Juniper Ratchets Up Router Race;
New Box May Crimp Cisco's Share
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DOW JONES NEWSWIRES
PALO ALTO, Calif. -- John Chambers was quick to crow over a win against competitor Juniper Networks Inc. in November.
The Cisco Systems Inc. chief executive had won back 5% of the high-performance router market, and he was feeling more confident about sales momentum. Yet his sigh of relief might have been premature. Juniper isn't about to back down. It is expected to unveil its next leapfrog product -- the M320 Router -- in March, and a new Internet arms race may be under way.
There is no hiding how important this business is for recovering network titan Cisco. Routers serve as the Internet's post offices and as traffic managers in the cores of private networks run by the likes of AT&T Corp. and Sprint Corp.
"If you don't control the core, it's very hard to control the edge," where sales opportunities are expanding rapidly, says Joseph Kennedy, chief executive of rival router maker Pluris Inc. Routers, after all, founded Cisco in 1984, and the company has 65% of this lucrative, high-end market.
The challenge is that the M320 -- dubbed Gibson by Juniper engineers -- is packed with more performance than Cisco's GSR 12416. Performance is measured in speeds that reach 10 gigabits, or 10 billion digital characters a second. The new product will double to two the number of these high-speed links inside each of its eight network connections, according to industry experts. Cisco's response still is under wraps inside its research-and-development labs. The company plans to increase the capacity of its GSR 12416, though the timing of a product announcement is unclear.
Juniper's new product hopes to set additional hurdles for Cisco. In an age of cost-conscious customers, "the standard giant router isn't quite enough" anymore, says Nancee Ruzicka, an analyst at the Yankee Group, a market-research firm. Vendors such as Cisco and Juniper must show routers as smart purchases during tight-money times. To do so, some in the industry promise to increase a war of words over a new technology called clustering, where more than one router is tethered together in tandem to increase power and performance, and where Cisco has yet to prove itself.
The downturn has brought big changes to the router marketplace. Gone are many of the upstart telecommunications companies and small alternative service providers that became Cisco's and Juniper's biggest customers in the late 1990s. These companies bought equipment as fast as it could be delivered and promptly overbuilt the big network pipes that crisscross the country. Now consolidation has gripped the market, and several companies have stumbled into bankruptcy.
In their place are more conservative purchasers, the Baby Bells in particular, which still have budgets for new gear. It is a concentration of buying power for which the equipment industry was unprepared. The top 50 companies in the world control 80% of capital spending, Cisco told analysts last month. In the past, Cisco's sales message has been aimed at 4,000 customers.
"The buyers that are alive don't have the same requirements," and that is forcing vendors to rethink their approach to products, notes Tom Nolle, president of the consultancy CIMI Corp.
These new customers place greater emphasis on product reliability and on a router's ability to work with older equipment, such as that in a phone network. These weren't product priorities two years ago.
It is a "very different philosophy," acknowledged William Nuti, a Cisco senior vice president, in December. These new buyers also may be the ones most interested in clustering, a technique already used by the old-line class-5 telephone switches in their networks.
This new approach is where Juniper hopes its new product will give it an advantage. The router comes with the promise of a unique clustered arrangement -- what analysts refer to as a hub-and-spoke layout. But while the router has been in testing on and off since September and is expected on the market in March, the clustering technology isn't yet out of the lab, market sources say. Juniper, which has 32% of the higher-priced router market, according to market-research firm Dell'Oro Group, declines to discuss product details.
Competitors see this as an opening. Mr. Kennedy, the CEO of Pluris, whose company has its own clustering technology, says the hub-and-spoke design is flawed. Because it is laid out like the spokes of a wheel, all traffic must go through a central hub, making the system susceptible to failure if the hub goes down, he says.
Juniper, nonetheless, appears to be ahead of Cisco. Cisco has had several starts and stops in its development efforts and presently has a project under wraps called "Q."
"We are continuing to work" on multichassis designs, where multiple-router chassis are strung together, says Rob Redford, vice president of marketing. But it is a technology that few if any networks are large enough to need just yet, he says.
"We don't have customers who are saying, 'We have pain, please help,' " he says.
Still, the industry is paying attention. Companies are in a "never-ending search for the low cost, highly available network," says David Siegel, a director of IP engineering at Global Crossing Ltd. Clustering, or multichassis products, could help.
"If a product was readily available for us to deploy, I think we would," he says.
Juniper says it is focused on the broad new demands of today's router customers. These companies "are just starting to move and to get IP religion," says Carl Showalter, vice president of marketing, referring to the technology routers use to move Internet traffic. It is an opportunity the vendor can't let get away.
That is because while telecom capital spending could fall 30% this year, the high-end router market should remain relatively attractive. Internet and computer-data traffic is no longer growing at five or six times a year in the country's big network cores. But it is growing at 80% to 100%. So communications carriers will need new equipment to expand and to replace older, slower boxes. Spending should be flat compared with last year at $2.4 billion, says the Dell'Oro Group.
An early year report card on the companies that have the edge could come in April. That is when Verizon Communications, SBC Communications Inc. and BellSouth Corp. are expected to begin placing what analysts expect will be billions of dollars of orders for networking equipment. These orders will show whether eager competitors Pluris, Lucent Technologies Inc. and Avici Systems Inc. -- the company with the fastest box but little market share to show for it -- have made progress chiseling off a piece of the business.
The regional Bells "are really at a place where they have to do something" to build out their computer data networks, says Ms. Ruzicka of the Yankee Group.
Investors, who continue to pay high multiples for stocks such as Juniper and Cisco, will be watching these plans unfold. |
