Cisco (CSCO) succeeded in generating an enormous amount of hype for today's announcement of a new core router, and was able to raise the level of interest to a crescendo.
The bottom line is that this is an impressive and important upgrade of Cisco's core router product, but it was not "revolutionary," as billed by Cisco and many press mavens. It is, in fact, an important upgrade in capacity to reinforce Cisco's market position as the leader in core routing technology.
Here are the pertinent facts of the announcement:
* The CRS-3 will triple the capacity of its predecessor, CRS-1. Cisco says the new router will have a capacity of 322Tbps (terabits per second).
* Cisco said it spent $1.6 billion developing the router.
* The product is in field trials and will ship toward the third quarter of this year. The price will start at $90,000.
* So far, AT&T (T) is the only service provider that has announced that it is testing the product in field trials.
This announcement is important because Cisco is the leader in the core routing category and it needs to be constantly improving its products to maintain its edge. There are three major core router competitors: Cisco, Alcatel-Lucent (ALU), and Juniper (JNPR). Cisco and Juniper are considered the leaders, with Cisco holding the edge in market share. All of these competitors vie with similar technology companies and are in a constant race to leapfrog each other every few years with "upgrades." You often see a pattern where one vaults ahead, then the other catches up.
Cisco launched the CRS-1 in 2004, beating Juniper to 40 Gbps (Gigabit per second) interfaces. But since then, both Juniper and Alcatel have made aggressive moves to 100 Gbps interfaces, once again putting the pressure on Cisco to upgrade, and that's why it was time to hear Cisco's upgrade plans. So the fact that Cisco is making this announcement now should not come as a surprise. The most important announcement in the upgrade is that Cisco will be moving to 100Gbps (Gigbabit per second) line cards, as this is an area where Cisco was actually trailing competitors.
One major area where Cisco has said it is the leader is in overall capacity: It says it now has 12X the capacity of any competitor. I am waiting to hear back from competitors, but verifying such claims is extremely difficult. Companies can make all sorts of claims about overall capacity but you have to make sure you are comparing apples to apples and not to oranges.
Furthermore, routers are often evaluated by other sets of features, including reliability and software control. The analogy I would make is: Do you buy a car just based on the engine size?
As for the financial impact, this announcement is not likely to have much effect for at least 6 months. The product does not ship until the third quarter of this year, so trading the stock based on this news is somewhat silly.
This is important on the marketing front, where it reinforces the perception that Cisco is the leader in core routers and is not backing down. It could have a "freeze the market" effect on core routing by postponing the decisions of large service providers who may put off such decisions until they can test Cisco's routers against competitors. If anything this would have a detrimental effect on the sales of routers by Juniper or Alcatel. This will be interesting to watch in the coming months.
After the news, Cisco's stock was trading up .14 (.5%) to $26.26. Juniper was close to unchanged, trading up .07 to $29.67. Alcatel-Lucent was trading up .03 to $3.42.
Disclosure: No position
