March 16, 2009 / 7:47 PM / 10 years ago

Cisco to sell servers aimed at data centers

NEW YORK (Reuters) - Cisco Systems Inc will start to sell computer servers targeted at data centers, a move that pits the company against partners such as Hewlett-Packard Co and IBM.

A sign shows the headquarters of Cisco Systems Inc. in San Jose, California May 6, 2008. REUTERS/Robert Galbraith

The network equipment maker on Monday introduced the Unified Computing System, designed to incorporate computing, storage and virtualization technologies, including those developed by EMC Corp and VMware Inc.

By incorporating these technologies into a single system, Cisco said it will help customers expand their data center capacity more efficiently, and lower power and cooling costs. Owners of the new system can cut capital expenditures by 20 percent and operational expenses by 30 percent, it said.

The move underscores the technology industry’s focus on data centers as a key growth area, as companies look for ways to deal with rapidly increasing Internet traffic, rising energy bills and strained budgets.

Led by Chief Executive John Chambers, Cisco has been diversifying into new products as growth slows in its traditional router and storage business.

“The key take-away is it gives us a chance to perhaps become the leading company not just in communications but also in IT along with our partners. And that’s kind of what the Internet is about,” Chambers told analysts and reporters over the company’s own Telepresence video conference system.

Cisco’s new blade server — a multi-functioning computer designed to save space and power corporate data centers — incorporates VMware’s virtualization technology, which enables customers to do more with less equipment, improving energy efficiency and lowering costs.

Other Cisco partners include Intel Corp, Microsoft Corp, BMC Software Inc and Accenture Ltd.

But the move risks antagonizing Cisco’s vendor partners HP and IBM, which are the world’s two largest maker of servers. Both have helped to sell Cisco’s network equipment to mutual customers, with analysts estimating the two vendors accounting for $2 billion to $3 billion of Cisco’s annual sales.

“This is not without risk — as this move will mean Cisco will have to compete against some of its largest resellers,” said Ronald Gruia, analyst at consulting firm Frost & Sullivan. But he added that Cisco had so far coped well with the industry’s increasing “coopetition”.

While Cisco’s annual revenue has grown from $1.2 billion to around $40 billion since Chambers took over as CEO in January 1995, analysts said the company is taking a necessary step to become a larger player in the data center space.

HP already sells a switching product that competes with Cisco’s products and IBM has recently said it was partnering with Cisco’s smaller rival Juniper Networks. Switches are networking products that connect multiple computers.

Microsoft, while a partner with Cisco for its Unified Computing System, competes with Cisco in “unified communications,” a range of software and equipment that tie together e-mail, phones and other communications tools.

Many analysts expect more “coopetition” as companies strive to offer a more comprehensive set of products and software while simultaneously trying to edge out competitors in certain fields.

That means Cisco will have to be both dependent and vigilant of its vendor partners.

“If Cisco’s customers have to buy their blade servers from HP or Dell, then the door is open for either of those two to offer their management tools to customers, or to tailor their blades to work better with those tools,” said Tim Stammers, senior analyst at advisory and consulting firm Ovum.

Cisco shares were unchanged at $15.51 in afternoon trading, while the Nasdaq, of which Cisco is a component, was down 1 percent.

Reporting by Ritsuko Ando; Editing by Derek Caney and Tim Dobbyn

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