Bloomberg News
is expanding its line of servers in a bid to take share from Dell Inc. and Hewlett-Packard Co. as Chief Executive Officer John Chambers seeks to restore sales growth at the world's largest networking-equipment maker.
The San Jose, California-based company unveiled two categories of machines used to run corporate networks: a server aimed at Internet and telecommunications companies and other price-conscious cloud-computing operators and an all-in-one version for small businesses, branch offices and retailers.
Cisco, which gets of its revenue from switches and routers that shuttle data over networks, is a relative newcomer to the $49.6 billion global server business, with the debut of its first products five years ago. The push to sell more computing machines is part of Chambers's strategy of moving Cisco beyond networking gear and becoming a central provider of data-center technology to large companies.
'The competition is going to freak out, because they're not expecting all of this from us,' said Paul Perez, vice president of Cisco's data center group.
'Now that we've solidified our place in the data center, our goal isn't just to be the best in blades. It's to be the best in computing,' he said, referring to the bare-bones servers that power data centers.
Cisco's servers have customized software that let them work more seamlessly with the company's networking gear. Now, it plans to extend this approach, which it calls its Unified Computing System, to servers not located in corporate data centers. While Cisco is now the second-largest provider of blade servers after Hewlett-Packard, it ranked ninth in the broader server market, according to IDC.
New Customers
'Cisco did a great job getting into the data center, but they need to expand their portfolio if they are going to continue to grow,' said Matt Eastwood, an analyst at IDC.
By getting into servers, the company was also putting at risk partnerships with market leaders such as International Business Machines Corp. and Hewlett-Packard, which resold Cisco's networking gear. Cisco's server business has a run rate of $3 billion annually, Chambers said on a conference call on Aug. 13. Now, it's adding 1,000 new customers a month, according to Perez. Many Unified Computing System customers weren't previously Cisco customers, and such new clients have bought an additional $1 billion in networking gear from Cisco, Perez said.
Cross-Selling
The M-Series servers for cloud-computing providers are designed to be easily reconfigured or replaced as traffic demands. The new machines for small businesses and remote offices, called the Mini, include servers, storage and networking in a single product.
The biggest challenge for Cisco will be to maintain profits as it moves deeper into the server market, which is more price sensitive. While most servers carry a gross margin of around 20 percent, Cisco has been able to maintain margins of about 25 to 30 percent for its products, according to IDC's Eastwood.
'I think they have a good strategy but they'll be more likely to face price competition than they have so far,' Eastwood said. Cisco will have to convince customers to buy related networking, software and storage gear, and be willing to accept lower profits on the servers in order to boost sales, he said.
In order to boost such cross-selling, Cisco also announced a partnership with While Red Hat is the largest seller of Linux operating-system software for servers, it's also promoting the use of OpenStack, a software standard for managing cloud-computing networks. Now, Cisco will sell its servers and switches along with Red Hat's version of OpenStack.
'We've been very happy with UCS,' said Drew Henning, an information-technology infrastructure engineer at Bank of the West, a BNP Paribas SA subsidiary in Omaha, Nebraska. The lender replaced Hewlett-Packard servers with Cisco's servers because they can be configured in hours instead of weeks, he said. 'We're standardizing on Cisco.'
To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net
To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson
Posted by Unknown on Thursday, September 4, 2014 - Rating: 4.5
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