A Well-Positioned Tech Stock

Trade press reports say that networking specialist Cisco (Nasdaq: CSCO  ) , come 2009, will stop specializing in networking and begin selling blade servers -- thin collections of plastic and silicon that slide into racks to create a more powerful computer -- as part of an effort to become an IT supplier. Data centers are adopting blade servers in greater frequency because they're (a) cheaper to buy and (b) usually more energy-efficient.

As Blade Network Technologies CEO Vikram Mehta told InfoWorld last week:

"I think I know what Cisco's trying to do. Servers are a $60 billion market. And if you're the size of Cisco -- $40 billion -- you're looking for the next multibillion dollar market to jump into. There aren't a lot of adjacent markets, so they decided to step on their partnerships and take these guys head-on to get a slice of the server action."

By partners, he's referring to IBM (NYSE: IBM  ) , Sun Microsystems (Nasdaq: JAVA  ) , Dell (Nasdaq: DELL  ) , and Hewlett-Packard (NYSE: HPQ  ) , companies that are all server vendors with hardware built to take advantage of networks governed by Cisco's routers.

If Cisco's choosing to compete with these firms, as Mehta asserts, it'll get interesting. No one is going to take Cisco's entry lightly. Certainly not Big Blue, top dog in the server market, and seller of a Linux-enabled blade line called BladeCenter.

Know a good arms dealer?
What's interesting to me as an investor is that VMware (NYSE: VMW  ) partners with every one of these firms. Cisco, too. And now InfoWorld reports that its new blade servers will embed support for VMware's virtualization software to reduce power consumption and improve efficiency. Both are priorities for tech buyers.

Who do you bet on in a war? The arms dealer. Here, that's VMware.

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Dell is an Inside Value pick. VMware is a Rule Breakers recommendation. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers owned shares of IBM at the time of publication. Find his portfolio holdings here and all of his Foolish writings here. Or connect with him on Twitter as @milehighfool.

The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is virtually unstoppable.


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