Cisco Shakes Up Server Market

Tuesday, March 17, 2009

Cisco Systems, the networking company, on Monday announced a move into the server market, posing a threat to IBM, Hewlett-Packard, Dell and Sun.  John Chambers, Cisco chief executive, said Cisco’s “unified computing system” would provide the next-generation platform for data centres, the vast computing areas that store corporate data.  Cisco is offering an all-in-one box that combines its networking strengths, the latest computer processors from Intel and access to storage networks…..Cisco will prepackage, resell and support Windows Server 2003, Windows Server 2008 with Hyper-V technology and Microsoft SQL Server 2008 as part of the Unified Computing System.  For its part, VMware is providing virtualization technology to the new system and BMC is contributing resource-management software.  For the Linux crowd, Cisco also will sell and support Red Hat Enterprise Linux as of the new system and will support Red Hat’s forthcoming virtualization portfolio as well.  Like its new rivals HP and IBM, Cisco is becoming an OEM (original equipment manufacturer) partner to server OS vendors, selling their software on its new blades.  An IBM executive had described earlier talk by Cisco of a move into servers as “crossing…the demilitarised zone between networking and data centres”.  But Tim Stammers, analyst with the Ovum consulting firm, said IBM and HP were already challenging Cisco on its networking territory, with HP’s Procurve switches and IBM’s co-operation with Cisco’s smaller rival Juniper…..Most enterprises have been able to realize the benefits of the first phase of virtualization, consolidating their data centers for economies of scale and simpler management.  But it’s been hard to achieve full virtualization, in which virtual machines can continuously move among servers, analysts say.  This would allow for adding processing power as demand for an application grows, or for moving tasks off a physical server at night for hardware maintenance…..

Analysts say Cisco is entering a lower margin, more commoditised market, but would be able to charge more for its combination product.  Server sales are also experiencing sharp falls in the economic downturn.  Gartner, the research firm, reported this month that server shipments declined by 12% and revenues by 15% in the fourth quarter, compared to the previous year.  IBM had a 33% market share, followed by HP with 30%, Dell with 11% and Sun on 10%…..Rick Becker, vice-president Software and Solutions at Dell, questioned whether companies would want to buy an all-in-one product.  “Chief information officers aren’t looking for proprietary point products because they drive up total cost of ownership and create more complexity,” he said.

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