03:52 AM

Cisco Crosses The Rubicon With All-In-One Data Center Box - A War Of Attrition Begins?

Cisco Systems this morning launched an aggressive strategy to gain market share in global IT markets with a data center product family that combines virtualization software, server, data storage, and network capabilities in one system.

The Cisco Unified Computing System has room for 8 blades consisting of servers, data storage systems, and network systems. It is designed for large IT data centers seeking to reduce their costs and also the amount of energy they consume. Cisco says its saves about 20 per cent on hardware costs, and about 30 per cent on operational costs because of lower administration requirements.

The move pits Cisco against large server companies such as Hewlett-Packard, Sun Microsystems, IBM and Dell, and also data storage companies such as EMC.

In a Business Week article, Kevin Johnson, CEO of Juniper Networks, said:"They are clearly crossing the Rubicon, and they are now in direct competition with these other large tech companies."

The Cisco Unified Computing System is designed to use virtualization software from VMware or Microsoft. This enables it to be more productive in running IT applications because of more efficient use of its server and data storage capabilities. Many servers and data storage systems are running at as low as 15 per cent utilization because of the complexity in switching between applications.

The Cisco system will also use the next generation Xeon server microprocessors from Intel (Intel is a sponsor of SVW).

Foremski's Take:

This is an aggressive move by Cisco to break into new IT markets and to take advantage of two key IT trends: blade servers and virtualization technology. It will also likely trigger a price war in the IT market as IT vendors battle for smaller IT budgets.

Blade servers allow data centers to consolidate their computing power into smaller numbers of boxes potentially save energy because of more efficient components and cooling systems. Virtualization software allows data centers to become far more efficient and flexible in terms of their computing capabilities.

Blade servers and virtualization software are becoming commodities. Cisco's move will accelerate this trend and thus pressure pricing on blade servers from HP [HPQ], Sun [JAVA], IBM [IBM] and Dell [DELL], and also on data storage blades, while maintaining premium pricing on its network technology.

The response from its rivals will be to try to undermine Cisco's network business by offering lower prices on network gear in IT contracts in a bid to protect server margins. This could lead to a war of attrition as the IT vendors try to accelerate the commoditization of their rivals' businesses.

IBM will likely be the least affected by such competition because most of its revenues come from IT services. IBM has a large hardware business but it also acts as the largest reseller of servers and network systems for the IT vendors.

Cisco can has two ways it can survive a price war and resist commoditization of its network business. Cisco has about $30 billion in cash. And it's management software provides a data center user interface that acts like a data center operating system enabling customers to save on labor costs through more efficient management of resources.

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Please see:

At Cisco, 'Downturn' Screams Long-Term Opportunity - BusinessWeek

. . . I do believe very strongly that while this is the most challenging time in our careers, as business leaders, customers, and as countries, it also offers potentially the most opportunity. When you face challenges of this magnitude, with the tremendous disruption it creates for businesses, for jobs, for families, you get a willingness [from people] to change with speed you do not get in normal times. So out of this tremendous pain as a country and as a world, I believe we should focus on tremendous gain.

. . . We're going to be extremely aggressive during this downturn. As a company, we can come out of this with a stretch goal of being the leader not just in communications, but in IT on a global basis.

Julius Caesar Crosses the Rubicon, 49 BC

The crossing of a small stream in northern Italy became one of ancient history's most pivotal events. From it sprang the Roman Empire and the genesis of modern European culture.