April 4, 2001 4:05 PM PDT

Cisco dumps acquired optical technology

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Cisco Systems is discontinuing an optical router that it acquired from its 1999 purchase of Monterey Networks, part of the company's initial foray into the market.

Cisco executives on Wednesday blamed poor sales and the slowing U.S. economy as reasons for dumping the Monterey product, now called the ONS15900. The networking giant acquired Monterey in August 1999 for about $500 million, the same day it acquired optical network equipment maker Cerent for about $6.9 billion.

Cisco, which in recent years has averaged more than 20 acquisitions a year, is known as a smart buyer of tech companies that can make acquisitions work, so Wednesday's move comes a surprise despite speculation that the technology was not well accepted.

"The market was growing too slowly for us to maintain the investment," said Carl Russo, vice president of Cisco's optical-networking business unit.

The product being discontinued was used to boost the capacity of optical networks, technology that allows telecommunications carriers and service providers to send larger amounts of Net traffic across their networks at faster speeds.

But the Monterey product called for a new way for carriers to build networks, something they're not willing to do with the slowing U.S. economy, Russo said.

Russo said Cisco will move its 270 employees working on the Monterey product to work on the development of its other optical equipment that it acquired from Cerent and Perelli. "Those products are generating revenue," he said.

Cerent's product--now called the Cisco ONS 15454-- is used for transporting data, voice and video over fiber-optic lines, while Perelli's product--now called the Cisco ONS 15800--is used for building optical networks in metropolitan areas and between regions.

With the Monterey product, Cisco competed against Nortel Networks, Sycamore Networks, Corvis and others, Burton Group analyst Dave Passmore said. Cisco's product was not as fast as its competitors, he said.

"The box wasn't competitive," Passmore said. "Cisco can sometimes use its clout to get customers to buy its products, even if it's not best of breed. But in the current economic climate, it's an uphill battle."

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