Cisco to focus on service provider market

Cisco Systems officials laid out plans yesterday for increased development and sales of networking gear to the service provider market, despite a dramatic downturn in recent quarters of capital spending by carriers.

Cisco CEO John Chambers told 350 analysts and reporters at its annual conference that he hopes to see Cisco's 3 percent share of carrier capital spending rise in coming months. "That [3 percent share] is disappointing to me," he said. "I will focus first on can we take that 3 percent above that...can we take [it] to be 6 percent or beyond."

One issue Cisco must address is "earning the confidence" of operations personnel inside the carriers by developing products that offer the features they need, he said.

Charlie Giancarlo, senior vice president for product development at Cisco, said the company estimates it will spend US$10 billion in the next five years in research and development and related costs for products for service providers. He outlined an involved strategy for more than a dozen service provider product groups as well, from edge to core routers and more.

In a separate announcement, Cisco made four technology announcements of enhancements to current products sold to carriers. They include enhancements to broadband cable routers, upgrades in management tools to assist network operation center managers, increases in throughput in the Multiservice Provisioning Platform and IP-based services for voice carrier-grade gear.

The improvements were described as "additional proof points in support of our ongoing commitment to the service provider market," the company said in a written statement.

Cisco officials said the emphasis on service providers was not meant to diminish Cisco's focus on its traditional base of enterprise customers.

"The service provider market is an open-ended opportunity, but that absolutely doesn't mean we back off our commitment to enterprise customers," said Mike Volpi, senior vice president of the routing technology group. Part of the strong emphasis on the service provider market is because some analysts had wondered whether Cisco would abandon the market because of the economic downturn, he said.

Chambers, in fact, said he feels there will be financial problems among service providers for two more quarters, and it could be six more quarters before any major expansion in enterprise buying.

Given the potential technologies service providers will want to buy, Cisco is making the "right move" by embracing the market, said Thomas Mendel, an analyst at Giga Information Group Inc. in Cambridge, Mass. "It is very courageous for Cisco to say this" given problems that service providers face. "It is a major change in direction over a year ago."

A key to future buying trends by service providers will be routers that converge IP voice, video and data, Cisco officials said.

Mendel said the company's renewed focus on service providers can be a plus for enterprises, which can benefit from the innovations Cisco develops in coming years. He noted that Chambers told analysts that Cisco might even partner with Intel Corp. to develop specialized chips for routers and other networking gear.

And Mendel said that over the long term, IT managers will need to become "service brokers" -- meaning they function much more like service providers, buying technologies and selling them to end users within their organizations.

"Cisco is in the investment phase with the service provider market," said analyst Vijay Bhagavath at Forrester Research Inc. in Cambridge, Mass. "Other companies such as Lucent and Nortel have been devastated. ... With the other vendors hurting, Cisco is saying, 'Let's build market share.'"