CSCO is not MSFT. CSCO margin dropped and they said that their margins are going to drop more in the future. To make matter worse is that, with this kind of margin, there are going to be many companies coming in (some are already there) to get a piece of action. We already seen it, they're LU, INTC, NT, Alcatel, Ericsson and many more. CSCO said LAN mkt segment encountered competition and thus suffered margin there. Next year, the new high-speed startups AVICI, NETCORE, JUNIPER will intensely compete with CSCO. Remember, when there is a gross margin like 65%, it's a big temptation for other companies to come in. The big boys as well as the startups can go for 50% margin and that will effectively drop gross margin for CSCO. Also, the high-end networking segment has become more of a commodity with off-the-shelf hardware and software that are now focused on few protocols such as ATM, FR and IP. This is the beginning of margin erosion era in high-end networking. We had already seen this drastic erosion in the low to medium end networking segment. See what happened to the low-end Ethernet companies. Ther're trading at less than 10$.
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