Cisco Needs New Friends

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When Cisco Systems (Nasdaq: CSCO  ) first declared that it wanted to sell server systems, it was obvious that its biggest and bestest friends would unfriend the company.

IBM (NYSE: IBM  ) and Sun Microsystems -- now better known as Oracle (Nasdaq: ORCL  ) America -- have quietly inched away from Cisco. Big Blue struck a deal to sell Brocade switches under its own branding and has strengthened its relationship selling routers and switches by Juniper Networks (Nasdaq: JNPR  ) , for example.

But none of them have pushed off from Cisco as violently as Hewlett-Packard (NYSE: HPQ  ) . The Cisco-HP alliance has expired, but that was just the start. Today, HP happily trumpets out the news that its six major data centers are now completely bereft of Cisco technology, replaced by HP's own networking products.

This announcement does a couple of things:

  • Announces that an HP networking solution can replace the traditional Cisco or Juniper architectures.
  • Advertises the HP networking portfolio to current Cisco customers.
  • Makes it perfectly clear that Cisco is no friend of HP's anymore.

It's a way to get some value out of the 3Com acquisition, but hardly the end of Cisco. 3Com's annual revenue is only around $1.25 billion, about one-third the size of Juniper and a mere speck of dust next to Cisco's $40 billion haul.

Nevertheless, the move is part of a larger trend that Cisco walked into with eyes wide shut. I can appreciate the value of selling end-to-end computing solutions, which is what all of the big players are doing now. But I think the integration value here is easily overshadowed by the damage done to Cisco's long-standing industry partnerships, which used to be the one thing that made the company better than the others.

Can Cisco overcome this fatal error of judgment? I'm not so sure, but feel free to tell me how in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Microsoft is a Motley Fool Inside Value recommendation. The Fool has written calls (bull call spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of International Business Machines, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (2) | Recommend This Article (5)

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  • Report this Comment On September 27, 2010, at 2:36 PM, TerenceFL wrote:

    I think that Chambers did realize that Cisco's move into servers would be unpopular with HP and IBM, but that it would be overridden by CIsco's lock-in on high-end networking gear. Now everybody knows that there are alternatives especially from HP. It will be up to the customers to make the decisions to move away from tried-and-true to any new solution. It will be really important in the BRIC emerging markets where huge networks are still being built out. That's why HP bet on 3com which is popular in China.

  • Report this Comment On September 27, 2010, at 5:32 PM, Brownfox11 wrote:

    There is a much bigger play at stake here - think about networking, servers and unified communications (incl. video) as the infrastructure. Then add on an integrated social application layer that will dramatically change the way in which corporations will be internally organized and operating. Chambers made comments this week in the press about 7% productivity gains. He didn't make them for no reason. The big picture will emerge and add a whole new twist to which kinds of partnerships the company is after. @cisco

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