It was hard to read the Wall Street Journal this morning and not realize that Cisco’s status as data center fabric-infrastructure Lion King is being challenged. And with the company’s stock at about a quarter of its zenith a decade ago, you have to wonder if the smart money is long gone. Now, the customers are moving on as well.
Lions, as all children and most parents know from watching the Disney movie, have an alpha leader who reigns as long as he is strong enough to fight off the ever-younger competition. I have to put Cisco in that spot. [Full disclosure: I once worked at Stratus with former Cisco CEO and chairman John Morgridge, a man I highly admire. But that was decades ago.]
As the WSJ reports,
… the growing competition Cisco faces in its biggest business, the $13.6 billion switching unit. The San Jose, Calif., company earlier this month reported a 7% drop in quarterly revenue from switches, a stumble for a business that represents about a third of Cisco’s $40 billion in annual revenue.
HP is coming at Cisco from the bottom up with lower prices on switches, the ubiquitous component found in every data center rack. After buying 3Com, H-P’s price-concession strategy is having an effect on Cisco, which has a higher margin structure than H-P and other competitors. As a result, Cisco is gradually bleeding market share. Competitors smell blood and are circling the once invincible king.
Meanwhile, Juniper Networks is rolling out qFabric, a data center wiring and communications architecture that is aimed at incumbent Cisco, with a two-page color ad. The pitch is to lower IT operating expenses (op ex).
Every server in the data center typically requires one to four connecting cables. A brief glance at the photo below
is all you need to know about the pressing need to lower capital expenses (i.e., Cisco’s Achilles heel as high-price incumbent) and lower operating expenses associated with set-up and management of a typical data center (i.e., the poor guy buried in cables during a server set-up or repair).
I am hearing more from IT executives that status quo at lower prices is not a viable long-term outcome. That in turn leads me to think that Darwinian evolutionary jumps forward in server I/O fabric are a market opportunity waiting to happen. For example, NextIO, an Austin, Texas company, is coming to market this spring with a one-cable-per-server solution to rack-level I/O that connects to the data center fabric. PCI Express is the standards-based interface for all the server’s I/O in the NextIO solution.
I am drawn to the toast of UK citizens on the passing of a monarch: ” The king is dead. Long live the king [queen]”. King Cisco is certainly not dead yet. And it’s a fact that it’s nigh unto impossible to actually kill off a big IT company. But his reign is far along, and it’s not too early to start thinking and planning for a successor.