Cisco Denies Optical Slowdown
Is Cisco Systems Inc. (Nasdaq: CSCO)'s flagship optical product line –- the ONS 15454 -– long for this world?
It seems a loaded question, given the product's huge installed base and the fact that Cisco originally paid nearly $7 billion in stock for it when it acquired Cerent Corp. in 1999.
Service providers and Cisco competitors say Cisco is strengthening its hand in other technology areas, reporting huge year-over-year revenue drops in optical, and investing less in TDM-based technologies. (See Cisco Rallies in Q2, Hides Optical and Cisco Delivers Mixed Bag.)
But Chris Rivera, director of product marketing for Cisco's optical networking group, disputes any suggestion that Cisco has lost its flair for the ONS 15454. "Over the past 24 months, this platform has seen tremendous investment," he says, "and we've done this investment in line with a strategy with what we believe is the network infrastructure transition."
What transition? "If packets are driving bandwidth demand, the network –- from a cost and economics perspective -- is going to need to be transitioned to a more packet-optimized infrastructure on the transport side," Rivera explains.
That transition, interestingly, is shaping Cisco at every level as it makes more acquisitions in home networking, video, and consumer products. (See Cisco to Acquire Scientific-Atlanta, Cisco KiSSes Up to Telco TV, and Cisco Buying Linksys for $500M.)
Late last fall, Cisco shifted several jobs in its optical networking group to work on its MSTP (Multiservice Transport Platform) products and other areas. (See Cisco Swaps Opto Jobs.) "When we made this resource shift, we gave people the opportunity to go into these different areas," Rivera says. "Some of them took the opportunity and some of them chose not to."
Analysts, too, sense that carriers are interested in slowing spending on Sonet-based platforms. "Our recent survey here at Heavy Reading bears this out: Nearly a third of operators worldwide said they would prefer to cap spending on Sonet/SDH and move to pure packet-over-optical transport solutions," says Scott Clavenna, chief analyst at Heavy Reading.
"It looks like Cisco will focus its optical efforts on adding WDM to their router and switch lines rather than be a pure Sonet and SDH player," Clavenna says. And Cisco's recent hires appear to reflect that thinking. (See Cisco Taps Cerent Vet and Former Avici CEO Joins Cisco.)
In his December report on the subject of Sonet-to-Ethernet migrations, Clavenna made no bones about the fact that the carrier world isn't clamoring for new Sonet/SDH systems.
"In the capital-constrained times of 2001-2005, next-gen Sonet/SDH made perfect sense; but as 2006 approaches, carriers are finding that the projected impact of Ethernet, FTTx-enabled high-speed consumer broadband, and unicast video can add such significant bandwidth to a Sonet network that overlays may be required," Clavenna wrote. "Carriers now have many options for such an overlay, from multiservice Sonet/SDH to pure Ethernet transport to G.709-based OTNs. Migration, therefore, has become the watchword of 2005-2006."
But is Cisco's optical group growing or shrinking?
Rivera won't take the question head on, but he did opine on Cisco's optical revenue numbers.
John Chambers, Cisco's CEO, has reported a 40 percent year-over-year decrease in optical revenues and a 34 percent annual decline for Cisco's first and second quarters of fiscal 2006.
Rivera says one big customer made all the difference -- giving Cisco's optical group the appearance of slipping.
"What happened last year is that we had a massive order in two quarters from overseas –- I mean a massive order," he says. "I can't quote how much it was, but it was huge. If you take a look at the normalized growth, the MSPP platform has been growing at 10 to 12 percent a quarter since calendar year '04."
Last week, Dell'Oro Group announced the worldwide optical transport market grew at less than half that rate -- 22 percent in 2005. That report measured DWDM long-haul systems, WDM metro, Sonet/SDH ADMs, Sonet/SDH multiservice, and optical switches. But Cisco, the router king, didn't crack the top four. (See Router Market Grows .)
Some sources close to Cisco say the company may be building a packet-based MSPP, a device that would eventually phase out the ONS 15454. Light Reading has reported on the existence of a Cisco packet MSPP since December 2005. Cisco, though, isn't letting that rumor spread without a fight.
"We believe the MSPP market is a hybrid TDM-plus-packetized data market. Our product for the MSPP space now and moving forward is the Cisco ONS 15454 platform," says Rivera.
Rivera confirms that the seventh release of the ONS 15454 is coming out in March and that the eighth will hit by the end of this year. And Cisco is still committing to new updates of the product, according to customers called by Light Reading.
"Release 7 is focused more towards packet-level stuff, and Release 8 adds more of that capability plus a lot more intelligence at the Layer 2 level within this architecture," says one Cisco ONS 15454 carrier customer who did not want to be named.
Still, on conference calls, Chambers has said the company's future isn't tied to optical transport. "We intend to maintain our investment in WDM technology and decrease our investment in TDM optical technology over time," he said in January.
So will Cisco kill the ONS 15454? If so, it won't happen anytime soon. "With the amount of investment that we've done, we need to make sure people don't believe it's being killed," Rivera says. "It just can't be, right?"
— Phil Harvey, News Editor, Light Reading