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NEW YORK ( TheStreet) -- Cisco ( CSCO - Get Report) has lost a step, and may have lost its way.

As tech giants go, you don't find many with the sort of scale that Cisco has. Nearly everywhere in the world where computer systems are connected and Internet traffic is routed, Cisco gear is involved. The company has 70,700 employees with nearly half located outside the U.S.

Its size and reach used to be an advantage when weak sales in some regions or products would be offset by strengths elsewhere. Cisco chief John Chambers used to boast on earnings conference calls that Cisco had 80% or more market share in its top five product categories.

Those were the good times.

Lately, with the stock hitting new one-year lows, Cisco hasn't had much reason to pound its chest. And its size is now seen as a vulnerability, as upstarts and old rivals alike try to pick off Cisco's customers.

A succession of quarterly outlook disappointments has knocked 25% off the stock since November. Crippled budgets at state and foreign governments have pinched the spending that Cisco used to rely on. And an 11% plunge in cable TV set-top box sales in the past year has added to Cisco's heavy burden.


But there's a nagging sense that Cisco's woes aren't all due to external forces. It may be that the years of dominance in network gear-making has fostered some complacency or helped limit Cisco's ability to see key technology shifts early.

A good illustration of this flaw is in so-called edge routers, a small yet crucial product category where Cisco got beat when it failed to innovate.

In the early 2000s, when Cisco was raking in billions in sales of routers to phone companies, a small outfit called TiMetra was focused on a growing problem that couldn't be answered with Cisco's approach.

"The network architecture was unsustainable," says TiMetra cofounder Basil Alwan, who now heads Alcatel-Lucent's ( ALU) router unit.

Edge routers are junction boxes that handle a variety of network traffic like video and phone calls, streamlining the traffic into IP data packets that travel over the vast Internet backbone.

TiMetra, which was acquired by Alcatel in 2003, not only addressed one of networking's big problems, but it came just as Cisco customer AT&T ( T - Get Report) was looking for a way to cram TV into the Internet pipe it calls its U-verse service.

TiMetra was huge, says Shin Umeda router analyst at Dell'Oro Group, a market research shop. "They had the right product along with new service capabilities like IPTV."

Alcatel proceeded to build on that win, adding more and more of Cisco's customers. In 2009, Cisco lost 8 percentage points of market share in edge routing, and in the most recent quarter, Cisco lost 5 percentage points, according to Dell'Oro.

"This is quite threatening to Cisco," says Umeda. "Alcatel is making a lot of gains in accounts dominated by Cisco."

Cisco has high hopes that its new ASR 9000 edge router can help recapture some lost ground. A Cisco representative said the ASR 9000 was "gaining strong market traction with tier-one service providers."

The ASR 9000 could get Cisco back in the game, says Dell'Oro's Umeda, but "sales have been slow to ramp, and Cisco is still losing ground."

Cisco's Air Attack

But what Cisco has been lacking in innovation it has been making up for in hustle. A sprawling company to run with 90 sales office worldwide, you would think Cisco's energetic chief John Chambers would be too busy to drop everything and jet in to help win a sale.

But no, Chambers has become known as the closer-in-chief, the big gun Cisco frequently uses whenever a big sale is in the cross-hairs, according to two industry sources.

Chambers is so famously on call -- so ready to jump in his plane -- that competitors use it as an inspiration, a "bring it on" showdown as they get deals to the closing stage. According to one rival, when a deal is nearing, his sales team would say -- with provocative delight -- "let's make Chambers fly."

Cisco declined to comment.

Who knows -- maybe making house calls is how deals get done in tech.

And while it isn't exactly a shock to hear that Chambers is ready in the bullpen to come in and close a sale, it does suggest that Cisco's not winning business on the merits of its technology.

Critics may say Cisco lost its way in tech innovation, but it still has an edge in the sales department.

--Written by Scott Moritz in New York.

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