Cisco leapfrogs rivals with faster router

NEW YORK (Reuters) - Cisco Systems Inc introduced its first major new routers in six years and said they can be configured to handle Internet traffic up to 12 times faster than rival products.

John Chambers, Chairman and CEO, Cisco Systems Inc., discusses a new router that can handle 12 times the Internet traffic of the nearest competing product during a webcast, March 9, 2010. REUTERS/CISCO/Handout

While analysts said the upgrade was significant and could help boost sales to phone carriers grappling with surging Web use, they said the news fell short of Cisco’s earlier promise to unveil a technology that “changes the Internet forever.”

Shares of Cisco ended the day unchanged at $26.13, after gaining 4 percent the previous day, a rise that was in part in anticipation of the announcement.

“Everybody expected them to refresh their core routers but the way they hyped it I thought there was going to be more to it,” Piper Jaffray analyst Troy Jensen said.

Cisco, the world’s largest network equipment maker, said up to 72 of the new CRS-3 routers can be connected for capacity of 322 terabits per second (tbs). The new routers hit the market in the third quarter of this year.

At that maximum configuration, Cisco boasted the routers could in theory deliver every movie ever made in four minutes over the Internet, or connect China’s entire population of 1.3 billion people by video conference at the same time.

While operators do not put this much routing power into their networks today, Cisco is betting that surging Web traffic -- driven by smartphones like Apple Inc’s iPhone and services like Google Inc’s YouTube -- will make these products necessary in the future.

Cisco said it has sold 5,000 of its current most powerful router, the CRS-1, to 300 operators, which would be an average of 17 per carrier.

The CRS-3 router took Cisco three years to develop and supports data speeds three times faster than its own existing products. It goes on sale starting at $90,000 each.

“It’s a big deal for Cisco and its carrier customers,” Broadpoint AmTech analyst Mark McKechnie said, though he did not expect an impact on revenue this year. “It’s probably a long evaluation cycle, so it’s not something we think will really impact Cisco numbers until 2011 or 2012.”

Cisco said it has invested $1.6 billion in the CRS product line including half a billion dollars spent to build the CRS-1. It did not break out spending for CRS-3.

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The global market for high-powered routers that direct traffic at the core of the Internet will be about $2.8 billion in 2010, according to Frost & Sullivan analyst Ronald Gruia.

He estimated that Cisco, which reported revenue of $9.8 billion in its most recent quarter, has a roughly 55 percent share of this market while Juniper Networks Inc, the next biggest player, has about 30 percent.

The CRS-3 will give Cisco an edge over Juniper and other rivals like Huawei Technologies Co. However analysts said that Juniper could catch up as early as year’s end.

“By the end of the year, I expect them to be the same in terms of equivalent performance and capacity,” said Avian Securities analyst Catharine Trebnick.

Juniper said it was already in the process of upgrading its own products but noted that Cisco’s vision for 72 connected CRS-3’s would “never likely be deployed in practice due to space, power and manageability realities.”

Juniper shares closed up 1 percent at $29.89.

Cisco Chief Executive John Chambers said it is important for carriers to increase network capacity in anticipation of a five-fold increase in Internet traffic in the next four years.

“If we don’t provide this type of foundation for the future of the Internet, we actually become the constricting factor on the ability for it to grow,” Chambers said on a webcast.

In recent years Cisco has benefited from the rising popularity of bandwidth-hungry Web services, which has driven sales of its network equipment.

AT&T Inc, the biggest U.S. telecommunications company, said it completed a 100-gigabit-per-second field test of the new router. Cisco said it was the biggest operator working with the company on the new product so far.

On Monday, AT&T’s biggest rival Verizon Communications Inc and Juniper said they ran a trial at a similar speed.

Cisco said on the webcast that it expects to keep selling its existing product, the CRS-1, for many years even after it launches the CRS-3. It said it has installed more than 5,000 of the CRS-1 routers in networks around the world.

The news comes a week ahead of the expected announcement of the U.S. Federal Communications Commission’s National Broadband plan, aimed at boosting high-speed Internet adoption in the country.

FCC Chairman Julius Genachowski said on Tuesday that he sees technologies like Cisco’s helping forward his goal of connecting every community with high-speed networks.

(Additional reporting by Franklin Paul and Rodrigo Campos;

Editing by Gerald E. McCormick, Tiffany Wu, Gary Hill)