Cisco's China Syndrome

When the going gets tough, the tough go to China. Yesterday, Cisco Systems Inc. (Nasdaq: CSCO) hinted at a new Asian emphasis, as it announced deals with Chinese telecom provider Hangzhou Netcom Information Harbor and China Telecom (see Cisco's All Over China).

Hangzhou Netcom will buy Cisco's 12000 series Internet routers to build China’s largest broadband metropolitan area network (MAN), and China Telecom is deploying Cisco's ONS 15801 long-haul DWDM system over its ChinaNet backbone network between Shanghai and Hangzhou. The size of the deals was not disclosed.

Cisco has been one of the major players on the Chinese networking scene for eight years, and it looks to benefit from an area of the globe where networking technology is still booming. While the Chinese national GDP has a growth rate of 8 percent (according to the CIA World Factbook), Network Test Inc. president David Newman says that networking growth in the country is probably closer to 20 percent.

“The networking scene there is like it was here 10 years ago,” says Newman, pointing out that the market is so good that China still has lots of tiny, independent Ethernet switch vendors. They are sometimes so small, he says, that it would be the equivalent of seeing “Joe Schmoe’s barber, shoeshine, and switch company” in this country.

China has been an area of success for Cisco’s routers since the company opened its first office in Beijing in 1994. But the company’s long-haul technology is generally not a market leader, and, according to some observers, leaves much to be desired. Some analysts warned not to make too much out of yesterday's announcements, specifically the long-haul DWDM deal.

"I really don’t know how they got the win,” Nikos Theodosopoulos, an analyst with UBS Warburg, said, speaking of the long-haul annoucement with China Telecom. And he feels it shouldn’t be blown out of proportion. “From what I understand, it was point to point [from Shanghai to Hangzhou – only 180 kilometers in a country that covers 9,596,960 square kilometers],” he says. “It didn’t sound like a national deployment.”

Terry Alberstein, Cisco’s director of corporate affairs for Asia-Pacific, admits that, at present, Cisco doesn’t have any other long-haul deals signed with ChinaNet. However, he believes more deals might soon materialize.

“It’s a very successful program we’ve done with them,” he says. “We’re hopeful that it will lead to more of the same.”

The Chinese market is definitely a hot spot for optical networking. According to an RHK Inc. report last August, it accounts for roughly 31 percent of the optical transport gear sold in the Asia-Pacific region. RHK also estimates that the sales of optical gear in China will show 54 percent growth in 2002, while the transport market will reach $5.5 billion by 2004.

Cisco, however, isn’t the only one that wants a piece of the Chinese pie. In addition to U.S. players like Juniper Networks Inc. (Nasdaq: JNPR), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT), Cisco faces harsh competition from local Chinese vendors. And while the domestic products aren’t always as stable as the products from proven vendors, national pride often leads to pressure from buyers for domestic solutions.

“There are a lot of domestic companies that want to be the next Ciscos in China,” Newman says. “I don’t think [Cisco] will ever get the 85 percent that they enjoy in the rest of the world.”

This is, however, a point of dispute. “We’re a clear leader in the total market,” Alberstein contends. Referring to an IDC report from December 2001 showing that Cisco has 60+ percent of the total LAN market share in China, he notes, “[Cisco’s] total market share in China is similar to [its market share in] most other countries in the Asia-Pacific, and to most other countries in the world. China Telecom is building their entire backbone with Cisco products.”

Cisco must be doing something right in China. The word on the street is that one of the company’s major Chinese competitors has been imitating Cisco's products. Huawei Technologies Co. Ltd. is the leading local telecom equipment provider in China, holding close to a third of the optical transport market share in the country, according to RHK.

Cisco’s Alberstein would not comment on the claims. “We have a lot of respect for them. We watch them very closely. They’re aggressive and good competitors.”

Despite this, Alberstein says, Cisco is not worried. In addition to other customers, the company has a longstanding relationship with ChinaNet, which has the largest Internet network in China. And in China, long-term relationships are almost as valued as domestic solutions. “Dealing with people that you know under terms that you’re comfortable with is really important,” Newman says. “A lot of Chinese companies lose money because of it.”

“[Cisco does] have a good relationship in that geography, and that helps,” says Salomon Smith Barney analyst Alex Henderson, musing over how Cisco pulled off the long-haul deal. “And they have good penetration in that area, and that helps.”

Another thing that has probably helped Cisco land deal after deal in China is the size of the company. While some observers say that its size has helped impress companies into buying, Alberstein claims that it’s purely a practical matter. “China is a huge country,” he says. “People who can provide customers with [maximum] support have a big competitive advantage.”

Well, if size is what matters, Cisco certainly stands a chance of winning more deals in China.

— Eugénie Larson, Reporter, Light Reading
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dwdm 12/4/2012 | 11:03:36 PM
re: Cisco's China Syndrome Can someone tell me why Cisco's 15808 (?) is not as good as its competitors, as this article states? what are they missing?
red1969 12/4/2012 | 11:03:35 PM
re: Cisco's China Syndrome Perhaps Cisco needs to advertise abit more on Lightreading?
melao 12/4/2012 | 11:03:34 PM
re: Cisco's China Syndrome Can someone tell me why Cisco's 15808 (?) is not as good as its competitors, as this article states? what are they missing?

Check this. It appears to be a good product, i would just question the density.

let-there-be-light 12/4/2012 | 11:03:32 PM
re: Cisco's China Syndrome Isn't it just the old Pirelli WDM stuff renamed?

I don't think it was ever a huge success in the marketplace. What were/are they missing? Ask the customers who chose the alternative options.
sundevil 12/4/2012 | 11:03:32 PM
re: Cisco's China Syndrome Isn't it just the old Pirelli WDM stuff renamed?

Yes and no. From what I remember I was based on the same platform but with much improved distance and capacity support
mesolithic 12/4/2012 | 11:03:24 PM
re: Cisco's China Syndrome The 15800/801 platform is, I believe, a later version based on the original Pirelli platform: it does seem to have quite a decent sized installed base, though, in US & Europe. The 15808 was launched as an all-new, Cisco-developed platform late last year (according to the December LR article) and, from what I hear, is starting to get into quite a few customers for trials & interop testing. I suppose it's an easy upgrade for those carriers that deployed the original Pirelli product, and many of the announcements for new deployments seem to be in conjuction with either Cisco high-end routers (12000) or Metro Optical (DWDM or SONET/SDH) - I suspect that one of the key features of the product may be low-priced or feature-compatible/open grid interfaces with other Cisco Optical equipment?
Light_Path 12/4/2012 | 11:03:23 PM
re: Cisco's China Syndrome You are correct. The 15800/801 was/is the former Pirelli WaveMux 6400. It was launched in 1998. First OC-192 in North America was lit using the Wavemux. China Telecom used the 801 to light this China route. The new Cisco DWDM product is the 15808. According to the cisco web, it is quite different than the acquired Pirelli product. The LR article in November listed features as >300 channels, Raman+EDFA, 2000km before 3R, etc. The 800/801 could never do this type of transport. This is a brand new box, created by Cisco's R&D.

Word on the street is that it can fit 200Gb/s in a 7 ft. bay with plans to go to 400-600 Gb/s per bay. Looks like Cisco is going to fix the 800/801's density problems.

How good is this box?? Any other rumors out there?

dwdm 12/4/2012 | 11:03:20 PM
re: Cisco's China Syndrome Is it true that the 15808 support 64 OC192s today? and do they have dispersion compensation today or is it just marketing hype on their website?

If all of this is true then this article is misleading! When I read it, I thought that they don't have anything worth looking at.. which doesn't seem to be true. I suggest, in the future for the editors to make sure to state the facts not just what a clueless financial analyst is saying. I bet he can't even spell DWDM :-)
roidechu 12/4/2012 | 11:03:19 PM
re: Cisco's China Syndrome I think your point was well made.
May be they miss smoke.
Does somebody remember that with this product in 1998 Pirelli brought to the knees Ciena by taking from different carriers like Global crossing the first OC 192 DWDM installations. The reason why they are perceived not as good as their competitors is because, with their deep understanding of transmission physics,they are very conservative in optical performances and state only the performances that can be obtained in the field not in laboratories.
I understand that by introducing Cisco technology they have improoved the software capability and the equipment density.Also included in the same platform they are introducing an extended long haul system that will be really installable in the field.
Light_Path 12/4/2012 | 11:03:17 PM
re: Cisco's China Syndrome 15808-Cisco's new >320 channel LH and ELH system (OC-192 and/or OC-48). Launched in 12/2001.

15800-ANSI 64 channel (OC-192 or OC-48) Pirelli Wavemux Lauched in 1998 with Global Crossing @ OC-192.

15801-ETSI 64 channel(OC-192 or OC-48) Pirelli Wavemux. Installed with France Telecom @ OC-192

Also, from doing some research I have found that Pirelli patented the Mid Amplifier Access. This allowed them (now Cisco) to place dispersion compenstors and/or OADM filters in between the Pre and Booster Amps. Everyone else now uses this technique to do OC-192.

Yes, Cisco does seem to do OC-192. According to them, they are #2 in the world in OC-192 installed channels. Nortel is #1.

Looks like the Italians have finally gotten some marketing and sales help to put their optical know-how to good use.

The 15808 is the brand new machine. 15800/01 was acquired in 1999/2000.

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