cisco poised for major data-center offensive

Nice update on the increasing importance of data centres............

Cisco poised for major data-center offensive
Networking giant's 'Project California' an effort to build its IT business
By Benjamin Pimentel, MarketWatch
Last update: 4:50 p.m. EDT March 13, 2009SAN FRANCISCO (MarketWatch) -- After months of speculation in the technology industry, Cisco Systems Inc. is poised to unveil what analysts expect will be a bold bid to expand its reach in the corporate data center.
The San Jose, Calif.-based company (CSCOCisco Systems Inc
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CSCO) has scheduled an announcement on Monday, during which Chief Executive John Chambers and other executives plan to outline the new strategy. The initiative, reportedly dubbed "Project California," is expected to involve Cisco's plan to establish a bigger presence in the market for computer hardware and the systems used by businesses, especially big corporations, to run their information-technology networks.
Cisco already is a dominant player among makers of networking gear used to connect computer systems. Analysts believe the company is now looking to expand into other areas -- such as blade servers -- at a time when business customers are demanding simpler, less expensive systems.

The trend has been underscored by the rise of cloud computing, in which companies access computing power on a broader network, and may even tap it as a utility, similar to electricity, instead of through a physical center maintained in-house.
"We expect the announcement features Cisco's newest platform known as Project California that combines aspects of a blade server with a unified computing platform supporting virtualization, switching, cloud computing, servers and storage," Morgan Keegan analyst Simon Leopold told clients in a research note.
Industry and financial analysts have been speculating for months on what Cisco is up to, including much chatter on a reported plan to sell blade servers -- the thin computer boards used to run data centers and sold by vendors such as Dell Inc. (DELLdell inc com
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DELL) , Hewlett-Packard Co. (HPQHewlett-Packard Co.
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HPQ) , and International Business Machines Corp. (IBMInternational Business Machines
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IBM)
The buzz over Cisco has grown louder for a number of reasons. The corporate tech market is consolidating, and with its huge cash pile of roughly $30 billion and quest for growth beyond its core networking business, Cisco is well positioned to shift the market based on its own needs.
Then there's the downturn, which historically has been the perfect time for major industry-changing moves, as key players focus less on competition and more on how to survive or plan for longer-term opportunities.
"As technologies integrate, markets collide," analyst Roger Kay of Endpoint Technologies Associates said in an interview. "If your customer needs something complex and integrated, then you're best off if you can supply it all yourself as a solution. If a company has liquid capital and can deploy it to effect, generating a large future profit stream, then that's a competitive advantage."
Referring to the speculation about Cisco's move into blade servers, Morgan Keegan's Leopold said: "The emerging opportunity fits within the $6 billion blade-server market that appears poised to grow to over $10 billion in several years. For Cisco, the business could become material but pressures gross margin while improving earnings."
Other analysts said Cisco will likely tap partners in its data-center initiative.
JMP Securities analyst Samuel Wilson also had speculated that Cisco may partner with VMware Inc. (VMWvmware inc cl a com
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VMW) , a leader in the market for virtualization technology -- which allows companies to squeeze out more computing power without having to invest in new hardware.
Wedbush analyst Matthew Robison suggested that BMC Software (BMCBMC Software Inc
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BMC) could also be involved, but noted that Cisco's move may prompt a reaction from other networking players.
"For independent networking companies like Brocade Communications Systems Inc. (BRCDbrocade communications sys i com new
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BRCD) , Juniper Networks Inc. (JNPRjuniper networks inc com
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JNPR) and privately held Force10, we expect relationships with policy-management specialists and server companies to emerge to counter Cisco's efforts," he wrote.
Robison also cited the "view that Cisco could be repelling traditional channels like Hewlett Packard and IBM by engaging" in the server market.
"There are signs that this is the case, but we do not think it is simply over concerns of Cisco becoming a me-too server vendor," he said. "Further, the success of Cisco has not been a function of overreaching or unnatural acts -- this is as widely understood as the challenges of the PC industry."
Kay at Endpoint also cited potential pitfalls if Cisco were to move aggressively into the server market, to the point of taking on H-P. "A move into servers is a pretty aggressive adjacency," he said. "H-P might be motivated to step things up with, say, Juniper.
"There are always risks in supposed adjacencies. Many markets appear to be similar to those in which the company already has strength," Kay added. "But every market is a little different."
Benjamin Pimentel is a MarketWatch reporter based in San Francisco.