I like NT & CSCO.
Not Cisco. When it comes to the much-hyped
light-based networks, Nortel is beating the pants
off the competition.
Optical equipment is the biggest thing going in the networking
industry, but the leader in this crucial category isn't Cisco. It's Nortel.
It seems that Cisco may have a big problem on its hands. No, I'm
not talking about the recent departure of heir apparent Don Listwin.
I'm talking about the enviable gap between Nortel and everyone
else in the optical-networking realm. If the future of the Internet is in
broadband connections, then optical networking, a high-speed
method of transmitting information via pulses of light rather than
electricity, will clearly become the dominant technology. And judging
from the numbers, Nortel is the equipment company with the
brightest shine.
Nortel's revenues from optical equipment are riding along at a $10
billion trajectory for this year, or about one third of the company's
total expected revenues. That's up from $4.5 billion last year.
Lucent, another serious player with $4 billion in optical revenues
last year, stumbled badly with its most recent product transition and
is expected to bring in only $5.4 billion this year. (In this sector, 35
percent growth just doesn't cut it.)
In contrast to both, Cisco's optical business is expected to bring in
no more than $1.5 billion this year. Sure, Cisco was hardly even a
player in optics until it bought Cerent last year. But the move might
have been too little, too late. As Bill Conner, president of Nortel's
enterprise group puts it: "Cisco missed the first wave in optics. I am
at a $10 billion run-rate, and growing 150 percent a year. How do
you catch that?"
If you're Cisco, you simply buy what you don't have. During the past
year or so, Cisco has splurged on optical equipment startups, such
as Cerent, Monterey Networks, Pirelli Optical Systems, and Qeyton
Systems. All told, the company has dropped about $12 billion into
these acquisitions.
Still, even the fleet-footed Cisco will have a hard time catching up to
Nortel -- after all, $10 billion in optics revenue is a massive amount
of business. Especially when you consider that Cisco's entire
revenue for its fiscal year ended June 30 was $19 billion. Assuming
it does grow at the 50 percent clip that CEO John Chambers says it
can, that growth would have to come entirely from optics for Cisco
to match Nortel.
The truth is that Cisco is getting into the game a little bit late.
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