Cisco Not Covering Onsite Services Costs For Smart Net Customers Affected By Faulty Component

Cisco has confirmed it will not cover the on-site services costs of proactive equipment swap outs for customers with Cisco products that are expected to fail after 18 months, even if those products are covered by a valid Smart Net services agreement that includes onsite service coverage.

Cisco is proactively providing replacement gear for eligible customers whose Cisco switches, firewalls, routers and cloud-managed switches contain a faulty component discovered to cause system failure, regardless of whether the customers' equipment has failed yet or not. But the San Jose, Calif.-based networking giant said it will cover the costs of onsite removal and installation services only in cases where it is replacing equipment that has already failed. Cisco said it is not proactively sending out engineers for affected products that haven't failed yet.

"Our funding for the replacement program is being used to offer replacement products, even before the product fails, to help mitigate any disruption to business," said Cisco in an email to CRN. "We will honor all onsite services contracts, based on the terms of the contract. We are committed to working with and supporting our partner community, and providing the best quality products for all Cisco partners and customers."

[Related: 10 Things You Need To Know About Cisco's Signal Failure And Product Replacement Priorities]

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That posture, however, is causing friction in the market with solution providers feeling squeezed between customers who want the replacement products installed free of charge before they fail and Cisco, which is telling its partners it will provide the hardware at no cost but will not pay for the time it takes the channel to re-install the equipment.

Solution providers, for their part, said they were hoping Cisco would cover the costs of on-site service and installation swap out for Smart Net customers and/or reimburse channel partners for providing the services at no cost to customers.

Cisco on Feb. 2 disclosed that multiple product lines –namely Nexus switches, ASA firewalls, ISR routers and Meraki cloud managed switches – contain a faulty clock signal component that causes systems to degrade over time, showing a propensity to fail after 18 months or longer in production. Cisco has warned that once the "component has failed, the system will stop functioning, will not boot and is not recoverable."

"It's a Catch-22 situation. If the unit fails while in service, Cisco will send engineers to replace it, but if the unit has not yet failed, Cisco will not send engineers to replace it," said one top executive from a solution provider and Cisco Gold partner, who did not wish to be identified. "Therefore, the customer has to decide, do I let the units all fail, potentially causing disruption to the organization, but make Cisco do the work? Or do I proactively replace the units on my schedule using [channel partners]? Of course, if the customer can enlist our services at little-to-no charge, they will opt for that choice. Cisco knows this."

Cisco is providing replacements for products free of charge for the affected products before they fail if they are under warranty or covered by any valid Cisco services contract dated as of November 16, 2016. However, if an affected product has not yet failed, and is under warranty or covered by any valid services contract that includes onsite services, Cisco will not provide those onsite services.

Several Cisco partners said the standard Smart Net services attach rate to Cisco products ranges from 70 percent to 90 percent. Of those who customers who purchased Smart Net, approximately 5 percent to 15 percent buy Smart Net with onsite services coverage.

Some national partners say they have more than 10,000 devices impacted by the faulty component.

The Cisco Gold partner executive expects to send engineers out to "dozens" of customer sites who have a valid Smart Net onsite services contract in order to replace the product before it fails. "We will be offering our engineers free of charge to replace the units. No doubt, it’s going to cost us a lot of money in engineering time," he said.

Cisco partners say they now are in a position where they need to decide whether to offer the services for free and eat the costs themselves or present a bill for their services to angry customers. Several partners told CRN they will provide the product replacement and installation services free of charge in order to stand by their customers.

"The channel partner can make a decision on, 'Hey I'm going to do this on my own dime from a customer satisfaction standpoint,' or are they going to tell the customer, 'Hey it's going to take me 'X' amount of time and this much money to do the work,'" said one top executive from a solution provider and Cisco partner ranked on CRN's 2016 Solution Provider 500.

Cisco has told CRN that it will not reimburse partners who are sending out engineers to proactively go on-site to replace products that contain the faulty component.

"Unfortunately, because our funding is focused on providing the products, we're unable to reimburse for on-site services to replace the affected devices," said Jennifer Ho, manager of Cisco's Business Critical Communications, in an interview with CRN. "Because the product doesn't actually have any issues for 18 months, we really wanted to focus our funding for the issue on a replacement program. So we're proactively offering the replacement of products even before the product fails, and we really believe that this focus on providing the best-quality products is the right focus for our Cisco customers and the partners' customers."

A top executive from another Cisco channel partner said his company will not be waiting for its customers' equipment to fail before putting in the new gear, which will help prevent Cisco's reputation from being tarnished in the customers' eyes.

"Customers are used to Cisco standing behind their products. While this [faulty component] was sourced from another manufacturer, it's still part of the Cisco product," he said.

"We're making our case on behalf of all customers to Cisco to say, 'Do as much as you can to make these people happy to replace these products.' But [Cisco's] going to do whatever they deem appropriate," said the executive. "Cisco's always been committed to its customers and partnerships. I'm hoping we'll see that through this experience at some point."

Several partners said they were optimistic that Cisco will eventually make a deal with the channel to help cover service costs after everything is said and done.

"We'll see if can work something out with Cisco. Cisco's stance is they're not going to do anything about it, but Cisco's always been willing to help out one way or another, and I think we'll be able to figure something out," said the executive ranked on CRN's 2016 SP500.

A senior executive for a national Cisco partner, who did not want to be identified, said he hopes Cisco comes up with a standard plan for proactive replacement that covers customers that have bought Smart Net services agreements.

"I know Cisco is in a situation where they have to basically follow the terms and conditions of the standard Smart Net contract – which are the same as any other standard services contract," he said. "I have never seen anything like this. I think whoever is making this decision at Cisco is approaching this very cautiously. I hope this doesn't come down to one-offs for certain customers. Clearly that could put them into a difficult situation with customers. If you are getting ready to cut a $10 million contract for new gear and you have old gear that can become unbootable, you're not going to be happy."