May 24, 2004 4:00 AM PDT

Cisco bets on new high-end router

Cisco Systems on Tuesday is expected to launch a new high-end router for large telecommunications carriers, in a major bid to outmatch rivals in a key market.

The product, code-named HFR (for huge fast router), will be unveiled at an event marking Cisco's 20-year anniversary, when it will be christened the Carrier Routing System-1, or CRS-1, a source close to the company said.

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What's new:
Cisco Systems on Tuesday is expected to launch its Carrier Router System-1 (CRS-1), a new high-end router for large telecommunications carriers.

Bottom line:
The networking giant is banking on the new product to maintain its lead in the core router market, but it could take some time for CRS-1 to drive significant revenue.

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The new router is designed for carrier networks that handle the highest volumes of Internet traffic. It is the first product engineered by Cisco that will allow several boxes to be clustered together to function as a single router--a feature that is defining the next generation of these products.

Cisco has been working on the CRS-1 for the past four years, but it has kept quiet about details, even denying the product's existence. Cisco declined to comment for this article.

Despite all the hype and secrecy generated by CRS-1, the high-end router isn't expected to contribute to Cisco's bottom line any time soon. That should give major competitors such as Juniper Networks, and even smaller rivals such as Avici Systems, more time to grab market share, analysts have said.

Cisco's CRS-1 may not contribute substantial revenue to Cisco for at least a year, said Kevin Mitchell, an industry analyst with Infonetics Research. That's partly because the company is using newly designed operating software for the product, a decision that likely will extend the testing period, Mitchell said. The initial version of the product also supposedly lacks several key features such as full support for Internet Protocol version 6 (IPv6) and multiprotocol label switching (MPLS).

Still, experts view the announcement of the product as a significant and necessary step forward for Cisco.

"Cisco needed a high-end router to anchor it in the market against Juniper," said Stephen Kamman, an equities analyst with CIBC World Markets. "They needed a new core router replacement not to deliver new revenues to the company, but to help it maintain revenues from existing customers."

Switching cycle
Several telecommunications companies already are interested in Cisco's new router, which might sell for between $250,000 and $500,000, depending on configuration, if priced in line with other high-end routers, analysts have speculated. Sprint has been testing the CRS-1, a source close to the carrier said. Deutsche Telekom, AT&T and MCI also may be interested in Cisco's new product.

The largest service providers use core routers to send traffic across the Internet. Although past estimates of traffic growth have been grossly exaggerated, most experts agree that the Internet is doubling about every 12 months. As telephone companies start replacing their old infrastructure with new Internet-based gear to carry voice over their networks, traffic on the Internet is expected to grow even more.

This rapid growth has forced many carriers into a constant cycle of replacing routers with bigger, faster equipment to keep up with demand. As carriers face the next phase of network development, they are looking for gear that will last five to 10 years, rather than equipment that lasts on average about two to three years, said Tony Li, a former chief scientist at Procket Networks, a core routing start-up.

"Every time a customer needs to upgrade, he has to rip out his existing routing infrastructure," he said. "It's a painful way to grow a network. Most times, equipment is being replaced before it has even started depreciating."

Cisco's new router is supposed to alleviate this problem, since it will allow multiple chassis to be clustered together to form a single router. This means that carriers will be able to add capacity to their core routers in increments.

Cluster and scale
As a standalone chassis, the CRS-1 offers capacity of at least 640 gigabits per second--double that of any product from Juniper Networks, Cisco's closest competitor in the market for core routers. It is also the first router in the industry to support single optical interfaces that provide 40gbps. The current design is expected to allow for up to five chassis to be linked in a single cluster.

Avici was the first company to sell a clustering router in 2000. Juniper's T-series routers, introduced in 2002, also are designed to handle clustering. But so far, most carriers haven't needed to cluster routers. Few Avici customers have actually linked the boxes together, and none of Juniper's buyers have clustered T-series routers together, since the matrix needed to do the clustering isn't yet commercially available.

But as carriers start consolidating their disparate voice and data networks into a single network, they are looking for more scalable solutions, Li said. Scalable routers that allow clustering could provide investment protection to carriers by allowing incremental upgrades to their core infrastructure.

Scalability isn't the only requirement of next-generation routers. Carriers also need gear that is more reliable. Most carriers today install two pieces of equipment, rather than one, to ensure reliability.

"Routers in the Internet today were originally designed for the enterprise," said Jack Wimmer, a vice president of network architecture and advanced technology for U.S. carrier MCI. "In order for MCI's network to perform with a high degree of reliability, we have to put several layers of redundancy in the network. This has worked fine, but we are actively looking for new routers that are highly reliable, both in terms of hardware and software."

Wimmer added that with more reliable gear in place, carriers will be able to grow higher performing networks at a much lower cost.

Cisco seems to be addressing this requirement with its new CRS-1, analysts said. The new software used to power the router is newly designed so that it is more reliable. The company has made the software more modular, so that carriers can more easily add new features and troubleshoot problems.

The competition
For the past two years, Juniper Networks has been shipping its ultra-high-end T-series routers, which seem to have found a strong market. The products have been outselling the company's traditional M-series routers in the core for the past few quarters, Mitchell said. Juniper contends its routers are installed in more than 60 customer networks, including those belonging to carriers BellSouth in the United States and NTT Communications in Japan.

Until now, Cisco has lacked an answer to Juniper's T-640 high-end router. Instead, in December the company released the GSR 12800, an extension to its existing Gigabit Switch Router line of core routers. The product began shipping in the beginning of 2004.

"If the HFR (CRS-1) had been ready a year ago, the GSR 12800 probably wouldn't have been introduced," Kamman said. "The 12800 seems to be serving customers who have an immediate need."

But even with the 12800 in the pipeline, Cisco customers seem to be holding out for the next-generation product. Revenue for its high-end carrier-class routers slipped roughly 10 percent during its fiscal 2004 third quarter, Cisco CEO John Chambers said during a recent company conference call.

Even though Cisco still dominates the high-end router market, it has been slipping, analysts have said. During the first calendar quarter of 2004, Cisco laid claim to about 65 percent of the high-end router market, according to Infonetics Research. This is down from its yearly average of around 70 percent market share.

Meanwhile, Juniper has gained market share over the past year. In the first calendar quarter of 2004, Juniper had about 26 percent of the market, Infonetics reported--up from an average of around 20 percent two years ago.

Cisco also is facing competition from smaller players. Caspian Networks, Chiaro Networks, and Procket Networks are three start-ups that have begun winning business. Avici, which only has about 2 percent of the market, is also expected to win more business and gain market share through its reseller relationship with Nortel Networks.

The CRS-1 is viewed as Cisco's key to maintaining its dominance.

"The perception is that they have been lagging in the high-end router segment," Mitchell said. "As carriers deploy MPLS, they need a more highly available and scalable product than what is currently available from Cisco."

The secret is in the software
Although the new router is a critical addition to Cisco's product line, the new software that will run on the product is a revolutionary advance for Cisco. The CRS-1 is expected to be the first product to use the code, but the company plans to eventually use the software across its entire switching and routing product line.

The migration will likely occur slowly, as the company begins adding it to new products. Cisco is expected to continue supporting products using the old versions of IOS, and the company will likely continue introducing new features to existing software for certain products.

"The software is a much a bigger deal for Cisco than the new routing hardware," Kamman said. "It will be important to see how quickly they transition other products over to the new version."

Cisco's original software--known as Internetwork Operating System, or IOS--has been the foundation of all of the networking giant's products since its inception. While most PCs run Microsoft's Windows operating system, most routing and switching gear in corporate and service provider networks run IOS. As products and features have been introduced over the years, the software has evolved into a patchwork of code, which has made it buggy and has contributed to certain security flaws.

"IOS has a plethora of problems," said Li, who prior to his stint with Procket worked for both Cisco and Juniper. "IOS has always had problems. Cisco had a chance in the early 1990s to fix it, but they chose not to. Now they are locked into starting from scratch."

Because routing and switching functions are performed on separate software processes, Cisco developers can add features and upgrade portions of the code without worrying about causing problems in other parts of the software. As a result, customers may have far fewer bugs to deal with when putting new features on their routers.

Cisco may already be working on a smaller version of the CRS-1, which will use the new IOS. Juniper took a similar strategy with its T-Series routers. It announced the T-640 in the spring of 2002 and six months later introduced the T-320, a smaller version of the original router. Avici also took this strategy by introducing the SSR and QSR routers, which are scaled down versions of its flagship router, the TSR.

 

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