Cisco tells-all to analysts

As IT companies go, Cisco Systems Inc. is among the most closed mouthed in the business.

Cisco CEO John Chambers likes to say that his is an organization driven by paranoia — a healthy fear that motivates this data networking heavyweight never to take a thing for granted, especially when it comes to the competition and Cisco’s current overwhelming leadership position.

Unfortunately, that same paranoia often manifests itself in the form of silence or, at the very least, a serious lack of communication, as far as the industry-watching community is concerned. Cisco rationalizes that others in the arena of networking equipment should know as little as possible about them.

So, it was both a rare treat and special occasion when Cisco held its worldwide analyst conference in last year, an event where the company was uncharacteristically ready and willing to say a whole lot about where it is currently at and where it hopes to be in the near future. Highlights of the three-day event follow.

Not surprisingly, network convergence — the notion of building single LAN and WAN infrastructures able to support all traffic types — was the loudest buzz. This is no fad, at least not in the minds of Cisco’s deep thinkers. The future of networking is a combined data, voice and video market, according to Cisco, repeating the oft-heard mantra of the industry.

This wash of convergence will come in two waves: the convergence of telecom and datacom, and the future convergence of entertainment and information industries. Cisco predicts network convergence will be a transition to packets rather than circuits (a predictable point of view from a data networking equipment provider).

According to Cisco, network convergence — that of voice and data — is being driven by the promise of lower-cost network services, the potential to enhance functionality for existing programs and a necessary platform for a new breed of applications. The killer application on the video side of things will be training and education, said Cisco representatives.

Increasing competition sees the boundaries of network services blurring. Cisco officials explained that cable companies are looking to providing voice services, so voice companies had better be able to provide data and other services. Converged networks are the enabler.

Voice over IP is growing by leaps and bounds, according to Cisco. The company reported shipping 137,000 IP ports during its last quarter — with use for IP telephony representing 30 per cent of those shipments.

CEO Chambers admitted Cisco needs to more closely track how fast companies are moving their enterprises over to voice, video and data infrastructures. He added that Cisco is working to make most of its network products voice compatible and to even tailor its 2600 series switch line to be marketed as a network convergence-enabling product for small and medium-sized businesses.

Network management and software products in general will be the next areas of investment for Cisco. Company officials said they are looking to venture into directory-enabled network products and to ultimately build out a richer investment portfolio in software.

According to Cisco officials, the new tendency among IT buyers is to purchase from a set of strategic vendors and that means vendors must start acting like partners rather than product pushers in order to be successful. It explains why Cisco has bonded so closely with like heavyweights such as Microsoft and Intel. This may also explain why so many network integration and operations outsourcing service companies are moving away from multivendor services, not trying to be all things to all people and instead looking to build relationships with a select group of product suppliers. The goal is to do more by doing less, or at least with fewer.

An interesting bit of gossip at the analyst event suggested that now might be the best time to get a deal on that Bay Networks (Nortel) switch you’ve had your eye on. Cisco related the news that Bay/Nortel is offering some resellers up to 80-per-cent discounts on network equipment. “An unfair and non-sustainable practice,” lamented Cisco officials.

CEO Chambers assured his company wouldn’t offer similar bargains. But Cisco is feeling the heat on all sides, revealing that both Lucent and Nortel have been extremely aggressive in “green field” or new account opportunities. The message between the lines of that statement is that there is increasing price pressure on high-margin network hardware.

Finally, CEO Chamber again repeated the gospel according to Cisco, when it comes to new areas of growth and opportunity. “We will not enter a market where we can’t be a number one or number two player with 25-per-cent marketshare.” Chambers said Cisco wouldn’t enter a market where his company would compete against key customers or partners, and will not venture into the business of content providing.

And don’t expect to see a “Cisco-powered” sports stadium either.

“I’m not saying never, but it’s probably an area where we don’t want to fall into the same trap as others,” said Chambers, alluding to stadiums such as 3Com Park, home to the San Francisco 49ers and Giants sports clubs.

With the rapidly changing landscape of data networking and the continued drive towards network convergence through IP services, next year’s analyst conference will be a much-anticipated event. The competition is no longer the big four of Cisco, Bay, 3Com and Cabletron, but rather Cisco and the NELAS (Nortel, Ericcson, Lucent, Alcatel and Siemens). What these traditional voice companies do to become more like Cisco and what data networking leader Cisco does to become more like them will surely be an exciting tale of intrigue and almost military-like strategy.

The silence from Cisco until the 1999 analyst event will be deafening.

Dan McLean is research manager, network support and integration services, for IDC Canada Ltd. in Toronto.

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