IP SWITCHING VS. TAG SWITCHING : : For example, Ipsilon Networks Inc. (Palo Alto, CA), earlier released the IP Switching protocols, a technology which it claimed could replace many routers - especially Cisco's highly profitable 7000 and 7500 lines - at a fraction of their costs.
``I'm not going to pick a fight,'' said Lawrence Lang, vice president of product development at Ipsilon, ``but I am going to find those places where Cisco routers no longer work.''
Others said Cisco has already fallen behind in some areas. While Ascend Communications Inc. (Alameda, CA) is the leader in the remote access market, Fore Systems (Warrendale, PA) is building a large following when it comes to ATM switches.
Sunil Dhar, senior product manager of Ascend, said he left Cisco last year because of its inability to bolster its remote-access offerings. ``That was a factor in my departure,'' he said.
In the case of Ipsilon, which uses off-the-shelf components like microprocessors from Intel, the one-year-old company is able to build boards for its IP (Internet Protocol) switches that can deliver at least seven times better price-performance than those at Cisco, Lang said. By comparison, ``(Cisco) would have 40 to 50 engineers go out and develop their own board,'' Lang said.
While IP Switching is a good approach, Cisco's new Tag Switching technology will be better equipped in handling future Internet traffic, said Dick Moley, senior vice president of Cisco. ``Tag Switching with its scalability for the Internet is significantly superior to Ipsilon's IP Switching idea,'' Moley said, adding that Tag Switching will support multiple protocols, as opposed to just the IP support in Ipsilon's case.
Tony Li, a former engineer at Cisco and now a key programmer at Juniper Networks Inc. (Santa Clara, CA), said IP Switching would only work well for networks that assume numerous file-transfer tasks. On the other hand, Tag Switching would be a better solution for networks that process a large volume of transactions, Li said.
So far Ipsilon's approach seems to have greater momentum. Lang said more than 20 companies such as Fore and Sprint Corp. have expressed their support for IP Switching. Whether anyone is going to do the same for Tag Switching and further legitimize Cisco's position is not clear.
``[The real question remains:] is anybody going to support Tag Switching?'' said Mary Petrosky, an analyst with The Burton Group.
In either case, experts said the whole concept of routing, which has helped build the fortune for Cisco, is going through major transformations as the Internet is carrying more traffic, especially the type that takes up greater bandwidth like real-time voice and video files. The situation is further complicated by the introduction of numerous technologies like ATM hardware and LAN switches.
According to vendors, routers, which compute data paths on a packet-by-packet basis, have helped contribute to performance bottlenecks between the ATM environments that they are interconnecting, with respect to throughput and latency.

ROUTING PARADIGM CHANGES : : ``The traditional routing paradigm is being changed,'' said Eric Andrews, director of product management at Newbridge Networks Inc. (Herndon, VA), ``People are filling up those $250,000 Cisco routers and they do not want to spend another $250,000 on another hunk of router.'' Petrosky added, ``It's impossible to say routers will go away. We will always have routing. But what's the best way to provide that routing?''
Some said the solution is to extend the capabilities of LAN switches to accommodate another layer of traffic which traditionally runs through routers.
Bert Williams, director of product marketing at Bay Networks Inc., (Santa Clara, CA), said his company's new Layer 3 switching approach will render many of the existing routers obsolete. Targeting Cisco's popular Catalyst 5000 routers, Bay will introduce over the next nine months an array of software that will allow Centillion, its Layer 3 switches, to interoperate in Cisco's proprietary Inter-Gateway Routing Protocol (IGRP) environment, he said.
The IGRP support is important, according to Williams, because it could convince many Cisco customers that any new products from Bay would be compatible with their existing investment.

CISCO'S CUSTOMERS SUPPORTIVE : : For the time being, Cisco's customers remain supportive. Kathryn Roy, service line manager at BBN Corp., said for an Internet service provider like BBN to rely strictly on routers as its backbone makes more sense than adopting a hybrid router and switches approach, which could create an overhead penalty.
``We feel that we've made the right decision,'' Roy said. ``We do believe that routers and switches are merging, but those things are still a year out.''
Brad Hokamp, director of advanced data services at Sprint, said though the company continues to be a large Cisco customer, it is also evaluating a number of technologies including ATM switches and IP switching for deployment in the second half of 1997.
Moley of Cisco is confident that it would be able to retain the loyalty of customers like BBN and Sprint. ``We're not going to sit idling by to have significant chunks of our revenues taken away,'' he said.
He added the company is willing to stay competitive by lowering its costs, accelerating new product development and even cutting prices which are all apparent in its low-end router strategy. In July, Cisco agreed to license its IOS operating system to Compaq Computer Corp. in a move that could create a high-volume, low-cost producer of inexpensive routers.
``You have to eat your own baby. It's better for you to cannibalize your own products than have someone else do it for you,'' Moley said.
Such an aggressive stance could result in further margin erosion, a scenario that has prompted a Wall Street warning for Cisco. For its latest quarter ended July 28, Cisco's margins were 64.9 percent, down from 66.7 percent in the year-earlier period.
That could be ominous for a company accustomed to lofty share prices, which have helped finance many of Cisco's acquisitions, including the $4 billion purchase of Stratacom Inc.

INTEGRATION DIFFICULTIES : : While Cisco officials said the buying spree is not likely to abate soon, observers said it will take years before the company can fully integrate the technologies it acquired and form a cohesive product offering. Equally challenging is Cisco's ability in porting IOS quickly to run on products it has acquired over the past years such as LAN switches from Kalpana, ATM hardware from Stratacom, and Fast Ethernet products from Grand Junction. Petrosky of The Burton Group said Cisco never tried to integrate some of these technologies.
``I could buy a Kalpana switch and connect it to some other vendor. The level of integration is not beyond what users can do on their own,'' said Michael Zadikian, who worked for four years at Cisco before joining Sourcecom in Westlake, CA, as vice president of marketing, earlier this year.
Cisco did try to make the integration work a few years ago when it made its first acquisition in buying Crescendo, but the two cultures clashed, according to sources. ``Any first acquisition is a learning process,'' said Jeff Paine, formerly director of corporate marketing at Cisco and now vice president of sales and marketing at Network Tools Inc.
Subsequently, the management of Cisco has taken a more hands-off approach when it comes to assimilating acquired companies, sources said. Moley of Cisco said there have been some rough patches. ``There's bound to be some messiness. We've been careful not buying overlapping [technologies],'' Moley said.
But he promised that the integration of Stratacom technologies into Cisco's portfolio would be swift, with the extensive use of Tag Switching capabilities on both sides over the next six to 18 months. In order to accomplish that, Moley said the company has planned to spend $600 million on research and development this year.
A former Cisco executive who asked not to be named said it's not clear how Cisco can support such investments as prices of internetworking products on a per port basis are dropping from $1,000 for a Cisco router to $300 for an IP switch. ``Prices are coming down 60 percent a year,'' he said. ``The question is can they make a transition to a lower-priced product?''

RELATED STORIES : :

• Cisco brings switching benefits to IP networks, PCWeek, April, 1996
• Cisco, StrataCom To Create Internetworking Giant, Inter@ctive Week, April, 1996
• Cisco Leads Networking Vendors Into Net Boom, Inter@ctive Week, April, 1996
• Cisco Clears A Routing Path Home, Inter@ctive Week, September, 1996