Cisco drops $500 million switch

Cisco (csco), based in San Jose, Calif., said it was terminating the optical switch acquired as part of its purchase of closely held Monterey Networks Inc. in August 1999. The deal, announced the same day as Cisco's much more successful acquisition of Cerent Corp., marked Cisco's first big foray into fiber optics.

But the Monterey product, designed to make it easier to reroute the beams of light inside a fiber-optic network, was plagued with technical problems and has been delayed several times. A Cisco spokesman said that Monterey's product was "ahead of its time," and that Cisco, which is struggling with declining sales and a depressed stock, would "focus on things that bring immediate returns."

The spokesman said that about 200 employees would be laid off as a result of the move, and that they would be part of the as many as 5,000 layoffs Cisco announced last month. The spokesman said he didn't know the fate of Joe Bass, Monterey's former chief executive officer, who had continued to oversee the project at Cisco.

Cisco's Monterey switch competes with products from Ciena Corp., Corvis Corp., Lucent Technologies Inc. and Nortel Networks Corp., as well as several start-ups.

It's not unusual for Cisco to kill a project from one of its 71 acquisitions, but it is unusual for it to announce the decision -- particularly from a prominent deal such as Monterey, in which Cisco invested with hopes of cracking a new market.

One analyst said he wasn't surprised by the move because of Monterey's well-documented problems. "This may not be the last" project Cisco kills as it slims down to survive the brutal downturn in communications-equipment spending, said Christopher Stix of Morgan Stanley.

Cisco announced the move after regular trading hours. As of 4 p.m. trading Wednesday on the Nasdaq Stock Market, Cisco shares fell six cents to $13.69, its lowest level in more than two years. After hours, they fell to $13.63.