Cisco Systems Inc. (CSCO) has announced a super-fast carrier routing system called the CRS 3.
Management stated that use of multiple CRS-3s in the network would enable data transfer speeds of up to 322 terabits per second (tbps), significantly higher than the 92 tbps of the CRS-1, which is currently used by many of the major carriers around the world, including AT&T (T), Sprint (S) and Verizon (VZ).
The company has sold around 5,000 CRS-1s to 300 network operators to date and this timely launch could help it gain market share. Management stated that the product was already in beta and would be available toward year-end.
The new routers are also 12 times faster than existing products from competitors such as Juniper (JNPR). Of course, Juniper has joined hands with Alcatel-Lucent (ALU) to develop solutions for faster data transfer, although neither of the companies has made an announcement yet.
Routers are usually strung together to transfer data packets from one computer to another. An individual router in the network picks up the data packet from the sending computer, identifies the destination computer, chooses the least-cost method of transferring the data to the destination computer and passes on the data to the next router on that route. Therefore, it plays a key role in the process of data transfer over networks.
There are a couple of reasons why we think the launch is very positive for Cisco.
First, the success of Apple’s (AAPL) iPhone, as well as other smart phones from Nokia (NOK), Research in Motion (RIMM) and Google’s (GOOG) Android-based phones continue to push up demand for high-speed data (mainly video). As a result, networks are getting increasingly congested.
Moreover, convergence of IP and telecom networks is increasing and we expect this trend to continue, as mobile Internet devices (MIDs) gain momentum. This is a perfect backdrop for a product such as the CRS-3, given its core routing functions.
Second, telecom carriers face cut-throat competition and the scope for differentiation of offerings is very limited. Significant increases in speed could be a way of picking up additional customers and reducing churn. This is the main reason telecom carriers have started investing heavily in infrastructure, despite the fact that recessionary pressures are unlikely to alleviate before the second half of the year.
Cisco shares jumped over 5% in the three days prior to the announcement, due to the hype related to the new product. But shares ended flat yesterday despite huge volumes, as some investors lost enthusiasm when it became evident that the product would not have a significant impact on revenue this year.
We currently have a short term Strong Buy recommendation on Cisco shares, as indicated by the #1Zacks Rank.
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