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Cisco inks $150 million optical equipment deal

The networking giant plans to announce a $150 million deal Monday to supply a start-up communications network operator with its full set of acquired optical equipment.

Cisco Systems plans to announce a $150 million deal Monday to supply a start-up communications network operator with its full set of acquired optical equipment.

Though the pact with Cambrian Communications is small compared with recent deals from the likes of competitors Alcatel and Nortel Networks, it is a significant endorsement of a nascent business for Cisco.

Like several of its competitors, Cisco sees a huge opportunity in the optical equipment market for the next few years. Sales of optical technology are expected to be $29.3 billion by next year, growing to $45 billion in 2004, according to market researcher RHK.

Cisco is far behind dominant players such as Nortel, Lucent Technologies and Japanese giant Fujitsu. Cisco's 6 percent of the market is dwarfed by market leader Nortel's 38 percent for this year, according to RHK. Lucent retains a 14 percent share of the market, despite its recent woes, while Fujitsu is third with a 12 percent share, RHK said.

Cambrian is expected to be the first customer to use Cisco's Wavelength Router, a closely watched portion of the company's business based on the $500 million acquisition of Monterey Networks last year, according to Cisco. The network operator will also use Cisco's metropolitan networking products, based on the acquired Cerent and optical equipment from the Pirelli unit Cisco purchased at the end of last year.

Another start-up communications carrier, Cogent Communications, also plans to use an array of Cisco optical technology in its network, though it has not yet made commitments to all of Cisco's products.

Cisco's fastest-growing business is sales to service providers, a market segment that has engendered increased scrutiny in recent weeks. This is due to a plethora of problems among competitive local exchange carriers (CLEC), an admission by Lucent that bad loans to some service provider customers have contributed to a downturn in that company's sales, and the announcement of slower-than-expected growth in optical by competitor Nortel.

For those reasons, Cisco's quarterly earnings, to be released at the close of the market Monday, will be watched closely.