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Optical/IP

Force10 Slashes 10-GigE Pricing

10-Gigabit Ethernet has begun its descent -- in pricing, that is.

Tomorrow Force10 Networks Inc. will be announcing that it’s cutting its per-port pricing by 44 percent. This is the largest pricing slash the technology has seen so far.

This drop is natural and expected as the technology matures, say analysts. In fact, Gigabit Ethernet and 10/100 Ethernet pricing continues to fall quarter by quarter. Analysts and vendors agree that at this point in 10-Gbit/s development, it’s necessary to drop prices to encourage more widespread adoption of the technology.

“It’s like the DVD market,” says Steve Mullaney, vice president of marketing for Force10. “Most people weren’t willing to spend a couple of thousand dollars on one. But now you can get one at Wal-Mart for a hundred bucks, and people are putting them in every room of their house.”

Specifically, Force10 will be offering its two-port 10-Gbit/s Ethernet card for $34,000, or $17,000 per port. The E1200 can support up to 28 ports of 10-Gbit/s Ethernet in a 14-slot chassis.

Force10's Ethernet competitors have much higher pricing. Cisco Systems Inc. (Nasdaq: CSCO), the leader in Ethernet switching, is at the top of the pricing ladder. It sells its Catalyst 6500 switch for about $65,000 per port. This includes a base module that lists for about $30,000 and an optical insert that lists for $35,000. Foundry Networks Inc. (Nasdaq: FDRY) lists its 10-Gbit/s ports anywhere between $50,000 and $85,000 per port, depending on the optics. Avaya Inc. (NYSE: AV) lists for $35,000 per port.

Extreme Networks Inc. (Nasdaq: EXTR), which typically competes based on cost, has already cut its pricing twice. When it first started shipping its 10-Gbit/s Ethernet solution last summer, it listed at about $60,000 per port. It subsequently lowered its price tag to $50,000 per port. Since December the company has been running a special promotional sale: $25,000 per port.

Unlike Force10, however, all these vendors only offer 10-Gbit/s Ethernet on a single-port card.

“Ethernet pricing is always a horse race,” says Michael Howard, principal analyst and founder of Infonetics Research Inc. “One vendor will take the lead, and a few months later someone else will take the lead. Even Cisco, which typically sells higher than its competition, has to lower prices in response to competitors because customers feel gouged.”

Force10’s advantage over its competitors is that it initially designed its product with 10-Gbit/s Ethernet switching in mind. It has designed the switch so that it could potentially handle 40 Gbit/s per line card (see First 10-Gig Ethernet Switch Arrives). All the others -- Avaya, Cisco, Extreme, and Foundry -- have bolted their 10-Gbit/s cards onto products designed for 1-Gbit/s switching. As a result, these switches don’t run at line rate, generally switching traffic at a maximum rate of 8 Gbit/s.

The fact that Force10 appears to have a technical lead makes it surprising that it's also the one cutting prices. But it's an aggressive strategy that may catch customers' eyes.

“I’m not surprised that Force10 would take the lead in pricing,” says Dave Passmore, research director at Burton Group. “The company was fortunate enough to design a product for 10-Gbit/s Ethernet from a clean piece of paper.”

But this likely won't be the end of the price war. Foundry is about to launch its second-generation 10-Gbit/s Ethernet product later this month. It will increase port density and offer true wire-rate switching for 10-Gbit/s Ethernet. It will also announce price cuts of between 10 percent and 15 percent per port. Cisco and Extreme are also expected to announce next-gen products later this year.

The current market for 10-Gbit/s Ethernet remains small. Infonetics’ Howard says that 10-Gbit/s Ethernet port sales were in the hundreds to low thousands in 2002. But he says that reduced pricing and a new generation of switches will likely boost that figure significantly in 2003. He says it wouldn’t surprise him to see sales grow to 5,000 ports this year.

Early adopters of 10-Gbit/s technology, such as supercomputing facilities and universities, have so far been the primary market for the technology. But Howard expects demand to slowly grow among enterprise customers and some service providers. Enterprise customers have already begun deploying 10-Gbit/s Ethernet in large enterprise data centers to aggregate server traffic. Some service providers in Asia and Canada are also turning toward 10-Gig to link together metro-area backbones.

— Marguerite Reardon, Senior Editor, Light Reading
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Physical_Layer 12/5/2012 | 12:50:36 AM
re: Force10 Slashes 10-GigE Pricing Hey folks. I noticed that this article referred to one vendor (Extreme? Can't remember) having a port cost that was dependent on the optics. I'm sure it's that way for all vendors, but the range was HUGE, ie, 50k to 85k or something like that? So I imagine that the lowest price applies to cheap-o near zero distance optics and the most expensive refers to long haul temp controlled DFB lasers. My quesion is simple. Does this make sense? I believe long haul transponders are selling for a few thousand bucks MAX thesedays, and I can't imagine any of the back-end framing/buffering/logic electronics being different. So - all it would be is transponder and associated external circuitry for the transponder, right? Ok, that and volume, since I figure the expensive optics sell in lower quantities, therefore price must be a bit higher, but still - does it justify the massive price difference? What's going on here, or what am I missing?
DocGonzo 12/5/2012 | 12:50:36 AM
re: Force10 Slashes 10-GigE Pricing If most people only knew just how little the hardware components cost. I bet that these high priced 10GE interfaces are probably only a few thousand $ in cost of goods. The equipment manufacturers really don't want to start or engage in a price war because it erodes their margins across the board. This is an interesting move by Force10; perhaps a sign of their desperation in a slow market. The other players would rather leave the price high and make deals on a one-off basis. In the long run, the big players have a lot of leverage and will probably not feel much of a pinch. Force10 on the other hand may not get enough in new sales to justify the price cut. At least the end user will get something out of it.

Doc
fiber_r_us 12/5/2012 | 12:50:35 AM
re: Force10 Slashes 10-GigE Pricing The optics transponders (called MSA300, MSA200, XFP, XPak, XenPAK, etc) vary in price based on their reach. "Short reach" (SMF, 1310, 2km) MSAs are $2-3K in volume. "Long Reach" (SMF, 1550, 80km) MSAs are $12-16K in volume. There are many other price points in between.

However, the transponders are likely less than 10% of the *cost* of the overall product. The some total of *all of the components* is usually far less than 50% of the overall *cost* to build a product. Someone has to write the software, someone has to manufacture the equipment, someone has to test all of the stuff, someone has to handle all of the logistics, etc...

No one can survive simple by pricing their product based on cost of components.
DoTheMath 12/5/2012 | 12:50:35 AM
re: Force10 Slashes 10-GigE Pricing DocGonzo: If most people only knew just how little
the hardware components cost. I bet that these high
priced 10GE interfaces are probably only a few
thousand $ in cost of goods. The equipment
manufacturers really don't want to start or engage
in a price war because it erodes their margins
across the board.

---------------------------------------------------
Excellent point, DocGonzo. I fully agree. There is
widespread "follow the leader" pricing in networking
and Cisco's pricing is plan-and-simple gouging. I don't
understand such short term thinking because they
are creating big openings for Huawei, Dell and the
likes. Unfortunately the sales types that run these
companies can't see beyond a quarter or two, and
they don't seem to understand that creating a
perception of gouging is very harmful to them long
term.

Computer industry practiced "follow IBM" pricing
for a long time. Guess who won?

Iipoed 12/5/2012 | 12:50:32 AM
re: Force10 Slashes 10-GigE Pricing Keep in mind, Cisco and Foundry are fairly profitable companies and Cisco certainly has a lot of cash to weather any price storm, Foundry has some cash to to make. Cisco, Foundry, Extreme and Avaya have a lot of other products to sell. All these companies have the ability to make up for lower margins on a specific product with the rest of their product portfolio.

What does F10s product make up consist of, what margins are they seeing, how much business are they really doing?

They need to buy some marketshare just hope they do not follow the Riverstone/cabletron senario of buy as much business as possible and then pray to gain some customer loyalty. If this become their M O then they better hope to be acquired as soon as possible.
splitEndz 12/5/2012 | 12:50:32 AM
re: Force10 Slashes 10-GigE Pricing Early markets are where you accumulate your higher margins to pay off all the development costs, in anticipation of the much lower "sustaining" margins later on.

If price competition heats up too quickly, all vendors suffer since they all have significant development costs to recover. This ripples through to all the piece-part suppliers to the equipment vendors, who suffer if the equipment vendor is pre-maturely forced to exit the market.

It seems unlikely there is enough demand for 10G (even at lower costs) over the next year or so, to overcome the margin losses through higher volume, to sustain a start-up business around 10G.

It also seems that only a vendor with a huge cash cushion can play this game, so Force10 would seem to be taking the game to Cisco's home field. Any thoughts?

Is this "fire sale" move by force10 indicative of a last ditch effort by them? Personally I think it would be a shame (w/r/t the overall market development) if the startups are pre-maturely forced to exit or pursue unnatural strategies.
CanMan 12/5/2012 | 12:50:31 AM
re: Force10 Slashes 10-GigE Pricing I think Force10 was expecting to win, at least part of, WIDE in Japan which Foundry won.
It seems people find that buying from a start up in this economy is a little too risk so Force10 is choosing to compete with disruptive pricing.
whyiswhy 12/5/2012 | 12:50:30 AM
re: Force10 Slashes 10-GigE Pricing Optical component vendors have seen significant price errosion over the last two years...50% or more. And volumes have been down more than that. A 10Gig DFB, metro range is selling for under $1K in small qty, from smaller competitive vendors. 'Bout time to see deflation showing up at the card level. <<if>> Force10 can overcome the FUD from bigger competitors, they should do well.</if>
Iipoed 12/5/2012 | 12:50:28 AM
re: Force10 Slashes 10-GigE Pricing Actually Foundry has been talking about the next gen product for almost two years. How long do you think it takes to build your own asics, match them with a chassis, power supplies, etc. Do the proper testing in the field?

Bottom line is 10 gig blades ( providing 8 gig throughput) fit into existing chassis, supported by existing power supplies, complementing existing one gig, 10/100 fiber/copper blades is a awfully good business model for existing customers to grab onto. No new management modulels, geez Cisco think of that!

Anyway beat up foundry for not having the extra 2 gig throughput when 95% of the customers probably do not need more and a 5 or 6 gig pipe.



True_10_Gig 12/5/2012 | 12:50:28 AM
re: Force10 Slashes 10-GigE Pricing Hmmm...

Let's see now...I can buy pseudo 10 Gig Ethernet (in reality running under 8 Gbps) bolted into past generation 1 Gbps Ethernet chassis or buy next generation shipping 10Gbps products from Force10.

Oh wait...there's that vaporware announcement from Foundry Networks - I guess Force10 "forced" Foundry into pre-announcing (again - if you listen to their quarterly conference calls, they've been talking about this product for the last six months) their next-gen platform.

So, which would you rather buy - less than 10Gbps for existing products, a shipping 10Gbps switch, or some ghostly 10Gbps product promised for "some time in the future?"
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