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Optical/IP

Chambers of Hope

Cisco Systems Inc.'s (Nasdaq: CSCO) CEO John Chambers will turn on the charm Wednesday as he speaks to an audience of investors, who'll be wound up tighter than a two-dollar watch. Chambers, who is scheduled to speak at Morgan Stanley Dean Witter's "Internet, Software & Networking Conference 2001" in Phoenix, is expected to be upbeat despite concerns of weak corporate earnings, a sagging stock market, and a slowdown in spending by telecom carriers.

"Investors want to hear reassurance," says James Wade, an analyst with Deutsche Banc Alex Brown LLC. "They want to hear that their world hasn't utterly been rocked. And John Chambers is their last hope."

Indeed, financial analysts who'll be watching Chambers's speech tell Light Reading that even as dotcom firms and CLECs are failing right and left, Chambers will be optimistic about the Internet's promise and the potential of new communications networks. But will Chambers give investors any reason to think Cisco is in danger of succumbing to the law of large numbers -- which suggests that the bigger a company gets, the less likely it is to turn out mind-blowing growth?

Issues that Chambers may address include:

  • How will Cisco weather a carrier spending slowdown? "There have been signs of push-outs of orders to suppliers throughout the quarter," writes UBS Warburg's Nikos Theodosopoulos, in a Jan. 9 research note. Indeed, Cisco beefed up inventories on components that were in short supply. This helped the company avoid a supply-chain catastrophe (see Components Shortage Gets Real and Cisco's Optical Customers Face Delays).

  • Can Cisco continue to retain key engineering staff while its stock is near a 52-week low? Dr. Yakov Rekhter's recent move to Juniper Networks Inc. (Nasdaq: JNPR) and Marc Randall's move to Force 10 Networks Inc. remind us that Cisco works mostly through M&A, not R&D (see Routing Maestro Quits Cisco and Cisco Engineering Exec Joins Force 10).

  • Where is Cisco's OC192 router interface? Avici yesterday joined Juniper in the exclusive OC192 line-card club, by producing the highest routing interface available. This has been one of the weaknesses Juniper has exploited (see Avici Intros OC192 Line Card and Juniper Eats Into Cisco's Lunch).

  • Where is the value in Cisco's optical networking business right now? Cisco's ONS 15454 box enjoys a billion-dollar revenue run rate and has grown 500 percent year-over-year. But there are concerns that the quality of the ONS 15454's sales has come from Cisco-financed deals to risky carriers (see Digital Broadband Fades Away and Cisco's Under-Powered Carriers ). Also, although Cisco expects its optical business to grow to between $3 billion and $7 billion in fiscal 2001, there's concern that the company's optical revenues are based solely on the ONS 15454 product (see Cisco Plods Toward Optical Portfolio).
    That said, Chambers has reason to be upbeat. For one thing, he's always said that the optical business, which is expected to grow 20 percent sequentially, feeds its enterprise business, as opposed to the high single-digit growth expected for Cisco's service provider business (see Cisco: Boom or Bust? and Cisco's at a Crossroads). And it's important to remember: When times are tough, Chambers has always found a way to make Cisco come out better than its competitors.

    -- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

  • sbaker 12/4/2012 | 9:02:35 PM
    re: Chambers of Hope I am kind of disgree with you that lot of engineers have left Cisco. The one of examples you just gave has no significant impact. Marc Randall is a non techincal manager and he is forced out Cisco due to lack of technical leadership and poor execution in C7500 product development. What is why cisco has c7500 as a five years old product with no follow-up new development to compete with Junpier. He should be
    fired long time ago..

    So this is not a valid arguement for your article..
    mu-law 12/4/2012 | 9:02:34 PM
    re: Chambers of Hope "I am kind of disgree with you that lot of engineers have left Cisco. The one of examples you just gave has no significant impact."

    I agree! Why, in fact they'll be just fine without Marc Randall. And Estrin. And Jacobson. And Farinacci. And Rekhter. And Halabi. Of course, it might be different if these pepole went to competitors...
    stout4555 12/4/2012 | 9:02:32 PM
    re: Chambers of Hope >>he's always said that the optical business, which is expected to grow 20 percent sequentially, feeds its enterprise business, as opposed to the high single-digit growth expected for Cisco's service provider business

    The problem with this thinking in my opinion is; it should be the other way around. Their efforts in the optical market needs to 'feed' the service provider business. Unless they show some significant improvement in 2001 to the Service Provider $ Carrier side, I am less optimistic. Where/How do they start??
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