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Cisco metro gear headed for tests

The company will soon enter the market for metropolitan optical networking equipment with technology it acquired earlier this year, taking on competitors including Nortel Networks.

Cisco Systems will soon enter the market for metropolitan optical networking equipment with technology it acquired earlier this year, taking on competitors including Nortel Networks, ONI Systems and Sycamore Networks.

Company executives said they plan to enter tests with new metro gear based on the acquisition of Qeyton Systems this quarter--the company's fiscal 2001 second quarter--with initial revenue expected during the company's fiscal 2001 third quarter.

The optical equipment market, of which the metro gear niche is a part, is expected to grow to $45 billion by 2004, according to market researcher RHK. That has led to interest from a variety of companies, including small concerns like ONI as well as entrenched competitors like Nortel, Lucent Technologies, Ciena and Cisco.

Metropolitan networks are expected to be a huge opportunity for network equipment providers because they need to be upgraded to handle the explosion of Internet traffic. Using fiber optics, companies such as Cisco and Nortel can rapidly expand the capacity of these metro connections.

Cisco chief strategy officer Mike Volpi said this week that the company is "on target" for the release of the new metropolitan optical technology. "Customer demand is extremely healthy for the product," Volpi said in an interview following the announcement of the company's earnings Monday.

Volpi also said component issues could hold back production of the equipment, given the demand the company has seen for the gear.

The metropolitan optical niche has seen a flurry of activity this year. Cisco purchased Sweden's Qeyton in May for $800 million in stock.

Sycamore purchased start-up Sirocco Systems in June of this year for $2.88 billion, a week after Lucent paid $4.65 billion for a similar start-up, Chromatis Networks.

That followed the eye-popping $4.5 billion Redback Networks paid for start-up Siara Systems in December 1999. At the time of the deal, Siara had no products or revenues and had just signed up its first customer for tests.

Cisco announced a 66 percent jump in sales Monday for its fiscal 2001 first quarter. After a brief downturn, the company's stock was on the rise Tuesday following a series of bullish Wall Street analyst reports.