6/8/98 NY Times. Cisco Systems Takes On the Really Big Boys on Routing Data
nytimes.com
June 8, 1998
INDUSTRY VIEW / By TOM STEINERT-THRELKELD
For most of the last decade, Cisco Systems Inc. has been
steamrolling competitors in data networking. Its routers and
switches dominate the Internet and corporate networks that try to get
disparate sorts of computers to talk to each other.
It holds a 70 percent market share in routers, and the company's
$79.3 billion value in the stock market is more than four times the
combined stock market value of its main rivals: the 3Com
Corporation, Bay Networks Inc. and Cabletron Systems Inc.
But lately, Cisco is on a collision course with a set of new, much
bigger competitors. Companies that have made their livelihoods
selling gear to the telephone industries are intent on moving into
Cisco's market. These companies contend that their long experience
in running dedicated-circuit voice networks gives them an edge over
Cisco, which has specialized in sending data as packets distributed
over a variety of pathways between routers, the traffic controllers of
the Internet.
The most prominent of these new rivals are Lucent Technologies, the
spinoff of the AT&T Corporation that includes Bell Labs, and
Northern Telecom of Canada, Lucent's chief competitor in the supply
of conventional switches and other equipment for telephone
networks.
Not only do they have the heft -- Lucent has three times the annual
revenue of Cisco -- but they also have the motivation. They realize
that the market for the equipment they have been selling, which relies
on setting up dedicated paths, or circuits, for each communication, is
quickly becoming doomed. In the future, this dedicated-circuit
approach, known as circuit switching, seems destined to be replaced
by more efficient and economical packet-switching technology on
which the Internet (and Cisco's business) is based.
Packet switching, originally intended for transmitting data, was once
thought to be too crude for voice communications. But increased
communications capacity and improvements in the way the
technology can organize the packets are beginning to make it possible
to use packet switching even for "continuous flow" information like
voice conversations and even video programming.
"We're at a technology flash point where there is no longer a question
that data is the dominant architecture and voice is a service," said
Cisco's executive vice president, Don Listwin.
To overcome Cisco's leadership in data networking, Lucent and
Northern Telecom will be counting on their ability to transfer the
characteristics of voice network technology to data networks. They
will tout the "extra level of engineering" that goes into the more
complicated networks that carry voice traffic, as David Ramos, a
Nortel vice president for marketing, likes to put it.
"There's no one silver bullet," said Bill O'Shea, president of Lucent's
data networking business. "It's years and years of experience,
building systems and watching how they operate" that insure reliability
and avoid failures.
Yet Lucent and Nortel are still very much newcomers. Only this
month will Lucent begin testing its first billion-bits-a-second packet
switch based on Internet protocols, which could become a true
competitor to Cisco's most advanced gear. Northern Telecom, for its
part, derived only $785 million of its $15.4 billion in revenue last year
from data networking; it has a long way to go to be on an equal
footing with Cisco.
But then, in this transition from the old world architecture of circuit
switching to the new world of packet switching, it is not altogether
certain that Cisco plans to slug it out with Nortel and Lucent.
Cisco's chairman, John Chambers, reportedly broke off intensive talks with Lucent about some sort of partnership because the two companies' product lines had begun to overlap too closely. Now, he is said to be bent on concluding an alliance with Nortel, which could take advantage of its strengths in sales and service in the telephone industry.
But the impulse to form new data networking alliances is not Cisco's alone. Last week, the data-switch maker Tellabs announced plans to acquire the Ciena Corporation, a highflying supplier of a new
technology that vastly expands the capacity of fiber backbones, for
$7.5 billion. And a day later, another digital switch maker, DSC
Communications, agreed to be acquired for $4.4 billion in stock by
Alcatel Alsthom of France -- a telecommunications equipment giant
that wants to expand its American presence.
So Cisco may find it harder to steamroll the competition. Last week,
when Sprint announced plans for its national network to evolve from circuit switching to packet switching, attention centered on the fact that the key new equipment for chopping voice, video and other data to fixed-size packets would come from Cisco, and not from a telecommunications vendor like Lucent.
But Cisco's gear, when ready, will at first only be found on the edge of this new-era network. At its core, at least for awhile, will be data switches from the Japanese giant NEC -- and, oh yes, from Nortel.
Tom Steinert-Threlkeld is the editor in chief of Inter@ctive Week, an
industry publication covering the Internet and communications
network technology.
Tom Steinert-Threlkeld is the editor in chief of Inter@ctive
Week, an industry publication covering the Internet and
communications network technology.
Copyright 1998 The New York Times Company |
