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Optical/IP

Cisco's Volpi: More Is More

NEW YORK -- Though conserving cash is en vogue, Mike Volpi, senior VP of the Internet Switching and Services Group at Cisco Systems Inc. (Nasdaq: CSCO) says continued investment in innovation is the only way to win in the networking equipment market. And while startups may have new products and new ideas, Volpi says the long-term advantage will go to large companies with billions of dollars in product shipments.

Volpi's words are hardly surprising, given he's the man who helped Cisco feast on a steady stream of startups in the past few years. Under Volpi's direction, if there was any market where Cisco couldn't develop a sustainable technological advantage, it would haul out its massive checkbook and buy one.

The networking equipment market -- like the aircraft manufacturing space -- has matured to the point that a significant level of investment is required just to be competitive, said Volpi, who spoke Wednesday at the Salomon Smith Barney technology conference in New York. Due to a lack of product volumes, six main aircraft builders eventually shrank to two, one of which is government subsidized, he said.

No one at the conference challenged Volpi's logic when he said that an industry building machines for "carrying passengers" 30,000 feet in the air was somehow akin to an industry building boxes for "carrying bits of data" through enterprise networks. His larger point was that Cisco will remain a dominant networking equipment maker because, given its huge revenues, it can invest more in new technology than its competitors can.

Volpi underscored the message by quoting Cisco Chairman John Morgridge, who once said that the best way to sell routers is to sell more routers. [Ed. note: Didn't he steal that from Yogi Berra?]

Why would it be so tough for a startup today to be the next Cisco? To build the equivalent to Cisco's Catalyst 6500 switch today -- with its custom designed ASICs and proprietary operating system -- a startup would require more than 800 engineers if it attempted to accomplish the feat in two-years time, Volpi claims. Again, the logic seems shaky, but the overall point is that one of the main things sustaining Cisco is its existing market dominance.

In recounting the success of Cisco's Catalyst switch, Volpi pointed out that if a customer had purchased a Catalyst chassis back in 1997, it could still be in place today after line-card upgrades and other improvements over the years. The kind of technology customers want, Volpi said, is "evolutionary, not revolutionary." (The audience of mostly financial types wiggled their opposable thumbs in agreement.)

Coming up in 2003, the Catalyst will have a capacity of 640 Gbit/s and will support IPv6 and MPLS, Volpi said. Volpi compared that with the 256-Gbit/s capacity that the switch held just two years ago to show that Cisco's investments in technology do pay off for customers.

Some in the industry have asserted that eventually systems makers will use off-the-shelf components and will compete on price and service (see Intel: Comm Chips Commoditizing). Volpi, however, argued that vendors that don't differentiate will only address a niche of "cost sensitive" customers. Further, he asserted, Cisco's chips are as advanced as any in the market today.

However, as the market's dominant switch provider, Cisco must expand into new markets -- such as storage networks and wireless LANs -- lest its business become saturated. "Our ability to grow [Cisco's enterprise business] depends on the general economic recovery."

That said, Cisco's willingness to spend on innovation in order to fend off competition isn't at all bad news for startups. As some 78 companies have learned since 1993, if you can't outrun the market leader, you can always cash one of its checks and change uniforms.

— Phil Harvey, Senior Editor, Light Reading
www.lightreading.com
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metroshark 12/4/2012 | 9:49:41 PM
re: Cisco's Volpi: More Is More If it really took 860 people to develop the 6500, Cisco must either have lots of incompetent engineers or lots of incompetent managers or most likely a combination of both. How many people did it take for Foundry to develop their big switch, which can draw circles around the 6500 any time? How many engineers did it take for Juniper to do the M40 and the M160, which are more complex products than the 6500 both in terms of HW and SW?
pooh-bear 12/4/2012 | 9:49:40 PM
re: Cisco's Volpi: More Is More First of all, everyone stop whining.

Second of all, Volpi is the architect, the messiah of Cisco's failed acquisition strategy. Hailed in most of the planet's media as Cisco's wunderkind, Volpi is an overpayed, overhyped product manager.

We should all ignore Volpi's comments, for they only represent the Cisco PR machine.

Cisco should examine why their acquisition strategy failed, and why they need new thinking to lead and run the comapny NOW!
cyberpunk 12/4/2012 | 9:49:40 PM
re: Cisco's Volpi: More Is More Oh! you mean Foundry with its lousy third-rate
engineers and managers is better than Cisco? That is really rich. Foundry's Fast/Big Iron Switch is
a crappy product which even companies like AOL and Exodus had to yank out, when they realized their mistake in replacing Cisco's boxes with those from Foundry.
Foundry's guys don't have a clue about important things like packet-processing, fast switching, QoS and the like.
It is better for Foundry to wind up its development, qa and sustaining organizations to focus on something more tangible in terms of quality to deliver to their customers.
dietaryfiber 12/4/2012 | 9:49:39 PM
re: Cisco's Volpi: More Is More
No matter how you slice it, whether 850 engineers was enough to balance on the head of a pin, Cisco is one of the few companies in the communications business growing revenue year over year and doing so profitably. They have tremendous cash reserves and will clearly come out of this in better shape relative to [Lucent, Nortel, Alcatel, Siemens, etc.]

So, you all seem rather angry about this. Good, bad or indifferent...it looks like Cisco is winning.

dietary fiber
light-headed 12/4/2012 | 9:49:39 PM
re: Cisco's Volpi: More Is More Foundry's Fast/Big Iron Switch is
a crappy product which even companies like AOL and Exodus had to yank out, when they realized their mistake in replacing Cisco's boxes with those from Foundry.
----------------------------------

Fdry switch was not a good solution at Exodus but many, many boxes still remain. AOL is a very big customer of FDRY even now because they use them in the right way - load balancers and L2 switching. Get it right. I don't mean to defend FDRY but give them some credit. They blew the doors off cisco when it came to L2 switching perfomance and they still do.
green 12/4/2012 | 9:49:39 PM
re: Cisco's Volpi: More Is More cisco's aquisition strategy didn't fail. the goal of the aquisition strategy changed from beefing up Cisco product offering to enriching the execs and their buddies (monterey, andiamo etc.,).

All good things have to end sooner or later. Cisco is becoming the IBM of the internet age. good luck to all the 9-5 ers at cisco. have fun while it lasts..
rjmcmahon 12/4/2012 | 9:49:38 PM
re: Cisco's Volpi: More Is More So, you all seem rather angry about this. Good, bad or indifferent...it looks like Cisco is winning.
_______________________

The anger stems from the fact that all these startups are running out of money and have no exit strategy. This fallout already happened to the streaming, CDN, etc., etc. startups.

The question (and something you, Dietary, mentioned before) is how does retrenching in the enterprise market provide the growth CSCO needs?

The service provider market remains the growth path for any IO technology provider. That market has collapsed. Rebuilding is a gargantuan task. CSCO, INTC, SUNW, MSFT, ORCL, etc, etc, all need this market to be rebuilt if they are to prosper. Who is doing anything about that?

PS. Does anybody remember the name of the world's first concrete highway? In what city did that happen?

http://www.waynecounty.com/way...

One look in Silicon Valley reveals the fiber miles are not being deployed. No concrete roads then no auto industry. Fortunately for Detroit, Henry Ford was able to do something about that.

"When Henry Ford first started mass producing the automobile, the need for good roads became a much more pressing issue. He, better than anyone, knew the viability of his product was greatly limited unless there was a system of smooth, reliable roads to carry and withstand automobile traffic. Ford himself found himself at the forefront of the issue."

And fortunately for the rest of us, nobody ever believed propaganda that the railroad owners would lay the concrete.
bear 12/4/2012 | 9:49:38 PM
re: Cisco's Volpi: More Is More Cisco might have fallen from grace with optical and they might have complacent 9-to-5 engineers. But you sound like smaller private companies actually have it good right now. Are you freaking crazy?! Lantern? Luminous? Infinera? The list goes on and on. And I know for a fact that Force10 is so heavily diluted right now it will take an act of God to motivate those engineers if there isn't a liquidity event in the near future. Cisco has cash and it has time. Juniper is the only real player to have significantly challenged and won a fight with Cisco for a large market. Don't think for a second think Cisco isn't the 800lbs gorilla. Volpi's record speaks for itself; 3/4 of his M&A was brilliant and the 1/4 (such as Monterey) was not. Don't take shots at the guy under anonymity - he'll have the last laugh and you'll be out of jobs.
deepciscothroat 12/4/2012 | 9:49:37 PM
re: Cisco's Volpi: More Is More eom
edgecore 12/4/2012 | 9:49:37 PM
re: Cisco's Volpi: More Is More
==============
won't get into why it's really sad that you guys have 1000 engineers working on that dead on arrival HFR.
==============

Details please, why is HFR considered DOA?

EC
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