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Cisco's Big Bash

Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
9/25/2003

Cisco Systems Inc. (Nasdaq: CSCO) haters now have more reasons to rage at the networking industry's most feared monster, courtesy of Heavy Reading. HR's "2003 Telecom Equipment Market Perception Study," released September 24, shows that Cisco now dominates the service provider consciousness like no other telecom equipment supplier.

Minutes after Light Reading posted notice of Cisco's victory in the survey, the LR message board was peppered with volleys aimed mostly at the hapless winner (with a few directed at Heavy Reading, of course). One recurring theme: Cisco can't be seen as the top vendor in telecom, because, well, everybody knows Cisco's products, prices, and customer service just aren't that good.

Well, Messrs. Know-It-All, a big chunk of the carrier world thinks otherwise. A total of 770 service provider employees participated in the HR survey, in which they offered their perceptions of the telecom equipment market only in those product categories with which they claimed to be familiar. For the 20 (of 22) categories in which Cisco offers a product, an average of about 30 percent of those carrier employees said they consider Cisco's products to be the top performers in their class. And an average of more than 40 percent believe Cisco is best at service and support.

Granted, neither 30 nor 40 percent constitutes a majority, even by recent presidential election standards. But Cisco's aggregate market perception ratings for price, performance, service and support, and quality and reliability were more than double its closest big competitor, Nortel Networks Corp. (NYSE/Toronto: NT). This is the same Nortel that, along with Lucent Technologies Inc. (NYSE: LU), essentially dismissed Cisco as an enterprise-class rube just a couple of years ago. (Looking at the survey results for Lucent, you can almost hear the carrier market collectively roll its eyes at how mediocre that company is now perceived to be.)

By the way, this isn't only the perception of corporate managers. In fact, technical staffers – employees in the engineering, operations, and planning departments of service providers – often gave Cisco even higher marks for market leadership than the suits did. In the 10-Gbit/s Ethernet switch category, for instance, Cisco received a performance leadership mark of 27.3 percent from corporate managers. Its performance rating from technicians: 46.8 percent.

What do 770 service provider employees really know about the state of the telecom equipment market? That question isn't nearly as important as, "What do they think they know?" And the answer to that one is loud and clear: They think Cisco is the leading equipment supplier in the marketplace.

That's the reality that confronts the other 303 vendors whose market perceptions were measured in the survey. For most of those vendors, the news is not good. More often than not, their prospective customers don't even know they offer products. And many don't register in their customers' consciousness beyond basic name recognition.

Sure, Cisco's ability to bludgeon customers with its marketing messages accounts for a large part of its big perception advantage – and that's precisely the point. Brand recognition is the surest way to get on an RFP shortlist. Judging from the survey results, Cisco now has that aura of invincibility that will make it the "safe bet" for carrier purchasers.

No doubt, implied intimidation – the well-worn FUD factor – complements that aura. But so what? Back in the technology Stone Age, IBM dominated the corporate computing market in large part because, as the saying went, "Nobody ever got fired for buying IBM." During that time, dozens of would-be competitors developed products that were better and cheaper than what IBM was doling out. It didn’t matter – until buyers perceived IBM to be a doddering relic.

That change in perception took about 30 years to take place. Our survey suggests that perceptions in the service provider market change much faster than that in the light-speed Telecommunications Age (just ask any Lucent employee). And that's about the only comfort that Cisco bashers can take away from the report.

— Dennis Mendyk, Analyst at Large, Heavy Reading

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