Internet core router maker Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) announced a smaller version of its flagship Terabit Switch Router (TSR) this morning (see Avici Ships Scaleable Router). The new SSR, designed for service providers with limited space, is essentially a TSR cut in half.

Avici’s announcement follows on the heels of a big announcement from Cisco Systems Inc. (Nasdaq: CSCO) that boosts the routing leader’s presence at the edge of the network (see Cisco Storms the Metro Edge). Although Avici is addressing the need for a smaller footprint, it says that its new product is for the core of telecom networks and not designed to be an edge router.

The marketing positioning is interesting, if only because numerous telecom equipment players are now moving into the market for telecom equipment that sits on the edge of networks. For the most part, telecom equipment spending remains rather robust in that sector, as spending on core or long-haul equipment for the backbones of telecom networks has dwindled.

“We are still a core routing company,” says Esmeralda Swartz, director of strategic marketing for Avici. “Avici has no plans to go after the edge market.”

The SSR is the exact same router with all the same capabilities as the TSR, but it has been chopped in half so that two boxes can be stacked on top of one another. While the TSR has 40 slots that can be populated with a mix of OC3 (155 Mbit/s) to OC192 (10 Gbit/s) interfaces, the SSR has 20 slots. Just like its big brother, the SSR can be connected through the back to form a single, larger, logical router.

The company hopes that the smaller footprint will open it up to new customers. The TSR currently fills an entire seven-foot telco rack and when fully loaded weighs over 1,000 pounds, making it a rather large box to install in smaller points of presence.

For the last several quarters Avici has been plagued by a lack of new customers. In September, it was forced to cut its revenue estimates by more than half to between $9 and $10 million down from $22.5 to $23.5 million (see Avici Warns, Wall Street Scorns). It also laid off about 55 employees. The company blamed lower customer orders and market conditions for its actions.

Currently, it has three main customers, AT&T Corp. (NYSE: T), Enron Corp. (NYSE: ENE), and Qwest Communications International Corp. (NYSE: Q), which together made up about 85 percent of the company’s revenue in Q1 2001. In the second quarter, Qwest and AT&T were both 10 percent customers. But, like the rest of the service providers, these carriers are cutting back on spending, and Avici is feeling the effects.

The new chassis size appears to be getting some traction already. In today’s announcement, the company notes that Ethernet service provider IntelliSpace and testing facility Sandia National Laboratories are already testing the SSR.

Avici’s attempt to diversify its product line by offering a smaller form factor is reminiscent of strategies played out by its two key competitors: Cisco and Juniper Networks Inc. (Nasdaq: JNPR). They have also taken the hardware and software of their bigger boxes and tried to shrink them down to smaller form factors.Just last week Cisco announced its new 12404.

Like Cisco's product, Avici’s new router is able to share line cards with other Avici models, which will help carriers protect their investment.

As Avici distances itself from the edge market, some analysts say that the company could be missing a huge opportunity. The edge router market is expected to grow to $17.2 billion by 2003 from $6.3 billion in 2000, according to Infonetics Research Inc.. On the flip side, Infonetics has also reported that the core router market actually shrank to $581 million from $757 million, a 23 percent drop, in Q1 of 2001 (see Router Numbers Support Cisco). And growth in that area is expected to remain flat into 2002. But Avici is hopeful that more activity at the edge will boost traffic demand in the core, forcing service providers to upgrade their core networks.

Alex Henderson, an analyst with Salomon Smith Barneyfollows the router market closely and says this hypothesis may prove to be true, but he expects metro equipment sales to recover much sooner than long-haul equipment, which means that Avici could have to wait several quarters before business picks up in the core again.

“I think they are at a disadvantage,” says Henderson. “While they are waiting to sell core boxes, Cisco will be selling at the edge and the core. I think you need to demonstrate you have a portfolio of products and not just a point product.”

- Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com