Is the Cisco Hype Justified?

by: optionMONSTER

By Jon Najarian

It's understandable that some were disappointed by Cisco's (NASDAQ:CSCO) widely anticipated product announcement earlier this month. After all, what better way to let imaginations run wild than promising to unveil something that would forever change the Internet?

However, once people got past the jargon and had time to digest what the technology could really do, many realized that they hype might not have been as overdone as first thought.

Granted, the name of the new product - the CRS-3 Carrier Routing System - does not exactly resonate with Apple (NASDAQ:AAPL)-like marketing prowess. But this is Cisco, and routers are what this company is all about. So when it spends $1.6 billion to create a system that can handle 12 times the traffic capacity of the nearest competitor, we can forgive them for getting a little excited.

CSCO Chart

What does it mean for the rest of us? Well, Cisco says its super-router can carry 322 terabits of data per second. A terabit is 1 trillion digits, or 1,000,000,000,000. At that speed the CRS-3 could:

  • Deliver every movie ever made in 4 minutes
  • Transfer more than 4 billion MP3s in a minute
  • Let everyone in China make a video call at once
  • Send the entire King James Bible in 0.000000014 seconds
  • Transmit the DNA sequence of 56,000 people in one second
  • Deliver 1G to nearly every household in San Francisco

All of this for prices starting at $90,000 per router. The system is expected to be used at the backbone of large carriers such as AT&T (NYSE:T), which handle the core network of the Internet. Already, AT&T recently tested the CRS-3 in its first live field trial for a 100-gigabit backbone network between New Orleans and Miami.

There are other telco plays - including like Nokia (NYSE:NOK), Juniper (NYSE:JNPR), Corning (NYSE:GLW), and LM Ericsson Telephone (NASDAQ:ERIC) - but given the demand for bandwidth, I think CSCO is indeed the play here as far as infrastructure is concerned. (You can see a video of the CRS-3 here.)

But Cisco isn't the only winner. Content providers and delivery companies should also benefit greatly from faster loads that will increase page views, thus increasing value.

Here are three of my top picks based on that improved improved customer experience:

  1. Apple: iTunes and App Store
  2. Netflix (NASDAQ:NFLX): Streaming video delivery
  3. Google (NASDAQ:GOOG): Ads for search and YouTube

Lesser winners could include Microsoft (NASDAQ:MSFT) with such properties as Bing and MSN, as well as its search partnership with Yahoo (NASDAQ:YHOO).

There will be ripple effects throughout the broader economy as well. For example, an annual survey of more than 1,000 US advertisers and marketers taken last December found that digital ads will overtake print ads for the first time in 2010. Of their combined $368 billion spending this year, 32.5 percent ($119.6 billion) will go to digital, versus 30.3 percent ($111.5 billion) for print.

That means more robust digital presentations, which in turn needs more bandwidth for delivery and execution. Once again, enter Cisco's new routing system.

So don't let the CRS-3's wonky name fool you. Remember, it wasn't long ago that people shrugged off the importance of Windows.

Indeed, we may soon be looking at a sequel to "Revenge of the Nerds" - this time, starring John Chambers.

Disclosure: No positions