Cisco makes a bold play in the silicon space

After years of aligning optics, silicon and software elements, Cisco announced its "Internet of the Future" strategy at an event in San Francisco Wednesday morning. After years of aligning optics, silicon and software elements, Cisco announced its "Internet of the Future" strategy at an event in San Francisco Wednesday morning. Front and center of Wednesday's news was Cisco's Silicon One chip, which is a unified silicon architecture that can work anywhere in the network and be used in any form factor. Silicon One, along with Cisco's new IOS XR7 operating system, is powering Cisco's new 800 series routers that were designed for FANG webscale operators and service providers to power applications and services such as 5G, video streaming and 400G. “Innovation requires focused investment, the right team and a culture that values imagination," said Cisco Chairman and CEO Chuck Robbins, in a statement. "We are dedicated to transforming the industry to build a new internet for the 5G era. Our latest solutions in silicon, optics and software represent the continued innovation we're driving that helps our customers stay ahead of the curve and create new, ground-breaking experiences for their customers and end users for decades to come.” Not surprisingly, Cisco is billing its Internet of the Future initiative as a sea change moment for the industry. Designed to solve the biggest problems that will emerge as digital transformations tax the current infrastructure to its breaking point, Cisco said its strategy would lead to the next-generation of internet infrastructure that combines Cisco’s new silicon architecture with its next-generation of optics. Cisco believes this will change the economics behind how the internet will be built to support the demands of future and digital applications, and will enable customers to operate their businesses with simplified, more cost-effective networks.  With more 5G and 400G deployments next year, Cisco is also banking that it will boost its sagging bottom line in order to rebound from global headwinds that have impacted its past few earnings reports. By using silicon developed with Google, Cisco is now the master of its own destiny, as it no longer has to wait on silicon development cycles by vendors such as Broadcom. “We look forward to working with Cisco as it enters the high-end routing silicon space, collaborating to help meet the next generation of network demands for higher speeds and greater capacity,” said Amin Vahdat, fellow and vice president of systems infrastructure, Google Cloud, in a statement. Coming up with universal silicon allows network operators to reduce the cost of their operations and cut down the time-to-value for new services, according to Cisco. “It’s aggregation through disaggregation," said Scott Raynovich, founder and chief analyst of Futuriom. "Cisco clearly thinks the way to compete in webscale is to deliver its own optical platform with a vertically oriented system and a new, disaggregated OS — which also means it can protect profit margins by owning its own components. The cloud so far is being built on disaggregation — so it will be interesting to see how the market receives this.” Silicon One will be the capstone of Cisco's routers going forward with an eventual target speed of up to 25 Tbps. The first generation of the chip, Q100, clocks in with a speed 10.8 Tbps for network bandwidth. By comparison, Broadcom's Tomahawk3 chip for hyperscale providers has speeds of up to 12 Tbps. Cisco is also supporting Microsoft-developed SONiC (Software for Open Networking in the Cloud) in its new 800 series routers. Cisco rival Juniper Networks announced a major reboot to its MX routing platform last year, which included new silicon—which gives Juniper's MX routers a 50% increase in efficiency—more programmability and more chassis options, but Juniper isn't able to match the breadth of Cisco's Internet of the Future platform. In today's press release, Cisco lined up quotes from Facebook and Google Cloud, while also mentioning that executives from AT&T, CenturyLink, Comcast, Facebook, Microsoft and The Walt Disney Studios were scheduled to speak at Cisco's event Wednesday morning. “Facebook has been a strong advocate for network disaggregation and open ecosystems, launching key industry initiatives such as the Open Compute Project and the Telecom Infrastructure Project to transform the networking industry,” said Facebook's Najam Ahmad, vice president, network engineering, in a statement. “Cisco’s new Silicon One architecture is aligned with this vision, and we believe this model offers network operators diverse and flexible options through a disaggregated approach.” In addition to the silicon, Cisco also touted its work in the optics space. As port rates increase from 100G to 400G, optics become a larger piece of the capex pie. Cisco said its qualification program tests its optics and non-Cisco optics to comply with industry standards, and it invesst organically to insure that router and switch ports rates continue to increase. Through its deal to buy Acacia Communications earlier this year, Cisco will start to deliver pluggable form factors that foster operational simplicity while driving down cost and reduce power and space requirements. Cisco also announced plans to offer flexible component models for Silicon One that were first used with its optics portfolio, followed by the disaggregation of the cloud-based Cisco IOS-XR software. Cisco has been working towards generating more revenue from software subscriptions instead of relying on the sale of hardware. Making Silicon One a part of the software subscription model adds another element to that revenue model. The final piece of Cisco's Internet of the Future initiative was its $2.6 billion deal to buy coherent optics company Acacia Communications, which was announced in July and is expected to close early next year. Acacia has three product categories—pluggable modules, semiconductors and embedded modules—that are in Cisco's Optical Systems and Optics division. The Acacia deal dovetailed with Cisco's previous acquisitions of CoreOptics, Luxtera and Lightwire on the silicon photonics side. On the ASIC side, Cisco bought Leaba in 2016. Acacia rounds out those previous investments by bringing components, modules and digital signal processors (DSPs) for optical subsystems within switches, routers and optical networking gear. “Pushing the boundaries of innovation to the next level — far beyond what we experience today — is critical for the future and we believe silicon, optics and software are the technology levers that will deliver this outcome,” said David Goeckeler, executive vice president and general manager of the Networking and Security Business at Cisco, in a statement. “Cisco’s technology strategy is not about the next-generation of a single product area. We have spent the past several years investing in whole categories of independent technologies that we believe will converge in the future — and ultimately will allow us to solve the hardest problems on the verge of eroding the advancement of digital innovation. This strategy is delivering the most ambitious development project the company has ever achieved.” During September's Citi 2019 Global Technology Conference, Cisco's Marilyn Mora, head of investor relations, provided some additional color on Acacia deal. "The Acacia announcement is a very important announcement for us as we see three key foundational components to our strategy and architecture and that being silicon, optics and software," More said, which mirrored the three key components that were announced on Wednesday. Cisco's new platform is a bold move, but as Raynovich noted, it will take some time to see how it plays out. In the short term, he said it would be interesting to see Wall Street's reaction to Cisco's news, and how it impacts the shares of Cisco, Broadcom and Arista Networks.