs) that dictate size, shape, and function. In other words, they're supposed to be interchangeable.
Sometime in the past year, Cisco equipment started rejecting Gigabit Ethernet small-form pluggable (SFP) modules that came from other vendors, say sources. This forces the customer to buy SFPs from Cisco at a hefty markup. Extreme reportedly has followed suit, and other vendors reportedly are considering similar policies.
Cisco and Extreme failed to respond to requests for comment. But Cisco has stated in company literature that the new policy was meant to protect customers. The company refers to its SFP-blocking feature as the "Cisco quality ID," according to a policy document obtained by Light Reading. The document says the quality ID "protects customers against mistaken use of non-qualified GBICs and SFPs (including counterfeit products) and ensures a fully qualified network configuration."
How could this pose problems? Consider the tale of one Cisco customer who has asked to remain unnamed. Last spring, the customer was replacing another vendor's equipment with Cisco's and planned to reuse the SFPs from the old equipment -- only to be told that Cisco's IOS software would disable every port that used the old SFPs.
The only alternative was to buy SFPs from Cisco directly. The tab: more than $300,000.
Shaw Communications Inc. likewise encountered the issue earlier this year. "We always were mixing and matching GBICs [the predecessors to SFPs] with customers' equipment, because it worked," says Dave Wodelet, chief network architect. Wodelet would not specifically name the vendor but described it as a major public Ethernet switch vendor. One day, the vendor's box started reporting errors for every foreign SFP. "When we approached the vendor, they said they'd had trouble with third-party SFPs, and customers asked them to do this."
Network operators like to swap SFPs around because it saves money. That's a long-held benefit of standards. Different SFPs handle different distances, for example, so a port can be upgraded to a longer reach by adding a new SFP.
The new policy seems to have snuck up on customers. According to sources, it only affects newer products.
"What this has done is put a dividing line in the sand, and the companies who were thinking of doing it are waiting to see what happens," Wodelet says. "I'm sure if Cisco and Extreme got away with it, others would follow suit."
What really annoys Wodelet is that the equipment vendors don't even make SFPs. They all buy from the same small pool of suppliers -- Finisar Corp. (Nasdaq: FNSR) and Agilent Technologies Inc. (NYSE: A), mostly -- then store their own IDs and serial numbers on a memory chip included on the SFP.
This means that a rejected SFP could have come from the same manufacturer as a "Cisco" SFP; the only way Cisco knows the difference is by looking at the serial number. Wodelet says he's verified with Finisar that they send the same SFPs to everybody. In other words, a switch that rejects certain SFPs is like a flashlight that works with only one brand of batteries.
This type of practice isn't new. It's a common technique in consumer electronics, where manufacturers will use proprietary connectors, forcing customers to buy expensive replacements if, say, the power adapter to a portable CD player breaks (not that anyone's bitter about this).
Cisco hasn't turned a deaf ear to the complaints. "They said there has been a commitment to make a decision in January. They'll decide once and for all whether they'll stand by the current policy," says the Cisco customer.
This source estimates it would take at least six months to update IOS should Cisco rescind the policy, so it's not likely to change quickly. Meanwhile, Wodelet will continue speaking about it, trying to make users aware of the complications they might face.
Could Cisco sales be hurt by the quality ID flap? Not necessarily, but its pride and profits could get bruised. Upon learning that the Cisco equipment would require new SFPs, the unnamed source demanded they be thrown in for free, and Cisco's sales team -- which had already made concessions just to win the upgrade -- agreed. Problem solved. For now.
"As we expand our network and need more connections, we'll have to buy Cisco optics like everybody else," the source says.
I just saw this and haven't read all the messages so I don't know if this was covered already. The MSA is SUPPOSED to guarantee that all SFP's work the same and interoperate with all hardware. Anyone with experience in our industry should know that's a pipe dream.
The truth is that there are numerous interoperability issues with SFPs not only between manufacturers but also between different revs from the same manufacturer.
Say a user buys a box from X company but wants to use SFP's he bought from someone else, on ebay , or where ever. What happens if the SFP's don't link? He'll call X company and want them to fix the problem. X company will probably do what ever it takes to solve the problem for SFP's they sold because they are guaranteeing they will work. How are they supposed to fix problems for parts they didn't sell and didn't test on their box?
The high margins OEMs receive in part cover the very high cost of supporting the SFPs, which, BTW, is a real pain (yes they want to make some money too - if they didn't the products wouldn't be offered). The SFP makers? From what I see, they are not well equipped to support end users, especially if they did not sell the part directly to the user.
I relate to end-user frustration on this issue. The reality is that SFPs are not totally interchangeable just like computer peripherals are not totally interchangeable.
SFPs are different because they are EXTERNALLY PLUGGABLE. Go back and read that again, because you don't seem to GET IT. If Cisco wants to say that the only qualified parts are avail. from Cisco, that's fine and you'd pay for the value-add. To some, the value-add would be worth it, and to others it would not. What vultures do you mean here? 'Other' companies that are producing SFPs according to the MSA? "the vultures that are looking to make a profit off of SFP's are bringing zero value to the customer and OEM" Do you mean Excelight? Infineon? Who exactly are these vultures? The only Vulture I see here is Cisco.
I'm sorry my friend but your statement has no merit. Why are SFP's singled out differnetly then memory, asics, switch/routing chips, pcb's etc? Futhermore, the vultures that are looking to make a profit off of SFP's are bringing zero value to the customer and OEM period, contary to other opinions on this message board. There is quite an extensive amount of effort that goes into the qualification of SFP's and many other components as well. If you don't understand what that effort consists of, then you have no basis for comment, this is not a throw away plug an play situation. Do your home work, also invent something that will put you in a profit making scenario and refrain from comdemming those who are! You sound like the Clinton admin and Microsoft law suit...ridiculous!
Cisco/Extreme are only doing what many other already apply in a commodity industry, just look at HPQ printer vs print cartridge, no different. Well come to the market place, fibre/optics is not the sexy high margin product of 5-10 years ago. Component vendors need to change their business models to survive. SFP vendors are not untouchable, they have their head up there bum if they think they are going to change the way these guys operate.
- Cisco and EXTR do have their right to qualify/specify SFPs that work well on their linecards. They deserve a portion of profit from sales of modules to end customers. This portion comes from their work of testing and making the modules work on their linecards. (But, their main business should be to sell quipment, not resell modules.)
- Well, where is the module maker's right to make their profit and survive in this market? Module makers should deserve a larger portion of the module sales profit because they made it!
- With 500% list, Cisco get 80%, and module makers only get 20%.
- To be fair, end users should have the right to know which SFPs are qualified for Cisco linecards and buy them from module makers. If it has to pass through Cisco/EXTR, why can't they just get sales commisson? I do not know the standard of sales commission. 80% is certainly too high.
Something needs to be done to protect end users' and modules makers' rights. Any ideas about who can drive it? Maybe all of us. This is a democratic society!
One should really ask what goes into "qualifying" an SFP that happens to get to a customer via Cisco, rather than directly from the Supplier. The only variable appears to be a 500% list price markup. No sane person could believe that the concern is "caring" for the customer here. If they care, why the fleecing? The Death Star is alive and well and the post to which I am replying appears to be placed by someone residing within the Death Star, itself.
Just thought that I'd add an interesting observation, here. This is post #30. On the front page of LR today, it listed 4 articles under Hot talk, each of which had about 7 posts, or so. Also - to find this article...I had to dig. Buried in one day, it seems, most likely via a phone call from San Jose...
Well stated ironman, you obviously understand what it means to have port integrity. Let one of these complaining customers of Cisco lose a big stock trade because they plugged in an unqualified SFP source into their switch and experience loss of signal and transmit power DOA. Cisco goes through more pain staking efforts than most when it comes to qualifying their sources, that’s why they are successful. Plus, it doesn't stop there, its a continuous process on a daily bases. I applaud Cisco for having tight control of their process and designs, and the result is leveraging gross profits. Customers want to buy from them because of this culture. Companies should be looking for similar ways to become more powerful and profitable and stop whining because they can’t get there on their own merits.
When competing in the greenfield, CISCO prices below the competition. They win on price.
When competing on support of expansion for an installed base, it's Johnny bar the door!
They go tot make their margin somewhere. Guess where?
But if you think you can make a business out of supplying to that market, you are a fool. Cisco will cut you out one job at a time. They manage all the OSI layers, and will FUD you to death...and not change their prices a bit.
The only thing that will control them is fear of competitors in the greenfield. 70% margin says not nearly enough competition at the Cisco level.
Most likely, Cisco will pull in it's horns a tiny bit, do some PR about how they are going to be good guys and follow standards, and just wait awhile.
So why stop at SFP's? Why not off the shelf chips? Crystal? processors? These and many other components are used by every vendor.. Market demand drives product, not the other way around. The great SFP debate is far from started. Oh yeah, do you believe service provider's will drop your bill because they can reuse equipment? Hardly. Not that I subscribe to that either. Pricing is always driven by the market segment.
Typically, no one buy's an enterprise/service provider product from one manufacturer to use in another manufacture's hardware. There are way too many issue's (sw, testing, certification, compatibility) and legal reason to not do this.
As for SFP hardware; an SFP is not just an SFP, even with the same manufacturer. Those that know the hardware (temperature, life cycle, dispersion, wavelength stability, etc.), application (now an future) and real design level (existing platform, reuse in more than a single product family, newer platfroms and modules) concerns developers know what I'm talking about. Every try and plug an play HW with SW in PC's and then try an run software games, applications? Enterprise/service providers never what that level of comfort; SFP's are a heck of a long way, if ever, from being even getting to be as bad as Plug and Play HW/SW with PC's..
So it boils down to the comfort level of what a customer is willing to pay to a supplier. If there is anything better and more cost effective, they will.. If not, they'll purchase the product..
This article, has little substance. As usual there's more in the comments then the article.
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