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Optical/IP

Cisco: We're in RBOC 'Lovefests'

NEW YORK -- Cisco Systems Inc. (Nasdaq: CSCO) was talking up some potential deals with several regional Bell operating companies (RBOCs) and other incumbent local exchange carriers (ILECs) at a press conference held here today.

The company is close to some “very big” RBOC contracts, but specifics are not ready to be released, said Carlos Dominguez, group vice president of service provider business for Cisco, who spoke with Light Reading after a broadband press event hosted by Cisco.

Analysts following the company have previously said they expect Cisco and its rival Juniper Networks Inc. (Nasdaq: JNPR) to play a role in all of the RBOCs' IP buildouts. Analysts have already speculated that SBC Communications Inc. (NYSE: SBC) and Verizon Communications Inc. (NYSE: VZ) will be using Cisco gear for IP edge and core routing.

Dominguez confirmed that new RBOC business includes IP routing gear, but he also said that carriers are interested in deploying Cisco’s optical products -- among them the ONS 15454.

As many of Cisco’s original competitive local exchange carrier (CLEC) customers have faded away, many in the industry have questioned whether or not Cisco is serious about developing its carrier business. Dominguez dismisses such thoughts.

“I’ve read things lately that say Cisco is not committed to the service provider business,” says Dominguez, who used to be in charge of Cisco’s enterprise business for the Northeastern region of the U.S. “That hurts me personally when I hear that. From a strategy perspective we are going after the biggest incumbent carriers and working very closely with them.”

According to Dominguez, Cisco has spent the last year building up its relationships with incumbents to win new business. Specifically, the company has been working closely with carriers and consulting them on what services enterprise customers are looking for from them. The strategy had worked well with competitive carriers and interexchange carriers (IXCs). Dominguez says it’s now starting to pay off in the incumbent market, too.

“Fourteen months ago these guys hated our guts because we had been focused on emerging players,” he says. “But we’ve had several lovefests since then. I think our financial viability plays a role in this, too. Growth is going to be slow; I’m not kidding myself about that. But I’m not depressed. I don’t hate my job, because there is plenty of opportunity for us in this market.”

While Cisco may be in a better financial position than some of its competitors like Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT), it’s not immune to the market downturn Today, UBS Warburg reduced its expectations for Cisco’s October quarter. In a research note published this morning, UBS analyst Nikos Theodosopoulos said he expects Cisco revenues to be down 2 percent sequentially from the previous quarter. Flat growth had been predicted. He cites a profit warning from Extreme Networks Inc. (Nasdaq: EXTR) as a sign of continued weakness in the enterprise market and throughout geographic regions like Asia and Europe.

The bulk of Cisco’s earnings come from the enterprise, but the company generates between 10 and 15 percent of its revenue from service providers, according to UBS Warburg estimates. Recent spending cuts from carriers like Verizon will certainly take a toll (see Carrier Spending Hopes Dim). As a result, UBS Warburg predicts that Cisco will increase its revenues by only 1 percent in 2003, down from its previous estimate of 6 percent.

Mike Volpi, senior vice president of Cisco’s routing technology group, points out that incumbent carriers are still spending the majority of their capital expenditures on circuit switching technology.

“There isn’t a carrier out there that isn’t spending money on circuit technology right now,” he says. “But there also isn’t one that would debate that packet technology is the future.”

Judging from his remarks, it seems that Cisco is fighting an uphill battle. “Not only is there less money being spent, but we have to work harder to increase the portion of money that is allocated to new technology like ours. But if you look at the circuit switching guys, they’re the ones who are hurting right now.”

Cisco also introduced a new group of mobile IP routers and announced several enhancements to its broadband router family (see Cisco Intros Mobile Access Router). Specifically, it doubled the session capacity of the 7200 and 7400 routers and increased subscriber density on the 10000 aggregation router (see Cisco Bolsters Broadband Aggregation).

Cisco closed down $0.96 (8.78%) to $9.98 today.

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com
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gumbydammit 12/4/2012 | 9:38:51 PM
re: Cisco: We're in RBOC 'Lovefests'
Reminds me of another post a few weeks ago. Someone speaking about how much RBOCs HATE Cisco.

Lets review why *this* story might actually make sense:

1/ RBOCs will likely control 75+% of CAPEX in the not-too-far future,

2/ CSCO owns the enterprise, which are the SP's primary targets,

3/ CSCO will be one of the few equipment vendors left standing. Anyone wanna buy from a startup right now?

Marriage made in heaven?
I think so.
/gd.

fyi, I'm PRO CSCO!
sgan201 12/4/2012 | 9:38:50 PM
re: Cisco: We're in RBOC 'Lovefests' Hi,
Obviously, you have never buy anything from Cisco..
1) Remember, maintenance fee..
2) Constance upgrades..
3) Oops!!! We invented Xyzed bus and now all your old I/O cards can no longer work with the new Xyzed bus and the only things that you can reuse is the chassis

If you are the persons that recommended the Service Provider to buy Cisco, how long are you going to keep your jobs given 1, 2, and 3..
RBOC <> ISP
Lone Star 12/4/2012 | 9:38:50 PM
re: Cisco: We're in RBOC 'Lovefests' Excuse me a moment while I hurl my dinner. The only thing Cisco is in love with is itself. They have the highest margins in the industry. Why? Because all of these brainwashed zombies keep on giving them lovin'. I have news for all the Cisco customers out there. They don't give a crap about you. Just keep buyin baby! Yes Cisco is head's above everybody else right now in terms of company strength. I have been preaching their demise for years and they have showed me. But I also dealt with some arrogant SOBs in the 80's with the initials IBM. They got theirs and Cisco will get theirs too.

BTW, I am a Cisco competitor. I have won some and they have won some. Just to set the record straight.

Lone Star
Iipoed 12/4/2012 | 9:38:50 PM
re: Cisco: We're in RBOC 'Lovefests' Nobody loses their job buying Crisco. Are they doing what is best for their organization, probably not from a performance, value, cost of ownership standpoint. But since most of those making purchasing decisions have no real loyalty to their particular RBOC, other than getting a paycheck and hoping to stay under the negative radar. Why would most of them really want to spend the time understanding the benefits of Juniper, Extreme and foundry equipment. It is not going to benefit them as individuals and will cause them to have to put out more effort.
D&K 12/4/2012 | 9:38:49 PM
re: Cisco: We're in RBOC 'Lovefests' RBOC's hate Cisco for the same reason the rest of us hate RBOC's. Guess what? we still buy crap from the both of them. It's a crazy mixed up world.

Cisco has re-introduced it's line of IP - Tele - PHONY so many times in the last five years I think I'll hurl. Each time it's to a fresh round of those poor snot-nosed cisco indoctrinated newbies that have no idea how well IP can function when all the cisco gear is removed.

Cisco will have you believing they invented fried chicken before long (My Great GMa did that and then sold the idea to some old white haired guy in a white suit).

RBOC's and Cisco are a match made in heaven; mediocre services and technology - good 'nuff to get by. Cisco has high margins for one reason: They have brought no significant new technology to the market place in a coon's age. How many of you are running version 15-16 or better of anything you have purchased from a technology vendor lately. Perhaps IBM, but no one else.

So while the rest of the folks out have tried to make networking faster, cheaper, more reliable, and a host of other wants or needs, Crisco has brought you yet another version of routing softeware, with no real commitments to hardware (ASICs).

I have a box in my garage that is at least four years old in terms of it's hardware. It will outperform anything Cisco sells today in terms of switch performance. Come on out to the ranch and I'll show you.

I hate cisco, that's plain to see. But I hate more the fact the rest of the folks buying this crap no longer have any great options in terms of who to buy from.

God, I sound just like BoobyMax - RBOC's, Cisco and John Chambers playing golf with every buyer in the world, influencing their decisions with mind control.

I think I better go have a bowl of flied lice while this lovefest comes to a close.

D&K
ip-eng 12/4/2012 | 9:38:49 PM
re: Cisco: We're in RBOC 'Lovefests' They have a "YOU want to buy this from us" attitude, but they have got that attitude because other than Juniper there isn't another contender out there that can provide as much IP depth as they can - or is there? If they continue with this attitude there might be a player or two big enough to sneak it and eat their lunch.
Iipoed 12/4/2012 | 9:38:48 PM
re: Cisco: We're in RBOC 'Lovefests' Lets be honest, who else could have gotten the sales mileage out of the Catalyst 5000/5500 for as many years as they did. Unbelieveable. Got to give them credit. And you know what there are probably still some poor fools out there looking at upgrading to the lates modules avalible for that piece of crap.
hyperunner 12/4/2012 | 9:38:45 PM
re: Cisco: We're in RBOC 'Lovefests' This sounds like the subject line of a BobbyMax post! But I guess all of us know this is becoming true, and it's sad if the RBOCs, the last bastion of anti-Cisco thinking, are finally caving in.

I'm stuck with Microsoft O/S's on my desktop at work and at home. I have no real choice, despite the Linux phenomenon.

You have to hand it to Cisco - over the past 17 years they never actually invented anything much (OK...IGRP, EIGRP, BGP and Tag...maybe I should have said they never invented anything worth a damn), but they turned out boxes that were just good enough, just about stable enough (for ISPs anyway), and with a range that was wider than the competition so they could price "solutions" and not point products.

The long term price you paid was a continuous round of patches (free to download, but costly and disruptive to install) and upgrades (outrageously expensive, but you're locked in).

That's their business model and they've shown they can outlast not only the competition, but also they can weather the current storm.

You have to hand it to Chambers et. al. because they kept their act together during the boom, while idiots at Lucent, Nortel, Marconi and Alcatel got suicidally carried away.

I don't work for a manufacturer, but a carrier. Even though I don't work in the IP organisation, I know my colleagues there would rather have a wider choice. But they can't complain too loudly because they, and other like them helped Cisco create this monopoly.

Don't know how we break it up...don't know if we can now.

hR.
gea 12/4/2012 | 9:38:40 PM
re: Cisco: We're in RBOC 'Lovefests' Well, I'm not so sure that it's a done deal...of course, the RBOCs will have to try Cisco in their networks, but that doesn't mean that...

1) They're going to buy in quantity from day 1
2) They won't turn around and say "Hey--fix this crap or we'll just stick with what we know, thank you.

I also suspect that the large embedded Cisco-trained "talent" out there is also a factor. Like, where you gonna go to get a Juniper-certified super-tech ("Engineer") in, say, Kalamazoo Michigan?

But if the stuff ends up crashing all the time I don't care who they are, the RBOCs are not going to be able to triple the size and budget of their Opps division. If Cisco is as arrogant as you folks say then they'll get the boot soon enough. But I suspect when the RBOCs start waving REAL $$$ at them they'll start making those boxes crash-proof, or else buy some company that can.
billy_fold 12/4/2012 | 9:38:38 PM
re: Cisco: We're in RBOC 'Lovefests' If Cisco is doing so well, I wonder why their stock is dropping like a rock (now under $10)?

billy
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