Is Cisco's Data-Center Gamble Starting to Pay Off?

The following video is part of our "Motley Fool Conversations" series, in which Eric Bleeker, senior technology editor, and Brandon Ragan, systems engineer, discuss topics around the investing world.

In today's edition, Eric talks to systems engineer Brandon Ragan to explore some of the advantages Cisco has within the data center. The Fool recently purchased Cisco's Unified Computing System (UCS), and Brandon explains why the company believed Cisco's UCS was so compelling. In addition, Brandon talks about whether the company is looking at expanding out its Cisco presence in other areas or whether it'll stick with other best-of-breed networking plays like F5 Networks in load balancing and Riverbed in WAN optimization.

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Eric Bleeker and Brandon Regan own no shares of the companies mentioned here. The Motley Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Riverbed Technology. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (12)

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  • Report this Comment On December 30, 2011, at 11:09 PM, BradReeseCom wrote:

    Hi Brandon,

    I'm looking at Cisco's own "internal pie chart projection for FY14," and it doesn't appear that Data Center (i.e. the Unified Computing System) is going to be setting the world-on-fire:

    http://www.bradreese.com/images/9-26-2011-1.jpg

    Sincerely,

    Brad Reese

  • Report this Comment On December 31, 2011, at 1:06 AM, MichaelDSimms wrote:

    I work as a contractor for the military as an Engineer and we are adopting UCS. I think this is only just starting to take off, I don't know how it will be adopted but think the big data centers and cloud computing are the future. It allows them to reduce costs in personnel and it seems it's harder and harder and more expensive to find good systems personnel. It makes sense as it also reduces security costs (less firewalls) hardware, and power consumption rack space etc. It's going to happen.

  • Report this Comment On December 31, 2011, at 4:10 PM, DavidKnill wrote:

    Brad Reece - Nice chart. I would add that this focuses on Cisco's Gross Margin, not Revenue/Sales. It's well understood that the margins for UCS are much lower than Cisco normally gets for its Routing/Switching gear. I just don't think this chart tells the whole story - Cisco could see a significant uptake in UCS without it contributing substantially to the bottom line.

    UCS DOES have substantial potential to add to the bottom line through Switching in the DC (i.e. Nexus / and perhaps the Fabric Interconnects) , and I suspect that's noted in the Switching section of the chart (which shows an increase).

    That said, I'm seeing a lot of my own clients using UCS or taking a serious look at it.

  • Report this Comment On January 02, 2012, at 10:21 AM, BradReeseCom wrote:

    Hi David,

    Love your statement:

    "Cisco could see a significant uptake in UCS without it contributing substantially to the bottom line."

    I mean, I've not been aware that Cisco CEO John Chambers has been communicating that specific message to Cisco shareholders and/or Wall Street.

    Additionally, regarding your statement:

    "UCS DOES have substantial potential to add to the bottom line through Switching in the DC (i.e. Nexus / and perhaps the Fabric Interconnects) , and I suspect that's noted in the Switching section of the chart (which shows an increase)."

    Well, when comparing Cisco's own "internal pie chart projection for FY14 to FY11," it most certainly appears to be the exact opposite of your above statement.

    Cisco FY11:

    http://www.bradreese.com/images/9-26-2011.jpg

    vs.

    Cisco FY14:

    http://www.bradreese.com/images/9-26-2011-1.jpg

    Sincerely,

    Brad Reese

  • Report this Comment On January 02, 2012, at 11:58 AM, mkkumar wrote:

    The vid is very biased. With Banner of "Cisco Vs Juniper" the discussion didn't even mentioned Juniper and jumped to conclusion that Cisco is ahead in DC. WoW !

  • Report this Comment On January 03, 2012, at 12:53 PM, TMFRagan wrote:

    Thanks for the comments. This video represents our perspective of using Cisco's technology. Sure, UCS hasn't caught the world on fire and changed everything in the data center for all companies. And it doesn't make sense for all companies to use UCS in their environment .. honestly its case by case depending on what your trying to do... for us, its working and I think it has huge potential. What I was trying to get across in the video is that Cisco has put forth alot of time, energy and development into UCS. This is a product they are backing pretty heavily and isn't just a half effort stab into the server market. If you haven't used the product, get a demo of it... the features are pretty impressive and do simplify alot of common challenges in the data center. I know there are plenty of other blade systems out there by HP, Dell, etc and I know Juniper has comparable networking capabilities. But there are several other factors that you just don't have time to cover in a 2 minute video. While deciding on this solution we did consider all of these companies and there are pros and cons to the different approaches which would likely be a week long debate. At the end of the day its down to your environment and what makes sense, each of the approaches have their place.

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