10-Gigabit Ethernet has begun its descent -- in pricing, that is.

Tomorrow Force10 Networks Inc. will be announcing that it’s cutting its per-port pricing by 44 percent. This is the largest pricing slash the technology has seen so far.

This drop is natural and expected as the technology matures, say analysts. In fact, Gigabit Ethernet and 10/100 Ethernet pricing continues to fall quarter by quarter. Analysts and vendors agree that at this point in 10-Gbit/s development, it’s necessary to drop prices to encourage more widespread adoption of the technology.

“It’s like the DVD market,” says Steve Mullaney, vice president of marketing for Force10. “Most people weren’t willing to spend a couple of thousand dollars on one. But now you can get one at Wal-Mart for a hundred bucks, and people are putting them in every room of their house.”

Specifically, Force10 will be offering its two-port 10-Gbit/s Ethernet card for $34,000, or $17,000 per port. The E1200 can support up to 28 ports of 10-Gbit/s Ethernet in a 14-slot chassis.

Force10's Ethernet competitors have much higher pricing. Cisco Systems Inc. (Nasdaq: CSCO), the leader in Ethernet switching, is at the top of the pricing ladder. It sells its Catalyst 6500 switch for about $65,000 per port. This includes a base module that lists for about $30,000 and an optical insert that lists for $35,000. Foundry Networks Inc. (Nasdaq: FDRY) lists its 10-Gbit/s ports anywhere between $50,000 and $85,000 per port, depending on the optics. Avaya Inc. (NYSE: AV) lists for $35,000 per port.

Extreme Networks Inc. (Nasdaq: EXTR), which typically competes based on cost, has already cut its pricing twice. When it first started shipping its 10-Gbit/s Ethernet solution last summer, it listed at about $60,000 per port. It subsequently lowered its price tag to $50,000 per port. Since December the company has been running a special promotional sale: $25,000 per port.

Unlike Force10, however, all these vendors only offer 10-Gbit/s Ethernet on a single-port card.

“Ethernet pricing is always a horse race,” says Michael Howard, principal analyst and founder of Infonetics Research Inc. “One vendor will take the lead, and a few months later someone else will take the lead. Even Cisco, which typically sells higher than its competition, has to lower prices in response to competitors because customers feel gouged.”

Force10’s advantage over its competitors is that it initially designed its product with 10-Gbit/s Ethernet switching in mind. It has designed the switch so that it could potentially handle 40 Gbit/s per line card (see First 10-Gig Ethernet Switch Arrives). All the others -- Avaya, Cisco, Extreme, and Foundry -- have bolted their 10-Gbit/s cards onto products designed for 1-Gbit/s switching. As a result, these switches don’t run at line rate, generally switching traffic at a maximum rate of 8 Gbit/s.

The fact that Force10 appears to have a technical lead makes it surprising that it's also the one cutting prices. But it's an aggressive strategy that may catch customers' eyes.

“I’m not surprised that Force10 would take the lead in pricing,” says Dave Passmore, research director at Burton Group. “The company was fortunate enough to design a product for 10-Gbit/s Ethernet from a clean piece of paper.”

But this likely won't be the end of the price war. Foundry is about to launch its second-generation 10-Gbit/s Ethernet product later this month. It will increase port density and offer true wire-rate switching for 10-Gbit/s Ethernet. It will also announce price cuts of between 10 percent and 15 percent per port. Cisco and Extreme are also expected to announce next-gen products later this year.

The current market for 10-Gbit/s Ethernet remains small. Infonetics’ Howard says that 10-Gbit/s Ethernet port sales were in the hundreds to low thousands in 2002. But he says that reduced pricing and a new generation of switches will likely boost that figure significantly in 2003. He says it wouldn’t surprise him to see sales grow to 5,000 ports this year.

Early adopters of 10-Gbit/s technology, such as supercomputing facilities and universities, have so far been the primary market for the technology. But Howard expects demand to slowly grow among enterprise customers and some service providers. Enterprise customers have already begun deploying 10-Gbit/s Ethernet in large enterprise data centers to aggregate server traffic. Some service providers in Asia and Canada are also turning toward 10-Gig to link together metro-area backbones.

— Marguerite Reardon, Senior Editor, Light Reading