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To: Greg h2o who wrote (17196)	12/2/1999 12:13:00 PM
From: cmg	Read Replies (1) \| Respond to of 42804

Cisco's biggest uncertainty By John Shinal SAN FRANCISCO. 9:20 AM EST-The market for optical networking equipment likely will be the biggest thorn in the side of Cisco Systems (nasdaq: CSCO) in 2000, based on remarks by analysts and Cisco executives at the company's annual analyst meeting in Santa Clara, Calif. While Cisco officials offered the most precise roadmap yet of their optical strategy at the meeting, which runs through today, the technology is evolving so fast that Cisco's plans may not be complete for another year. For example, the company's plan for one leading type of networking equipment, the so-called wavelength division multiplexers (WDMs), that boost the capacity of long-distance networks, is still "to be determined," said Cisco Executive Vice President Don Listwin. "We have to figure out what we're going to do in the next 12 months," Listwin said. WDMs split beams of light traveling on fiber-optic cable into multiple colors, or channels. Phone companies and Internet service providers want WDM gear because it lets them expand their networks without laying new wires. Cisco's main rivals, Nortel Networks (nyse: NT) and Lucent Technologies (nyse: LU), as well as Ciena (nasdaq: CIEN), which Cisco considered buying in 1998, are the leading suppliers of such gear. Sycamore Networks (nasdaq: SCMR) has a new type of optical switch that speeds network traffic. Investors are so impressed by Sycamore's technology that they've bid up the company's market capitalization to $17 billion. Listwin said that having a version of long-haul WDM isn't necessary for Cisco's success. "We don't need WDM, but we'd like [to have] it," Listwin told the analysts. "We don't need it to defend ourselves." Several analysts at the conference said the statement may have been meant to quell speculation that Cisco might buy a WDM company like Ciena. That speculation has persisted for more than a year despite public comments from Cisco Chief Executive John Chambers that Cisco evaluated Ciena and chose not to buy it. Ciena built its business selling long-haul WDM to carriers like Sprint Communications (nyse: FON) and MCI WorldCom (nasdaq: WCOM). Now a market is emerging for another type of WDM gear called Metro WDM, used in fiber-optic networks in densely populated urban areas. Listwin said that in the Metro WDM market, Cisco is betting on products it acquired with Cerent, a startup it bought in September for more than $7 billion. "We're going to do it ourselves" with the Cerent technology, he said. Cerent's gear links the Synchronous Optical Network (SONET) rings in phone networks directly to the Internet. The company's products make it easier to add new segments to a network. Although the gear wasn't designed specifically for Metro WDM configurations, analysts said it likely will do. "They may have to tweak it a little, but it'll work," said Martin Pyykkonen, an analyst at CIBC Oppenheimer who rates Cisco a "buy." Pyykkonen and other analysts said Cisco will probably use the next 12 months to decide which, if any, additional optical companies to buy. "They're waiting to see what happens with the next-generation players," said Chris Stix, an analyst at SG Cowen Securities who rates Cisco "strong buy." Closely held Corvis and other startups are developing long-haul gear meant to challenge Sycamore, but those products haven't been tested yet. Sycamore's equipment has already passed muster and is being used in the networks of Williams Communications and others. Ciena also is testing new equipment it got when it bought Lightera Networks in March. Added Pyykkonen: "The optical picture will be much clearer in a year." Cisco bought Lightera rival Monterey Networks the same day it bought Cerent. A product based on Monterey's optical switching technology will be tested in live networks by the end of the first quarter, said Kevin Kennedy, senior vice president in charge of Cisco's service provider business unit. Yet the Monterey product is designed to switch network traffic, not transport it across long distances, so some industry watchers have said for some time that Cisco will need more long-haul gear to keep pace with its rivals. "Cerent for the Metro is great, but it's just one piece of the pie. They'll have to gobble up an optical core company, whatever [technology] that turns out to be," said Craig Johnson, principal analyst at the consulting firm Pita Group in Portland, Ore. When he told the analysts of Cisco's wait-and-see approach to the long-haul WDM market, Listwin anticipated a question on the mind of many in the audience when he asked rhetorically: "Why don't we move now? [Because] the pieces keep changing." Listwin said Cisco has time because the contract wins for the next generation of optical equipment won't happen for another 12 to 18 months. When they do, Cisco will be ready, he said. Until they are, though, the uncertainty will persist. top