Cisco looks to rebound with overhaul of core switching system

Cisco (NASDAQ:CSCO), which has been losing share in the switching market to competitors like Hewlett-Packard (NYSE:HPQ) and Juniper Networks  (NYSE:JNPR), is rolling out a new iteration of its Catalyst 6500 system with plans to offer customers easy upgrades that allow them to switch out hardware modules.

"We can make this new heart and brain work with the old legs and limbs," John McCool, a Cisco senior vice president in charge of switching equipment, told The Wall Street Journal. "This is not a message our competitors are going to be happy to hear."

The Catalyst 6500 has some 700,000 installations worldwide and costs about $84,000 in a typical configuration.

The overhaul, some analysts believe, won't be enough to help Cisco.

"The 6500 was a fantastic workhorse," Andre Kindness, a Forrester Research analyst, told The Journal. "But is it going to be another five-year or seven-year platform?"

Cisco's largest business is its switching segment, where revenues last quarter were $3.3 billion, down 9 percent from a year earlier.

Analysts say Cisco's switching market share slid 5 percent to 68.2 percent between 1Q2010 and 1Q2011, with HP and Juniper Networks gaining 2.5 percent and 0.5 percent respectively. Avalya, Alcatel-Lucent (NYSE: ALU) and Brocade Communications Systems (Nasdaq: BRCD) also hold a share of the market.

Analysts also say that for Cisco to regain momentum it will have to cut prices. Its networking gear and switches currently demand a 50 to 100 percent premium.

"We believe Cisco will likely need to take the bitter medicine of lower gross margin for longer-term good," Sterne Agee analyst Shaw Wu wrote in June.

The company is in the midst of a major restructuring aimed at trimming $1 billion from its overhead by reducing staff by as many as 10,000 and getting out of under-performing businesses and products.

For more:
- see this Wall Street Journal article