Cisco Faces Uphill Battle Selling Data Center Servers

Servers take center stage in the second of NETWORK COMPUTING 's four-part series on the changes transforming the data center. Server sales came back with a bang last year, rising 15.3 percent in the fourth quarter, the highest growth rate in three years and capping the fourth consecutive quarter of year-over-year growth.

According to IDC, 2.1 million units generated $15 billion in sales revenue, with IBM in the top spot with $5.6 billion in revenue, up 21.9 percent; HP second with $4.5 billion, up 13.2 percent; Dell third with $1.19 billion, up 26.8 percent; Oracle/Sun fourth with $883 million, down 14.4 percent; and Fujitsu fifth with $541 million, down 9.4 percent. Gartner's numbers were similar, although it put HP in first place, with 32.2 percent share of shipments, followed by Dell's 21.6 percent, IBM's 14 percent, Fujitsu's 3.2 percent and Oracle's/Sun's 1.5 percent.

Looking ahead, IDC is predicting more modest growth of 5.1 percent in 2011, primarily propelled by greater adoption of cloud computing, increased use of mobile computing platforms and explosive growth in the amount of data being generated. Servers based on the x86 architecture will continue to dominate the market at 65 percent of revenue in 2011, although mainframe and Unix-based servers showed renewed strength with a forecast of 2.5 percent growth this year after many years of decline. But new servers running more energy-efficient ARM and Intel Atom processors could cause some market disruption, says IDC.

While Cisco doesn't show up in either the shipment or sales figures, it effectively declared war on data center server vendors in March 2009 when it announced its Unified Computing System strategy. Two years later and the top three server vendors--IBM ($5.6 billion), HP ($4.5 billion) and Dell ($1.6 billion)--hold 79 percent of the market. If you include Oracle and Fujitsu, everybody else, including Cisco, holds less than 12 percent of the market.

Dick Csaplar, senior research analyst, storage and virtualization, at the Aberdeen Group says that since Cisco entered the server market when it started shipping product in the summer of 2009, it claims to have exceeded Dell in the number of blade servers shipped in North America (to take over the No. 3 position). Csaplar calls this "a major accomplishment, given they have only been in the market for 18 months. But the real measure of success is how the servers leverage the sale of fabric interconnects and their UCS management software. They need the servers to offer a full solution to customers who want a single vendor solution and easy management."Despite its modest success in selling blade servers, Cisco and its main UCS partners, EMC and VMware, face an uphill battle in the data center, states Roger Kay, principal, Endpoint. He says VMware was not a whole-hearted partner because it did a lot of business with other vendors, but had some obligation owing to the fact that EMC owned most of it. "At the time, Joe Tucci, the CEO of EMC, growled the announcement ... , pledging his troops to the enterprise. EMC had a sales force that dealt with real customers. Cisco, by contrast, did most of its business through partnerships and had no sales force of the type and needed to sell this proposition. John Chambers ... talked about how this was a match made in heaven."

Kay says Cisco, known for its networking equipment, had little footprint on the server side. But rivals like Oracle were completing portfolio offerings like UCS, and the partnership needed an answer. Oracle had not yet bought Sun, which would soon put it in the server business,and IBM and HP were busy beefing up their hardware, services and storage offerings, potentially threatening EMC's long-time position as the go-to enterprise storage provider. "Cisco couldn't afford to buy EMC, but needed an end-around to keep HP and IBM from making further inroads into the networking business. There was a spate of acquisitions, particularly in storage and networking software, that presaged a major fight."

The main target of UCS was HP, which had the largest footprint in the x86 volume server business, says Kay. IBM had a smaller commitment to hardware in general and the volume business in particular. "The server market is extremely slow to turn over. IT managers change vendors slowly and carefully. Cisco was hoping to expand its footprint in the data center to an adjacent business, from switches to servers. But I suspect that the EMC sales force very quickly figured out how hard it would be to dislodge incumbents in enterprise data centers and turned their attention to other prospects. Cisco had no direct leverage over Tucci's sales force, and the matter rested there."

The bottom line, he says, is that UCS was always more of a partnership on paper than in reality. "VMware, which supplied one of the best reasons to adopt UCS, was at best lukewarm on it, since the virtualization provider was best served by taking the arms-merchant role and selling to everybody. Loyalty, in this case, wouldn't pay."

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