Cisco Apparently Having Difficulty with its Current Transceiver Strategy

Implications: 1.      Over the years, there is perhaps no other company in the telecom space that is more unwilling to acknowledge a misstep than Cisco Systems. 2.      The situation is no different when it comes to component procurement issues. 3.      Cisco is maintaining that there has been no change in its plan to give the bulk of its optical transceiver business to its preferred vendors.

Analysis:  Opnext has been candid about its supply troubles in recent months.  The problem at the supplier has affected both Cisco and contract manufacturers (CMs).  There have been delays at Opnext for various reasons on its 40G mux/demux IC, its X2 and its XENPAK.  There are also indications that there have been major recalls with Cisco’s preferred suppliers that included Opnext.   

Additional business from Cisco for the X2 and LX4 is going to other vendors that are not in the “preferred” category.  It is also known that Finisar continues to get rather low ratings on delivery from contract manufacturers like Jabil. 

Yet, Cisco is sticking to its story that about 80 percent of its optical transceiver business will be going to its four preferred suppliers (three of which are Finisar, Opnext, and Avago).  

It is quite possible that the systems integrator has overly played one supplier off another on getting low prices (which lead to unimpressive margins).  Cisco is at least indirectly contributing to the less than stellar performance by its component vendors.