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Cisco's 2004 outlook: Network intel, WLANs, VoIP to rule

Cisco's 2004 goals include increasing network intelligence and pushing its wireless LAN, VoIP and security products. Though the company is in a strong position for the year ahead, experts say certain parts of its strategy could backfire.

Cisco Systems Inc. may be the dominant player in the traditional networking equipment market, but the San Jose, Calif.-based powerhouse won't be resting on its laurels in 2004.

The company's plans for the New Year include moving intelligence further into the network while continuing to pursue other key markets, such as security, storage, voice over Internet Protocol and wireless LAN technology.

During Cisco's year-end analyst briefing, CEO John Chambers said that the company is pursuing a strategy that moves it away from simply making products.

"We are moving Cisco from a product company, or a system company, to a company that helps customers make transitions. This is a support model," Chambers said.

Chambers emphasized the need to help customers understand the increasingly complex networking environment and learn how VoIP, Wi-Fi, security tools and other technology can help companies boost productivity.

As part of that push, Cisco is focused on making it easier for companies to deploy increasingly complex functionality, said Rob Redford, Cisco's vice president of product and technology marketing.

One example of that strategy is Cisco's effort to pull virus-screening functionality into the network. With the new Catalyst 6500 switch, antivirus and VPN capability is built in. A system can be screened for viruses during the logon process and, if a virus is found, that system is quarantined. In the future, Redford said, devices will be automatically cleaned and updated as well.

"Technology that was once at the edge of the network is migrating further into the network," Redford said.

Other examples include Cisco's branch-office strategy. This approach to providing high-end services to remote offices allows users to simply add blades for different functionality, simplifying the deployment of features such as caching.

With wireless technology, Cisco is pursuing a similar approach. It is working to make its networks wireless-aware, so that they are capable of monitoring the radio frequency band for unauthorized users. The company plans to make more announcements regarding this initiative in 2004.

The wireless-aware strategy is one that can benefit small and medium-sized businesses, Redford said. With more functionality in the network, he said, it can be easier to deploy complicated functions.

Zeus Kerravala, a vice president at the Yankee Group, a research firm in Boston, said that Cisco, which has as much as 90% of the routing market, appeals to users that are looking for broad functionality. "Cisco is like a Swiss Army knife," he said.

But Dave Passmore, a research director with the Midvale, Utah, research firm Burton Group, said that Cisco's goal of moving all of the functionality into the network may not be the best thing for users.

In the past, he said, networks have been dumb pipes, and the intelligence has resided at the edge, enabling third-party vendors to develop innovative products. Moving the intelligence into the network creates a strong dependency on a single vendor, he said.

"It's fine if the people that run the network are benevolent, but it greatly limits the flexibility in terms of what you can do," Passmore said.

Passmore said problems can arise with an intelligent network if it depends upon products from Cisco or one of its partners from end to end. For example, Cisco's wireless-aware strategy depends on devices that have Cisco clients to transmit data about the RF environment into the network. Without those devices, RF intelligence will not be collected, Passmore said.

While Cisco has been dominant in most of the markets that it enters, it has faced challenges in the 10 Gigabit Ethernet market, said Neil Osipuk, an analyst with Infonetics Research in San Jose, Calif. Cisco's market share has declined in 2003, while Foundry Networks Inc. has been making good progress, he said.

As a result, pricing for 10 Gigabit products has become much more aggressive, and it will likely be so next year as well, Osipuk said.

Passmore also questioned part of Cisco's strategy with wireless LANs. This year, Cisco acquired Linksys Inc., which sells access points to home users as well as small and medium-sized businesses. Cisco's own Aironet access points also cover some of that market, but they are more expensive than the Linksys product, Passmore said.

"Small and midsize branch offices of large enterprises might buy Linksys products because they provide enough functionality at a fraction of the cost of the Cisco product," Passmore said.

Kerravala said that Cisco must continue to prove itself to the market by emphasizing the value of its products. While Cisco products often have a higher initial cost, the long-term total cost of ownership is less, Kerravala said.

Overall, Kerravala said, Cisco is poised for a good year in 2004. "They are one of the smartest technology companies out there," he said.


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