Carl Russo, Cisco

"We will derive more revenue from optical networking products than from core routers within the next twelve to eighteen months."

September 14, 2000

12 Min Read
Carl Russo, Cisco

The Light Reading Interview

In The Spotlight: Carl Russo

Carl Russo knows a bit about pressure. As group vice-president of optical networking at Cisco Systems Inc. (Nasdaq: CSCO), he holds the future of the company in his hands.

The stakes are huge. If he can successfully transform Cisco from enterprise IP routing authority to optical networking powerhouse, he’ll win the respect of his networking contemporaries, the heartfelt thanks of swarms of Cisco shareholders and, quite possibly, the right to succeed John Chambers to the no. 1 spot in the Cisco hierarchy.

But should he fail (gasp!), and Cisco goes the way of Cabletron, 3Com, Madge, and other former networking powers, he will undoubtedly rue the day he took the job. (Win or lose, money isn’t a factor in Russo’s career equation -- he’s already an optical billionaire).

Russo is acknowledged to have made a strong start at Cisco (see Cisco's Optical Shipments Soar). But there’s a long way to go (see Cisco: Sailing Into Stormy Waters?).

Light Reading recently sat down with Russo, and his deputy, Joe Bass, vice president and general manager of the optical networking group, to talk about some of the key issues facing Cisco as it runs to the light.

He talked about:

· Cisco’s optical battles
· Component shortages
· Where is that dang Monterey switch, anyway?
· The difference between an outage and an oooooouuuutage
· Why Juniper won’t be bought Light Reading: We recently got an email from a reader pointing out that Cisco’s market share in routers is decreasing while its revenues from optical technologies are increasing. At what point do you see Cisco’s revenues from optical technologies overtaking its revenues from routing technologies? Carl Russo: Well, this is obviously a very astute reader, who’s discovered my egomaniacal plan to take over Cisco and spin it off as a tracking stock while hanging on to the optical networking group [laughs].

No, seriously, optical is obviously a very fast-growing space. We will derive more revenue from optical networking products than from core routers within the planning horizon.

Light Reading: What’s the planning horizon?

Carl Russo: You’ll see the crossover of those two things within the next twelve to eighteen months.

Light Reading: Really?

Carl Russo: If you define core routing as meaning the 12000 GSR, sure. That doesn’t mean that the 12000 router won’t continue to grow like weeds. But they’re going into a space that’s only so large, and the optical space is just enormous.

Light Reading: Cisco has steered clear of buying component manufacturers. Are you going to continue that policy?

Carl Russo: Yes, I’m on record as saying that.

Light Reading: But there’s a component shortage in the optical networking industry [see Components Shortage Delays Deliveries]. Don’t you need to acquire component vendors in order to guarantee your supply of a given component?

Carl Russo: God, no.

Light Reading: But aren’t you running the risk, by not buying component manufacturers, that you’re going to run out of key components?

Carl Russo: Excuse me for one moment, but why does owning the source do anything to mitigate that risk?

Light Reading: Because you have first right of refusal.

Carl Russo: That is a horrible misconception on your part, sir. A horrible, horrible misconception.

Light Reading: Well, Nortel would say that I’m right, and you’re wrong.

Carl Russo: Which is why they’re trying to spin off their component business. I mean, give me a break. Lucent’s another one. They’re also spinning off their component business.

If we were living in a world of rough stasis, where technology wasn’t changing very much, you could say that there’s not very much risk to owning component manufacturing facilities. But the truth is that optical components are being obsoleted every half minute. Why would you want to buy a component vendor just so you could guarantee yourself a source of supply of a component that’s obsolete three weeks later?

By staying out of that business we have created the most appealing of customers for all of the components companies. We help them; they help us. The last thing I want to do is own a component source. And the day we buy one is the day every other component vendor goes [makes a curious hand gesture].

Light Reading: Let’s talk about Juniper [a terabit router vendor]. Have you been surprised by the growth rate of Juniper in the router market? Are you impressed by what they’ve done?

Carl Russo: I got to know Scott [Kriens, CEO of Juniper] pretty well, prior to the acquisition [of Cerent by Cisco]. Cerent and Juniper were both primarily funded by Kleiner Perkins. My hat is off to Scott and his team. They’ve stayed disciplined, and they’ve stayed focused. And they’ve executed on the space. Cisco’s the leader in that market. Juniper is a viable number two. I think service providers have demonstrated that they don’t feel like they need a number three.

Light Reading: Do you think that Juniper needs to get together with an optical networking vendor in order to remain successful?

Carl Russo: Scott understands the power of focus. I think he looks at the router market and he says ‘you know what? This market is still growing, and by slowly but surely making extensions to my product line, I can keep growing the business.’ At some point in the future he will have to make acquisitions in order to continue to grow at the rate he needs to grow at, but I’d be surprised if he did anything big now. I think Scott is wary of acquisitions because of the difficulty of making them work, and because of the distraction involved.

Light Reading: If he’s wary of making acquisitions, he’s probably even more wary of being acquired, right? Some people think it’s likely that Nortel will buy Juniper. Is that even feasible?

Carl Russo: No, it’s not. Nortel has been all over the map with their relationship with Juniper. [See Juniper-Nortel "Alliance" Gives Pause]

Look, I think Nortel has done an excellent job. To a certain extent the market has moved towards them, and their business model. But I also believe that in the long term, networks will be based upon an equal balance of IP and optical technologies. I don’t see any competitor better placed to get that right than Cisco.

And in the short term, I haven’t seen any physically-oriented infrastructure player, be it Lucent or Nortel, even come close to mastering IP, whether through acquisition or through internal development.

Light Reading: What’s happening with the Monterey wavelength router? You’re late shipping it, aren’t you? [see Cisco Snagged in French Suit]

Joe Bass [vice president and general manager of the Cisco optical networking group] : We’ve shipped the product into WorldCom’s lab. It’s installed there, and we’ve completed the initial phase of testing, which we passed first time. Their testers and our team could not recall that happening before…

Carl Russo…but they were drinking heavily at the time [general hilarity].

Joe Bass: Seriously, it’s very encouraging for us.

Light Reading: What do you think about the Corvis product? Is it a direct competitor?

Joe Bass: Hard to tell. We don’t know that much about it. It’s my impression that they’re more focused on the long haul than we are. It’s a core transport, with less granularity in terms of handling individual wavelengths. You can’t make a direct comparison.

Light Reading: So who is your closest competitor?

Joe Bass: Architecturally, it would be the Tellium product. But there are some big differences between how we handle software and what they’re doing.

Light Reading: What about Ciena?

Joe Bass: Ciena’s CoreDirector [switch] supports speeds all the way down to STS-1 [52 Mbit/s]. But the way they [Ciena] are marketing that product is strange, because they are positioning it as a core product. We think STS-1s are more of a fit in the metro. And that’s where we sell the 15454 [Cerent] product, which has that capability embedded as part of its fabric.

Light Reading: Is Worldcom your only announced customer for the Monterey product, then?

Joe Bass: No, we’re also working with Petronet Corp.. That’s a green field startup. They’re a carriers’ carrier, building a nationwide network building on a lot of oil company pipelines.

Light Reading: Never heard of them

Carl Russo: They’re just starting out. Even though this is a small network initially, it’s an important deal for us. There has been so much uncertainty surrounding the [Monterey] wavelength router that we needed to show that we are reaching two different types of customer -- one very large, one smaller -- and that they both need the same wavelength capabilities.

Light Reading: Does Cisco have an investment in Petronet?

Carl Russo: No. We may be helping them with financing, but we haven’t made an investment in them.

Light Reading: Does the world need another carriers’ carrier?

Carl Russo: You tell me. My view is that there will be a number of players competing on the data-hauling model, connecting up POPs by providing the greatest speed for the lowest price. Petronet has the potential to be one of them.

Light Reading: When is the Monterey switch going to generate revenues?

Joe Bass: Before calendar year-end.

Light Reading: How much does the Monterey switch sell for?

Carl Russo: How much have you got?

Light Reading: Not much, we’re journalists.

Carl Russo: Well, I challenge you to be able to drag it out of here even if you do have the money.

Light Reading: So which is bigger: a Monterey switch or an Avici router? [see Avici Battles Weight Problem )

Joe Bass: It depends on the configuration. [The Monterey switch] has got four bays. When you first install it there’s a lot of air in them. But as you add capacity, and grow, it fills up. It’s very scalable. There’s an admin bay. Two matrix bays. And an I/O [interface] bay.

The architecture is designed to protect against outages. Service providers don’t want the two matrixes in the same bay. I can assure you that people will shut out both power sources for the same bay, even if you put up a sign telling them not to.

Carl Russo: Have you ever been to Williams's lab? They had that bloody [Tellabs] Everest switch, and you couldn’t get by it on the other side of the aisle. Everest was a good name for it -- the thing was as big as Mount Everest. Well, this [the Monterey switch] isn’t like that. This is telecom infrastructure gear. Its footprint conforms to telecom core switching standards. It drops right in where core switches are today.

Reliability is key. You have to make sure that someone can’t unplug the power from both bays. Which sounds kind of stupid. But you have to do everything you can to reduce pilot error. Otherwise someone will take this thing down. And taking a 15454 [Sonet device] down, and taking this thing down, when its supporting 4000 OC48s, are two very different things. One is an outage. And the other is an oooooouuuutage.

Light Reading: About six months ago you told us that you thought the battle for dominance of the optical networking market would be fought, and won or lost, within the next two years. I have to ask you: how goes the battle?

Carl Russo: What I said, I believe, was that at the end of two years this is all going to be sorted out, such that three or four years later, with the benefit of hindsight, you’ll be able to look back and go ‘yep, there it was’ -- you could have seen who was going to win if you were looking.

So, to your point, how goes the battle? In the metropolitan space, extraordinarily well. The products we have are being very well received. We’ve shipped well over ten thousand 15454s. The expansion of the product set up and down continues apace, including adding more IP-centric products. I think we have a huge amount of momentum. So from the services point of presence outwards, I think we are going to be a player to be reckoned with over the next 12 to 18 months.

Then there’s the core space, which is obviously a very large space. There, I think the battle goes well. Time will tell.

I think the issue is that these two spaces are at different stages. The metropolitan space is going right now. The core space is just getting started -- it’s just beginning its topology shift from rings towards mesh networks.

I think we have some of the pieces we need [to build core networks]. But we haven’t brought them all to market yet, for sure. Do we have all the pieces we need? Probably not. And I’m focused on the fact that I think we will see things over the next 18 months, things that are new and that no one has even thought about yet. And we’ll have to make a decision over whether we build them or buy them.

Light Reading: But Cisco doesn’t really build very much technology any more, does it?

Carl Russo: We build a lot of technology.

Light Reading: Really? I think a lot of people view Cisco as the ultimate marketing machine, in the sense of its ability to buy what it needs and sell it as part of a greater entity.

Carl Russo: Sure, we’re very good at that. But I have to ask you a semantics question. If the optical transport business unit, which was Cerent, produces a set of products over the next 12 months, were those from an acquisition, or from Cisco? In my mind those are really Cisco products. And if you agree then you have to say that we develop a lot of products. There are an enormous number of products that are developed at Cisco post-acquisition.

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