Since 2002 Cisco Systems Inc. has dropped more than two-thirds of its channel partners, but the network equipment manufacturer is still looking for integrators specializing in IP services, telephony and security.

Paul Mountford, Cisco’s vice-president for worldwide channels, said two years

ago his firm had more than 6,300 certified channel partners, compared to 2,400 today.

But at its worldwide analyst conference, held last week in Santa Clara, Calif., Mountford said he doesn’t think the company alienated any VARs that were dropped.

We didn’t go out and fire them,” Mountford said. “It’s not like we took a big sword out and said, ‘You’re out of the picture.’”

Some technologies, especially voice-over-Internet –Protocol, require a high level of technology skill, said Chris Dedicoat, Cisco’s senior vice-president for Europe, the Middle East and Africa.

“It’s not an easy qualification to get,” he said, because it’s difficult to build a network that can handle both voice and data traffic well.

Doug Dennerline, Cisco’s senior vice-president for the U.S. enterprise, commercial and federal sales organization, said Cisco needs channel partners who understand both telephony and security technologies.

“Those are very different technologies,” he said. “We need partners to go together to provide a complete solution.”

Cisco divides its partners into three broad categories, Mountford said. The lowest tier (when measured by the ratio of service to hardware revenues) is comprised of “fulfillment” partners who fill orders based on requests for proposals. The middle tier includes systems integrators who sell technologies, usually to chief information officers, to help customers get a return on their investment.

At the high end are service providers who usually sell complete business solutions, aimed at board-level executives.

“There’s been a radical change in the requirements of those solutions providers, particularly in their ability to add value to software and also their ability to add value through managed services and security services,” Mountford said.

Large companies are getting away from “buying boxes” and want to deal more with solution providers than with the fulfillment providers, according to one analyst who attended the conference.

They need to change from having channel partners who are just providing simple systems integration services and providing boxes, to actually being partners that can offer infrastructure solutions,” said Jerry Murphy, senior vice-president of technology research services at the Stamford, Conn.-based Meta Group Inc.

“Enterprises are moving from buying boxes and putting together the network themselves to wanting higher-level services from both the network providers and the service providers.”

Cisco has been effective in Canada in its partnerships with telecommunications carriers like Bell Canada, said Albert Daoust, manager for special projects at Toronto-based Evans Research Corp.

Daoust, who also attended the analyst conference, said users and channel partners are attracted to Cisco partly because they know the company is financially strong.

Cisco has been “more original” than competitors in using large high-end IT service firms, like IBM Global Services, EDS and Cap Gemini, Daoust said.

But he warned the manufacturer has “no clear strategy” for winning the small to mid-sized market.

“There’s still no clear way of how they’re going to roll out IP telephony to firms with less than 500 seats,” he said. “It could be, with (subsidiary)Linksys, they believe they can attack it from the home market” by selling cheap IP phones to residential and small office users, and then trying to sell similar equipment to small businesses.

Although Cisco has a good reputation in the industry, it owes much of its success to the financial woes of Nortel Networks Corp,which has had to restate its financial results from previous years.

“Less bad news from Nortel would make things a little more difficult for Cisco,” Daoust said.

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