UPDATE 2-Cisco to discontinue optical router
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(Adds additional analyst comment in sixth paragraph,
byline)
By Duncan Martell
SAN FRANCISCO, April 4 (Reuters) - Cisco Systems
Inc., the No. 1 maker of gear that helps to power the
Internet, said on Wednesday that slow sales of an optical
router had prompted it to discontinue making that device found
at the core of optical networks.
Cisco, of San Jose, Calif., said it will stop making the
15900 Wavelength Router, a product that came out of its
acquisition of Monterey Networks, in August 1999.
"Suffice it to say we thought the market would mature much
faster than it has," Carl Russo, group vice president of
optical networking, told Reuters. "Given the current market
conditions, we're going to focus our resources on things that
are driving revenue for us."
Specifically, Cisco now plans to redeploy the engineering
talent working on the 15900 Wavelength Router into the
so-called metropolitan optical market, which has been growing
faster than the core of optical networks. Cisco's acquisition
of Cerent Corp. in August 1999 gave the company products sold
into the metropolitan market.
"This tells me the acquisition didn't go very well and they
didn't acquire the type of technology they wanted," said Epoch
Partners analyst Richard Shannon. "They've had trouble
commercializing the technology and getting the product out into
the market."
Rivals in the market for the discontinued product include
Ciena Corp. , Lucent Technologies Inc. , Nortel
Networks Corp. and a handful of start-ups.
Cisco, known for its blistering sales growth and ravenous
appetite for buying companies, has also been hit by the
slowdown in the U.S. economy. It has announced layoffs and
warned that its third-quarter sales will fall about 5 percent
from the second, a first for Cisco since it went public in
1991.
Cisco announced the acquisition of Texas-based Monterey
Networks for about $500 million in August 1999, the same day it
announced its intent to purchase Cerent, for $6.86 billion in
stock. The Cerent product, according to Cisco and corroborated
by market researches, is a runaway success.
Not so for the product that came with the Monterey
acquisition. Using so-called cross connect technology, the
15900 boosted network capacity at the core of an optical
network.
"A cynic would say this announcement is about Cisco saving
face," said Robertson Stephens analyst Paul Johnson, adding
that there were technical problems with the 15900, which came
from Monterey. "They're admitting that the Monterey acquisition
didn't work."
Cerent's product -- the only one it had when Cisco bought
it -- is about the size of a microwave oven that sits between
the fiber-optic cable and routers or cable systems or other
devices. Using sophisticated software, it organizes and
compresses the data -- whether voice, data or video -- and
vastly increases the size of the pipe through which that
information is sent.
"The Cerent product has been wildly successful for them,"
Shannon said. "I wouldn't say that Cisco is completely
abandoning the core of the (optical) market, though; that's a
fabulously large opportunity that will grow over the long
term."
Some analysts suggested that the discontinuation of the
product wasn't as significant as the subtext: that Cisco is
focusing more strongly than ever on products it knows it can
sell and that are in high demand. This will help boost
profitability.
Russo himself nearly said as much.
"When you're in tough times, you always try to bring your
products closer to revenue" and customers who want them, Russo
said in the interview. "We're going to do some things and do
them well and we're not going to do others."
In trading after the close, Cisco shares slipped slightly
to $13-9/16 from a regular close of $13-11/16 on the Nasdaq. In
regular trading, Cisco fell 1/16.
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REUTERS
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