Summary
The repercussions from Cisco’s foray into the server market may be happening somewhat sooner and possibly on a larger scale than anticipated. It’s too soon to draw definite conclusions, but Brocade is taking market share from Cisco for some reason!
Analysis
Cisco’s foray into the server market was certain to have a negative impact on their relations with the major server vendors. That was the primary reason many considered it unlikely that Cisco would make the move, but Cisco evidently felt the benefits outweighed the risks. Cisco’s Unified Computing System (UCS), introduced in March, was Cisco’s step into the server market. With the announcement Cisco went into direct competition with IBM, HP, Dell and Sun in the server market. Since these vendors (particularly IBM and HP) have historically partnered with Cisco to sell server and networking packages many questioned how much business Cisco might lose.
IBM and HP are both large enough companies to have experience in relationships that are competitive in one area and partners in other areas, and neither is likely to cut Cisco from their deals if that hurts their own business. However, where they can cut Cisco it seems likely they will. Storage switches is an area where Brocade already has a large market share, so IBM and HP can easily recommend or configure Brocade switches instead of Cisco. The current market data suggests that change may have occurred very quickly and dramatically.
Brocade has a strong product portfolio so they were expected to do well, perhaps even to gain a little market share. However, if the early reports (Brocade’s market share growing 14% while Cisco’s share fell similarly, Cisco’s bookings falling by 45%) are accurate some additional factor must be in play. The obvious suspect is that IBM and HP have made dramatic shifts from Cisco to Brocade. It will be interesting in the next couple of quarters to see if this trend continues.
The storage switch market, of course, represents only a small percentage of Cisco’s overall business, so they may well gain more from UCS than they lose in the storage switch area. Nonetheless, the trend is disturbing. Now that Brocade owns Foundry, their product line is much broader and potentially the impact could grow beyond the storage switch area. Also, Juniper is also waiting in the wings to pick up any Cisco business being discarded. Only time will tell if Cisco’s UCS initiative was a good move, but this market data is concerning.
