Cisco battles Meltdown with mobile and video

With the carrier Ethernet market - for wireline, wireless and converged operators – in growth mode, Cisco only entered the aggregation services router space eight months ago, with the launch of ASR 1000. The routers are designed to work with Cisco’s core network systems, notably the CRS-1 (Carrier Routing System), which currently supports 92Tbps. Pankaj Patel, senior VP and general manager of Cisco’s service provider technology group, said in a statement: “This platform is designed for IP NGN (next generation network) transformation and will be used as the Carrier Ethernet transport foundation for video and mobility data growth.”

Cisco says internet traffic will increase at a compound annual growth rate of 46 per cent from 2007 to 2012, with video and mobility being key drivers. This will result in an annual bandwidth demand on the world’s IP networks of approximately 522 exabytes, or more than half a zettabyte.

Just before unveiling its new router, Cisco turned in a solid third quarter, and wireless proved the star turn, with a 22 per cent year-on-year increase in revenues. The company believes wireless will continue to strengthen its performance, although it warned its overall revenue could fall by as much as 10 per cent in the current quarter.

Cisco said a major factor in buoying third quarter profits was the increased spending on routers and switches by mobile and fixed carriers, to cope with increased internet traffic. Switch and router business grew by eight per cent and one per cent respectively, while the service business increased by 10 per cent.

Network home sales fell by two per cent but wireless grew 22 per cent overall. This indicates that enterprise and carrier wireless products are strong, but the Linksys unit is suffering from consumer cutbacks, despite its strong market lead in home networks. Cisco is therefore likely to push Linksys into further product areas, such as femtocells, the miniature indoor base stations that carriers plan to use from next year to improve indoor coverage and support homezone tariffs, as well as to build out 3G or 4G hotzones. For Linksys, the femtocells will often be incorporated into home gateways, while outdoor versions will be a clear opportunity for Cisco. With operators targeting a price of under $100, the femtocells will fit the consumer electronics model of Linksys and Cisco’s ODM partners in Taiwan, far more naturally than the high margin tradition of the mobile infrastructure makers.

Despite caution about Q4 and 2009, Cisco reported higher than expected Q3 net profit of $2.2bn, about the same as a year earlier. Excluding one-off items, earnings per share were up from 40 to 42 cents, whereas analysts had expected a drop to 39. Revenue rose eight per cent to $10.3bn, matching expectations. Cisco aims for long term growth averaging 12-17 per cent a year, but has fallen behind that recently. However, it reiterated the target yesterday, once the global economy returns to normal growth rates.

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