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Cisco loses top spot in niche cable market

The company loses the No. 1 spot in a market involving gear used to offer broadband Net connectivity to customers, recent figures say. Cisco had used its position to sell other equipment to cable operators.

Cisco Systems has lost the top spot in a niche cable market involving gear used to offer broadband Net connectivity to customers, according to recent figures. The company had used its position to sell other equipment to cable operators.

During the fourth quarter of 2003, Arris International overtook Cisco for the first time as leader in the North American cable modem termination system (CMTS) market, according to numbers from Infonetics Research. Arris was originally formed through a joint venture between Nortel Networks and Antec.

Cisco has dominated the CMTS market for years. While it only represents a small piece of the company's overall revenue, CMTS gear, used by cable multiservice operators to offer broadband connectivity, has been valuable to Cisco as it established a foothold in the cable market.

Over the last few years, Cisco had used its dominance in the CMTS arena to sell next-generation Sonet and optical networking products and high-end switches and routers for backbone infrastructure, among other gear.

The cable market is an important one for Cisco, especially as these service providers begin offering voice services over their IP infrastructure. Cox Communications and Time Warner Cable have already announced plans for offering VoIP (voice over Internet Protocol) on their cable networks.

According to Infonetics, Cisco's market share of revenue fell 13 percent in the fourth quarter compared with the third quarter. The company had 24 percent of the market in the fourth quarter, down from 37 percent in the third. By contrast, Arris increased its market share to 33 percent, up from 30 percent the previous quarter. Some experts believe Cisco's fall was a result of pricing pressure from Arris, which introduced new products with strong price/performance metrics.

Cisco's dip in market share was isolated to North America. It managed to maintain its leadership in the three other regions of the world, including the Europe/Middle East/Africa, Caribbean/Latin America, and Asia-Pacific regions, said Michael Howard, an analyst at Infonetics. Cisco also held its worldwide No. 1 position for 2003.

Even so, North America is an important market for CMTS, as it makes up about 62 percent of the worldwide market.

Experts said they aren't too concerned about Cisco's slip in North America. Sam Wilson, an analyst with JMP Securities, said Cisco has bigger fish to fry in the cable market.

"It's not a good trend," Wilson said. "But the CMTS market is a small piece of their overall pie. MSOs (multiservice operators) are important to Cisco, but they're much more concerned about the backbone business, where they sell the switches and routers."

Indeed, the CMTS market is a niche compared with other Cisco markets. In total, the worldwide market was only worth $430 million in 2003. At least two competitors have already called it quits.

Juniper Networks, which had bought Pacific Broadband back in 2001, discontinued that product line last year. The company has since established a cross-marketing arrangement with Arris. Com21, which made CMTS gear for smaller networks, was bought by Arris last year. Now five companies remain: Arris, Cisco, Motorola, Terayon Communication Systems and ADC Telecommunications.

"Every industry that reaches maturity, like automobiles for example, has only one or two big name brands that stick out," said Howard. "There's already been some consolidation, and I'm sure we could still see some more."

Wilson wondered if Cisco is looking for a way out of the CMTS arena.

"The CMTS market has not been a very profitable business," Wilson said. "The same thing happened in the DSL space, which Cisco gave up to Alcatel. I wouldn't be surprised if the same thing happens here."

Cisco was not available for comment at press time.