BusinessWeek asked a question a few days ago that I asked last June. Is Cisco stretching itself too thin? I can’t pretend to be expert enough to answer that question, but chasing 30 new technology markets at once is quite ambitious. Making multiple multi-billion dollar acquisitions of Tandberg and Starent to solidify its position in some of those markets is even more ambitious.
Cisco’s leap into the server market seems to have some investors rattled. The profit margins on servers are so much lower than on some of Cisco’s core markets (switches and routers). As BusinessWeek quoted one investor who questioned Cisco CEO John Chambers at Cisco’s annual meeting earlier this month: “At what size does Cisco become so big and diverse that its growth and profitability will plateau?” Chambers’ answer: hopefully after he retires.
Analysts and investors are wringing their hands over whether Cisco can remain nimble as it expands into new markets and burns its longstanding partnerships with server vendors like HP, Dell and IBM. BusinessWeek points out that HP’s aggressive expansion into the networking market is in part a response to Cisco’s moves in the server market. However, among the comments on the BusinessWeek story, someone named “CS” disagreed that Cisco fired the first shot. “HP has been (unsuccessfully) targeting Cisco’s core market for years with ProCurve. Was Chambers expected to sit idle while one of his largest partners openly attempts to undermine him?”
I’m not quite convinced that ProCurve has been targeting Cisco’s “core” market for years. ProCurve greatest success has been in selling edge switches to the midsized enterprise market. Does that sound like Cisco’s core market? Prior to acquiring 3Com, did ProCurve have any core routers on the market? Did it have any switches that could creditably compete against the Catalyst 6500 or any of the new Nexus switches?
So who started this food fight? Once the fight has begun, does it really matter? No. It only matters who wins or loses. Arguing over whether it was Chambers or HP CEO Mark Hurd who tossed the first plate seems like idle gossip.
Right now the winner looks to be enterprise customers. As Cisco expands and innovates, data center buyers have a new high-end server vendor to consider. And as HP integrates 3Com and H3C into its existing ProCurve division, enterprises networking buyers will find they have a truly viable alternative to Cisco to consider. Choice is always a good thing. And increased competition between vendors doesn’t hurt, either.