Palo Alto, CALIF. — Duncan Martell reports that Cisco Systems Inc. took the wraps off its manufacturing strategy for optical networking products, aiming to recreate the success it’s had with outsourcing production of many of its routers and switches.
“We develop the processes and then help other companies to develop the kinds of competencies so they can produce our products the way we want them produced,” Carl Redfield, head of manufacturing for Cisco, told Reuters.
A 674,000-square-foot plant churned out its first optical networking gear two weeks ago and Cisco expects that 2,500 new jobs will be created during the next five years to support it. The New Hampshire plant, which was originally built by Digital Equipment Corp., now a unit of Compaq Computer Corp, was purchased by Cisco from a group of investors.
Separately, Redfield said that the quadrupling of Cisco’s backlog as of last Monday to $3.83 billion from a year-earlier $922 million was not so much a result of components shortages that have wreaked havoc in high technology, but rather a consequence of strong demand.
“In some cases, some of our products have been in such strong demand we have under-forecast that demand,” Redfield said. “Some companies have had shortage problems. In our case I think we’ve had increases in customer demand that have been tremendously great and we’re just climbing to meet that backlog.”
Redfield said the company is doing well at nibbling away at the backlog. “We’re going to catch up with that backlog pretty damn quick, too,” Redfield said.
Cisco counted confirmed orders for gear that would be shipping in 120 days to customers that have approved credit, according to Cisco’s annual report filed with the Securities Exchange Commission on Friday.
Right now, the kind of manufacturing expertise that’s required for making Cisco’s high-end optical networking gear isn’t yet sufficient at the contract manufacturers San Jose, Calif.-based Cisco uses. Roughly 70 percent of units shipped are built by contract manufacturers, although Cisco still makes most of its high-end routers in-house.
Cisco’s Redfield said he and his company are already talking to companies such as Solectron, Flextronics and others about them gearing up to make optical networking equipment, one of the fastest growing segments of the networking market.
“Each of them offers an embryonic capability today and they all know this is an area in which they need to invest,” Redfield said.
Ideally, Redfield said, Cisco would like some of its contract manufacturers to set up shop in the plant, which is about 40 miles northwest of Boston, in Salem, N.H.
By setting up and refining manufacturing processes on its own, then helping its contract manufacturers turn out gear for Cisco that ends up the way it wants, Cisco cuts costs, increases efficiency and is better able to meet demand, Redfield said.