Systems is planning a product that could turn the technology industry on its head and put the company in competition with longtime partners like Hewlett-Packard and IBM.
According to a report in The New York Times, Cisco is moving into the market for servers. Cisco makes 65 percent of its $40 billion annual revenues from switches and routers. Servers are a lower-margin play, but would open up an end-to-end opportunity for Cisco to better compete in the unified-communications space.
Padmasree Warrior, Cisco's chief technology officer, told the Times that she sees servers not as a new market for the company, but as a market transition. Warrior also downplayed any conflicts of interest with Cisco's channel partners, though analysts said the move could shake up the market.
"Our vision is, how do we virtualize the entire center?" Warrior told the Times. "It is not about a single product. We will have a series of products that enable us to make that transition." Cisco could roll out its first product as soon as March.
An Enormous Opportunity
Virtualization is the driver behind Cisco's interest in the server market. Virtualization is a technique to allow multiple operating systems to run on a single physical machine while maintaining distinct hardware profiles. In effect, the host operating system executes several guest operating systems.
According to IDC, the virtualization-services market will grow from $5.5 billion in 2006 to $11.7 billion in 2011, as data-center managers struggle to address power and cooling issues and the need for increased capacity.
"Currently, the majority of the services opportunity lies in supporting customers' initial implementations of virtualization," said Matt Healey, IDC's senior research analyst for software and hardware support services. "However, over the next several years IT consulting and systems integration will begin to become the dominant opportunity as the technology becomes much more mainstream."
Cisco's Transitional Moves
Zeus Kerravala, a vice president at the Yankee Group, said it makes sense for Cisco to get into the virtualization-server space because there needs to be more intelligence between the network and the computing infrastructure of the data center. Cisco has been poised to make its mark on the evolving infrastructure, he said, because of its leadership in networking.
"The servers on the market today aren't really optimized for virtualization. You need more processors and a lot more memory. The servers need to be tied together a bit better to be able to handle the workload and the demands," Kerravala said. "So there's a transitional opportunity coming because of the mobility of virtualization. Cisco is good at catching transitional opportunities."
Kerravala used the example of PBXes. If Cisco had decided to build a PBX system, it would not have met with the success it found in IP telephony. Cisco's vision is clear -- unified computing is a large part of its strategy moving ahead, and server virtualization appears to be part and parcel of its plans. Cisco has not yet made a formal announcement.