Cisco to sell high-end routers with Fujitsu

Yukari Iwatani Kane and Deborah Cohen

TOKYO/CHICAGO: Fujitsu Ltd. will sell high-end routers in Japan made by Cisco Systems Inc., the world's largest maker of gear to direct Internet traffic, under a joint brand name and they will co-develop software for them, the firms said.

The strategic partnership allows Cisco to carve out a bigger presence in one of the world's most advanced telecoms markets and Fujitsu to provide new products to its customers more quickly and cost-effectively. Terms of the partnership were not disclosed.

Fujitsu, which is Japan's largest computer maker and a main equipment supplier to the nation's dominant telephone company, Nippon Telegraph and Telephone Corp., expects to begin selling co-branded routers it has tested and certified next spring.

The deal comes as Cisco pushes to develop a market for CRS-1, a new line of routers aimed at telephone, wireless and cable companies as they expand a combination of high-capacity switches and transmission facilities that forms their core network.

Meanwhile, Fujitsu is struggling to turn its router business profitable after a slowdown in capital spending by its customers.

"Cisco brings to the partnership its strength in networking products like routers and switches while Fujitsu brings its strength in IT (information technology), system and network integration as well as solutions," said Mike Volpi, senior vice president of Cisco's routing technology group.

Cisco, which has a roughly 60 percent share of Japan's router market, said it hopes the alliance will help raise the share to 70 percent. It cited an industry study estimating Japan's total router market to be worth about 400 billion yen ($3.92 billion).

Fujitsu corporate executive vice president Chiaki Ito said it aims to turn its router business profitable in the business year starting next April and increase annual revenues from routers by 50 percent in three years as a result of the partnership.

It reported revenues of 40 billion yen from routers last business year.

Ito also said he hoped Fujitsu would eventually be able to sell the co-branded products to its customers in Europe and the United States and jointly pursue opportunities in other Asian countries such as China.

The partnership between Cisco and Fujitsu comes as competition in the market for high-end routers, devices that prioritize and move packets of voice and data information over the Internet, is heating up.

Both Cisco and smaller rival Juniper Networks enjoyed strong revenue growth in the market for routers with a minimum capacity of 10 gigabytes per second (Gbps) in the third quarter over the second quarter, according to market research firm Dell'Oro Group.

In Japan, the alliance could threaten Alaxala Networks Corp., a joint venture for routers set up by Hitachi Ltd. and NEC Corp., as well as Juniper, which sells its products through NEC.

NEC and Hitachi also sell Cisco products.

The announcement comes two days ahead of Cisco's annual meeting with Wall Street analysts in Silicon Valley, where progress in high-end routers is certain to take top billing.

The San Jose, California-based company said it now has three paying customers deploying the CRS-1 routers -- Japan's Softbank BB Corp., the National Institute of Informatics' SuperSINET research network in Japan, and Pittsburgh Supercomputing Center.

Meanwhile, 14 other service providers are testing the products, including Telecom Italia and Deutsche Telecom, which have entered a second phase of testing, Cisco said.