FYI:
12/28/99 - NORTEL: 'HARUMPH' TO CISCO'S PIRELLI PURCHASE
Dec. 27, 1999 (FIBER OPTICS NEWS, Vol. 19, No. 50 via COMTEX) -- 'It's About Time'
Cisco Enters
Optical Networking
Forgive Cisco Systems' [CSCO] executive VP Don Listwin if he sounded just a bit P.T.
Barnum-esque
after his company hauled in the optical systems business of Pirelli S.p.A. for $2.15 billion
Dec. 20.
The thought of integrating Pirelli's technology with previous Cisco acquisitions Cerent and
Monterey
Networks moved Listwin to claim Cisco now becomes the only company in the world
capable of delivering
an end-to-end 10 gigabit -- or OC-192 -- Internet-based optical network.
Not so fast Don, says Nortel Networks [NT], which bought optical networking system
manufacturer Qtera
Corp. for $3.25 billion Dec. 15. Qtera's products operate at 10 Gigabits per second, but
have a siren's song
about them, said to Carl Russo, Cisco optical group VP.
"In Nortel's case, their 10G system is really a coupled 10G sonet system with a WDM
system," Russo
said. "That is not the approach that Pirelli has taken. With the Pirelli platform, one could
envision plugging
in many different types of systems, whether they be Cerent systems or Monterey
systems or others."
That statement led to a loud bellylaugh from Nortel Networks spokesman Jeff Ferry, who
tried to wipe a
coat of diplomacy over obvious indignity when responding to Cisco's charge.
"I respect Cisco's business more than their rhetoric," Ferry said. "It's about time Cisco
got involved with a
global name in this space, we applaud them for recognizing the need for optical
networking. But Cisco is
still struggling to come to terms with optical networks.
"Cisco has a history of claiming it's No. 1 in 16 markets and refusing to identify these
markets -- we're
familiar with their propaganda. At Nortel, we have been No. l in 10 gigabit systems since
1996 in terms of
both revenue and systems deployed."
Nortel Gets Tough
Ferry illustrated his point by offering RHK rankings showing Nortel as No. 1 in the
SONET/SDH space with
26 percent share of a market that will be worth $15 billion. Pirelli was not ranked in that
space. In the $3.9
billion DWDM market, Nortel leads with a 32 percent market share, while Pirelli is ranked
fourth with 8
percent.
And in the 10 gigabit market, Nortel's share is more than 50 percent. Nortel has sold 32
of the last 40
major Internet backbone systems in Europe and North America, Ferry says. But nothing
could damper the
rambling enthusiasm of Listwin, who was moved by the Pirelli purchase to new
metaphorical heights -- or
lows, depending on your taste in language.
"What is exciting here is that the momentum of Cerent and the customer set associated
with Cerent has
brought an expanding velocity of new opportunities where these kinds of products are
required," Listwin
says. "If you consider Pirelli's success thus far as being a set of islands of insertion in
both Europe as well
as in the U.S., now add to that a sense of opportunity with more regional players
associated with
greenfields as we have come to experience with the association of Cerent, that really
gives you the
physics behind what the prospects for future sales opportunities will hold."
Expanding velocities? Islands of insertion? And worst of all, physics? Well, let's cut Don
some slack, after
all, his degree was in electrical engineering, not poetry.
But after nine years at Cisco, Listwin is well on his way to an honorary doctorate in
mega-mergers. He led
Cisco's $4 billion StrataCom acquisition in May 1996, which represented the largest
acquisition in the
history of the networking industry at that time.
Now Listwin is agog over the possibilities that Pirelli presents, particularly as Cisco's first
entry into the
dense wavelength division multiplexing space. Cisco can offer an end-to-end optical
networking product for
service providers.
Pirelli's optical products will be integrated with optical products and technology that Cisco
has acquired
from start-ups Cerent (bought for $6.86 billion on Aug. 26), Monterey Networks ($500
million, also on Aug.
26) and Pipelinks ($126 million - Dec. 2, 1998).
The Specs On Pirelli
Cisco is vying with Lucent Technologies [LU] and Nortel Networks in the market for
fiber-optic
transmission gear, where worldwide sales will more than quadruple to $41 billion by
2003, according to
RHK.
U.S. and international service providers such as Frontier/Global Crossing [GBLX],
Telecom Brazil, France
Telecom and Deutsche Telecom have deployed Pirelli's DWDM technology.
Pirelli's optical systems business was founded in 1995, and its 701 employees are
located primarily in
Milan, Italy; Tregastal, France; Wuppertal, Germany and Lexington, S.C.
PaineWebber analyst Walter P. Piecyk Jr. liked Cisco's story so much he raised his price
target on the
company to $138 a share from $125. Cisco closed at $104 on Dec. 21.
Piecyk says the Pirelli acquisition increases Cisco's service provider target market to $15
billion from $12
billion and accelerates the growth rate in this addressable market to 50 percent from 45
percent.
(Jeff Ferry, Nortel Networks, 703/712-8339; Walt Piecyk, Paine Webber, 212/713-8391;
Abby Smith,
Cisco Systems, 408/525-8548.)
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