Optical: Cisco's Odd Man Out?
Press reports in northern California say 40 staff in Petaluma were being moved out of optical, many of them being offered other jobs within Cisco. One source says Cisco's Richardson, Texas, facility is also slashing optical jobs and giving several employees new assignments.
And, like last year, there are rumors that Cisco is close to declaring the 15000 series products have reached "end of life." But, as ever, analysts and competitors seriously doubt that's going to happen.
"I'd be hard pressed to believe they'd be completely cutting out the 15454," says Joe Chiasson, an analyst with Susquehanna Financial Group . Yes, the architecture is several years old, but "typically those products throw off a lot of cash when they get that late in the life cycle," he says.
The 15200 and 15600 products are a different story, though, as both would be tempting targets for pruning, Chiasson says.
Cisco wouldn't comment on any layoffs or the status of its flagship optical networking product lines. The company instead offered this boilerplate:
"As a normal course of business, Cisco continually reviews its operations to achieve the greatest focus on growth opportunities, customer satisfaction and productivity gains. As this occurs, we also evaluate resources to ensure that they are aligned with the highest priority work designed to address our customers’ needs," the Cisco statement reads.
That's not exactly an endorsement, is it?
One source says Infosys Technologies Ltd. (Nasdaq: INFY) is now doing all the engineering upkeep for the 15454 system -- a sign that it's not dead; Cisco's just trying to wring costs out of it. Infosys representatives could not be reached immediately for comment.
In February, Cisco did tell Light Reading there had been "tremendous investment" in the 15454 during the past two months, and the company has continued upgrading the 15454's software. (See Cisco Denies Optical Slowdown and Cisco Bolsters Its MSTP .)
But analysts have wondered for some time whether Cisco is losing its appetite for optical transport.
A year ago, Cisco restructured its optical division, tucking it under the wing of the broadband business unit and reassigning some staff. Veteran executives Surya Panditi, formerly of Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) and Polaris, was brought on to oversee the unit, with Ajaib Bhadare, formerly of Cerent, given the reins of optical. (See Cisco Swaps Opto Jobs, Former Avici CEO Joins Cisco, and Cisco Taps Cerent Vet.)
Cisco also started hiding its optical revenues, splitting them up among the routing, switching, and "other" categories in its financial reporting. (See Cisco Rallies in Q2, Hides Optical.) One problem with optical is that Cisco doesn't have a realistic shot at being No. 1 or 2 in the market, a goal CEO John Chambers says he sets for all of Cisco's product lines. In a widely fragmented optical market, Cisco lags behind competitors including Nortel Networks Ltd. and, assuming the merger is completed, the combination of Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU).
Cisco's MSPP (multiservice provisioning platform) market share was just less than 10 percent during the first half of 2006, according to figures from the Dell'Oro Group . That put the company sixth in a fragmented market where no single vendor topped 16 percent market share. Despite the fragmented nature of optical, Cisco hasn't come out on top in MSPPs (or in WDM systems, where its situation is similar). Even if it did, it seems unlikely that the company could build any kind of commanding lead.
In North America, MSPP business is fading as interest in Sonet/SDH wanes. MSPPs were made for carrying disparate traffic types on Sonet/SDH networks -- but carriers are moving toward a more packet-based network. That's led to the demise of companies such as White Rock, pieces of which ended up at Turin Networks Inc. (See White Rock Got Rocked and As the World Turins.)
Moreover, Chambers has said Cisco wants to decrease its investment in TDM technology -- and while the 15454 has been outfitted with packet interfaces, it still comes from a Sonet/SDH legacy.
A sale of the optical business is certainly possible, but analysts and competitors are hard pressed to come up with a likely buyer. Asian companies might be the best bet, some say.
Whatever happens to the 15000 lines, Cisco is likely to keep a foot in optical in the form of IP-over-DWDM, where routers get outfitted with DWDM interfaces, analysts say. (See Cisco's CRS-1 Goes Optical.)
— Craig Matsumoto, Senior Editor, Light Reading