12/6/2004 -- As 2004 draws to a close, Cisco remains mostly unchallenged across the breadth of markets it targets in the enterprise.

As 2005 approaches, however, the networking giant must overcome several challenges, including the cost of its Catalyst 6500 switching platform, the complexity of IOS, and its struggles in the SME market.

For the most part, 2004 was a highly successful year for Cisco, says Joel Conover, a principal analyst for enterprise infrastructure with consultancy Current Analysis Inc. “Cisco continues to maintain a dominant leadership position in the LAN switching and routing markets, and its drive to integrate LAN infrastructure with holistic enterprise security has kindled the market with competing solutions,” he writes. “While Cisco does not always have the fastest or lowest-cost solution in the market, it has staked its claim with non-stop reliability, availability and a world-class customer service organization. Enterprises vote with their dollars, and Cisco is the majority winner in the enterprise infrastructure market.”

Over the last two years, especially, Cisco has greatly expanded its technology leadership role, particularly in the enterprise segment, says Conover. “Cisco trumped competitors with first-to-market technologies including 10/100/1000 power over Ethernet, integrated Time Domain Reflectometry (TDR), and super-sized stackable switches,” he notes. “In many cases, competitors are only now responding with comparable technologies, while Cisco has used that time to capture early adopter customers and drive up profit margins.”

During the same period, Cisco has targeted other markets, Conover points out, including IP telephony and security applications. These new emphases have in turned fueled Cisco’s acquisition activities, which increased substantially in 2004.

Nevertheless, Cisco isn’t completely insulated from competitive pressure. “Cisco faces increasing pressure on a number of enterprise fronts including security, switching and routing,” Conover notes. “Kingpin competitors such as Check Point have launched broad solutions strategies that directly compete with Cisco’s own security architecture. Juniper Networks also stepped up to the plate with a challenge Cisco could not ignore: the J-series enterprise access router.”

As 2005 approaches, Conover sees many positives and negatives for Cisco. For starters, he points out, the networking giant continues to make sound investments in convergence, security, wireless and other emerging technologies. “Cisco’s competitors have typically been unable to acquire technology over the same time period, due to lack of financial resources and/or lack of momentum to drive those purchases,” he notes.

Similarly, Cisco has been dogged in its pursuit of a converged, voice-enabled infrastructure, culminating in an Integrated Services Router portfolio that delivers impressive levels of voice and data integration and service density. “While the jury is still out on whether the branch router is sufficient to replace legacy communications systems, Cisco is doing everything in its power to drive the market towards that model,” Conover writes.

And let’s not forget Cisco’s success in driving the industry toward its own view of endpoint security, thanks to its ability to entice heavyweights like Microsoft, Symantec, McAfee, IBM and Trend Micro into backing its Network Access Control architecture. “Cisco’s size and its clout in the enterprise have given it a high degree of muscle with which to steer the industry in the direction that it wants,” Conover points out.

Next week, we’ll look at what analysts say are some of Cisco’s most glaring weaknesses in the coming year. Stay tuned. -Stephen Swoyer