Friday, April 2, 2010

Cisco supply chain problems persist, prompting even longer backorders

Two words of advice for enterprises planning to refresh their network hardware -- order early! There seems to be no end in sight to the string of backorders Cisco Systems has issued over the past year for some of its most popular networking gear, apparently caused by ongoing problems in the Cisco supply chain.

"Customers are asking us, 'Hey, what's the deal with the product? When can we expect delivery?' The distributors don't really tell us anything [either]," said Chris Church, technical services manager for a Cisco partner in the Midwest, which he declined to identify. "You finally reach a point where you want to stop giving people dates because you're concerned about whether or not [they're] going to be met."

Since January, Church has seen long lead times for most of Cisco's Adaptive Security Appliance (ASA) firewalls. Four- to six-week shipping estimates issued earlier this year have since jumped to six or seven months. His usual contacts at Cisco have been vague as to the cause of, or remedy for, the delays.

"For pretty much every model except the very top-end one, which is the 5580, we were seeing very long lead times on them, and it hasn't gotten any better. If anything, it's gotten worse," said Church, who recently wrote about his Cisco supply chain woes on his blog, Layer 3, eliciting similar gripes from readers, one of whom reported a nine-month delay for ASAs.

"At first, they were saying March or April, and now they're saying June or July," he added. "Now, I'm starting to see some backorders on some of the [ISR] 2900 series routers that you might use to fill the role that a medium-range ASA might fill. It's starting to be a little bit of a ripple effect."

Speaking on the condition of anonymity, one network engineer at a large U.S. enterprise that is a devout Cisco customer said he has experienced backlogs as long as 150 days for Catalyst 2960 switches from direct Cisco purchases, as well as used equipment from various resellers.

Customers have turned to used networking gear vendors like Network Hardware Resale for some of Cisco's most high-volume products, complaining of "notorious" wait times reaching up to five or six months for new ASA firewalls and 2960s, according to Chris Stone, NHR's mergers and acquisitions manager.

Although the reseller gets its supply from enterprises unloading surplus networking equipment, the massive shortages throughout the Cisco supply chain are eating away at NHR's inventory, Stone said. In some rare cases, he said, the flood of demand is forcing NHR to reduce its large, hallmark discounts as supply dwindles.

"[The difference is] we're shipping in 24 hours for the most difficult products to find," Stone said. "It's either six months [from Cisco] or 'I can have this tomorrow.'"

Meanwhile, some networking pros are taking things into their own hands. Matt Simmons, IT infrastructure manager at Golf Savings Bank in Mountlake Terrace, Wash., balked at what now seems like a comparatively short three- to four-week shipping delay on three ISR 2600 routers. Cisco told him the problem was a software issue, he said.

"I thought it was really bizarre, so we bought these routers from [reseller] CDW and said, 'Why don't we buy the one that'll get here in a week? And I'll install the images myself,'" Simmons said.

Component shortages may not abate soon in Cisco supply chain

Although Cisco representatives declined to comment for this story, the networking giant cautioned investors about the problem in its fourth-quarter report for 2009.

"We have experienced component shortages in the past," the company stated. "We may in the future experience a shortage of certain component parts as a result of our own manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problems experienced by our suppliers or contract manufacturers, or strong demand in the industry for those parts."

Citing an improving economy, Cisco attributed shipping delays in the first and second fiscal quarters of 2010 to increased demand as well as labor "constraints" in the Cisco supply chain.

"There can be no assurance that we will not encounter these problems in the future," Cisco stated. "Although in many cases we use standard parts and components for our products, certain components are presently available only from a single source or limited sources, and a global economic downturn and related market uncertainty could negatively impact [their] availability."

It will probably take "a couple quarters" for suppliers to catch up, according to Zeus Kerravala, distinguished research fellow at Yankee Group. Even the gray market, such as eBay, is drying up as demand floods it, he said. Smaller value-added resellers (VARs) are also hurting.

"If you're dealing with a small local VAR who's your buddy, he's not going to have the purchasing power of a [reseller like] CDW," Kerravala said. "Even if Cisco does have product, they're going to prioritize."

Cisco's supply chain appears to be hit harder than competitors'

Networking vendors across the market have been singing the supply chain blues for the past year -- at the mercy of component manufacturers, Kerravala said. But the Cisco supply chain seems to be suffering most, he added, and is more noticeable because of its large installed base.

"I'm not sure where exactly in the supply chain the problem is, but it looks like some of the components used to make some of the high-performance interfaces -- gig and 10-gig connectors -- are where the delay is," Kerravala said. "From what I understand, it is a supply problem. It's not really from demand."

Compounding the problem is that some of the components that original equipment manufacturers (OEMs) rely on for networking gear are also being used in some consumer electronics, Kerravala said. Although Cisco leads in enterprise networking, the supply chain gets better volume from consumer deals.

"If [a manufacturer's] choice is Cisco routers or mobile phones, the volume of mobile phones would be a hundred times what the volume would be for Cisco routers," Kerravala said, adding that he had heard of Juniper Networks experiencing supply chain backups. Juniper did not reply to a request for comment.

Parts shortages began for a host of OEMs for network equipment vendors in the second quarter of 2009, when component manufacturers had begun to scale down output, according to Loren Shalinsky, senior analyst at Dell'Oro Group Inc.

By fall, a wireless LAN (WLAN) chipset shortage left a number of vendors in limbo, including Cisco and Trapeze Networks. At the time, Aruba Networks attributed a shortage to increased demand and had delayed an announcement because of it. Aruba executives said the problem has since been resolved.

In January, Channel Insider reported that Cisco was still struggling to fill orders for core networking products owing to a shortage of the raw material used to manufacture semiconductors and other basic components of its switches and routers.

(Source - Cisco supply chain problems persist, prompting even longer backorders)

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