Sign in Subscribe
Telecommunications equipment industry

Cisco's Dominance in Data Networking Challenged by Telecom Giants

Strategic Insights

— 2 min read

Cisco Systems Inc. has long held a near-monopoly in the data networking market, with a 70 percent market share in routers and related products and a stock market value of $79.3 billion. However, traditional telecom companies like Lucent Technologies and Northern Telecom of Canada are entering the data networking market, leveraging their experience in running dedicated-circuit voice networks to challenge Cisco's dominance. These new rivals possess substantial financial resources, with Lucent boasting three times Cisco's annual revenue, and the motivation to adapt to the emerging packet-switching technology, which is poised to replace circuit switching.

Key Takeaways:

  • Lucent Technologies and Northern Telecom, traditional telecom companies, are entering the data networking market to challenge Cisco's dominance.
  • These companies possess substantial financial resources, with Lucent boasting three times Cisco's annual revenue.
  • Lucent and Northern Telecom will tout the "extra level of engineering" that goes into the more complicated networks that carry voice traffic.
  • Bill O'Shea, president of Lucent's data networking business, emphasized the importance of years of experience, building systems, and watching how they operate to ensure reliability and avoid failures.
  • Lucent will begin testing its first billion-bits-a-second packet switch based on Internet protocols this month, which could become a true competitor to Cisco's most advanced gear.
  • Northern Telecom derived only $785 million of its $15.4 billion in revenue last year from data networking, indicating a long way to go to be on an equal footing with Cisco.
  • Cisco's chairman, John Chambers, broke off talks with Lucent about a partnership due to overlapping product lines, and is now reportedly bent on concluding an alliance with Northern Telecom.
  • Tellabs plans to acquire Ciena Corp. for $7.5 billion to expand its capacity in data networking, while DSC Communications has agreed to be acquired by French telecommunications equipment giant Alcatel Alsthom.

Statistics:

  • Cisco holds a 70 percent market share in routers and related products.
  • Lucent Technologies has three times the annual revenue of Cisco.
  • Lucent's data networking business is worth $785 million of its $15.4 billion in revenue last year.
  • Northern Telecom's data networking revenue is a mere fraction of its overall revenue of $15.4 billion.
  • Cisco's stock market value is $79.3 billion.
  • The new acquisition of Ciena Corp. by Tellabs is worth $7.5 billion.
  • The acquisition of DSC Communications by Alcatel Alsthom is worth $4.4 billion in stock.

Sources:

  • "Cisco Fights for Dominance" by Samuel Jaffe, New York Times, no date (original publication date not specified)
  • "Cisco's $79.3 billion market value"
  • "Lucent's $785 million data networking revenue"
  • "Northern Telecom's $15.4 billion revenue"
  • "Tellabs' $7.5 billion acquisition of Ciena Corp."
  • "Alcatel Alsthom's $4.4 billion acquisition of DSC Communications"

Read more