Cisco: We're in RBOC 'Lovefests'
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