Laugh Riot in San Jose as Cisco Rolls Out New Products

Cisco (CSCO Quote) floated two long-awaited product announcements Wednesday amid mounting concern over its market share and revenue growth.

The world's top computer networking company said that after nearly six months of delays, its new higher-capacity core router is rolling off the assembly line and ready to be shipped. Cisco also made available a new version of its highly touted Cerent metro box, and turned comedian Dennis Miller loose on a Hollywood-based Web cast. Who says Wall Street has it easy?

So as some investors wondered whether Cisco's really ready to win back router share, the company's shares lost 19 cents to $37.81 amid a late-afternoon Nasdaq selloff.

Juicing It Up

Cisco, to be sure, needs some new products to juice up revenue growth and help offset the equipment spending slowdown that is clawing away at its growth projections, which run to 50% on the high side. And the timing of the announcement couldn't have been better: Not only are investor anxieties rising ahead of Cisco's earnings report, set for Tuesday afternoon, but investors have been gathering the impression that upstarts Juniper (JNPR Quote) and Avici (AVCI Quote) are beating Cisco at what has long been its own game.

By the end of the third quarter, Juniper had swiped 30% of the core routing market from Cisco, which still holds a commanding 69%. Some analysts think Juniper will hit 40% when year-end 2000 numbers arrive.

Core routers are like central mail sorting systems at major junction points on the Internet. These devices direct Internet traffic along a multitude of pathways, and as traffic increases, the capacity of these routers must also expand or they become bottlenecks.

Juniper last year leapfrogged Cisco by introducing a 10-gigabit router. The router's ability to handle 10 billion bits of information per second trumped Cisco's gear, which topped out at a mere 2.5 billion bits.

Keystone Oaks

Cisco showcased the products Wednesday in Los Angeles during an hourlong skit by comedian Dennis Miller, a man who professed to know so little about tech that he can't even "harness fire."

Cisco's vice president of service provider business, Larry Lang, played straight man, serving up such doozies as: "IP and optical are like chocolate and peanut butter." Football funny man Miller soon had the audience rolling in the aisles with punchlines to the effect of: "They are hilarious to watch when you feed them to your dog." Cue the laugh track.

Despite the evident entertainment value, some analysts wanted to see a little more substance to be convinced that Cisco wasn't blowing smoke.

"It may be nonexistant," Brean Murray analyst Gina Sockolow says of the prospect that customers actually have the 10-gig router at the center of the announcement. Sockolow points to Qwest's (Q Quote) decision to go with Juniper, saying that if Cisco had a box in late-stage development Juniper may not have been able to make the sale. Sockolow said she visited Cisco this month and asked to see the 10-gig router, but never saw it. Sockolow has a buy rating on Cisco. Her firm does not banking for Cisco.

A Cisco spokeswoman said AT&T (T Quote), AOL (AOL Quote), Sprint (FON Quote) and 360Networks (TSIX Quote) have signed on as customers for the new routers. But, citing the pre-earnings quiet period, she declined to give an exact time frame for shipping or to disclose the value of the contracts.

During the presentation, videos set to eerie ambient tunes offered testimonials from tech execs at Sprint, 360Networks and AT&T. A 360Networks spokeswoman confirmed that Cisco is her company's router provider, but added that the deal wasn't an exclusive supply agreement. AT&T confirmed it is using Cisco's 10-gig router but declined to elaborate.

Obviously there is a high degree of industry skepticism in the high-stakes game of tech product announcements. Lucent (LU Quote), for example, has a history of making questionable major breakthrough product announcements prior to weak earnings reports.

Given the tech-for-the-laughing-masses quality of the announcement, at least one optical research analyst suggested the Hollywood product kickoff was intended to whip up the enthusiasm of investors rather than network equipment buyers.