Cisco Ain't Making Friends No More

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I told you Cisco Systems (Nasdaq: CSCO  ) should have kept its toes out of the server waters.

Cisco has always been deeply connected to the IT industry, and the company's wide-ranging partner network has been one of its biggest strengths. But selling servers in direct competition with longtime buddies like IBM (NYSE: IBM  ) , Hewlett-Packard (NYSE: HPQ  ) , and Dell (Nasdaq: DELL  ) is not a move that makes Cisco any friends. It's an indirect way of taking those old relationships back a notch, kind of like texting "I need some me-time" to IBM and Dell.

Sure enough, the industry is turning against Cisco. First it was IBM that partnered up with Juniper Networks (Nasdaq: JNPR  ) to sell IBM-branded networking products with Juniper hardware inside. Now Dell is doing the exact same thing, once again with Juniper as a partner. Juniper is like the second-prettiest girl at the school dance who gets all the boys' attention when the prettiest one shows up in the rival school's colors.

Dell says that the Juniper partnership is all about giving consumers choice and avoiding single-vendor lock-in. Without Dell pointing fingers, it's pretty clear that the single vendor to avoid is Cisco, with its stated and implied goal of giving enterprise customers an end-to-end data center platform under the Cisco brand.

The minute Cisco CEO John Chambers signed off on that kooky plan to sell Cisco servers may have been the beginning of the end. This is not the universally loved Cisco we used to know and, well, love. This version has enemies outside the networking world. The balance of power seems to be shifting toward smaller players like Juniper, Brocade Communications Systems (Nasdaq: BRCD  ) , or Alcatel-Lucent (NYSE: ALU  ) , depending on which submarket you're talking about.

Has Cisco peaked, or am I reading too much into the apparent anti-Cisco movement? Set the record straight in the comments below, dear Fool.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Dell is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days. 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 (7) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 28, 2009, at 3:56 PM, JR17 wrote:

    Wall Street rewards companies that show growth not how many friends they have.

  • Report this Comment On October 28, 2009, at 4:19 PM, movinalot wrote:

    Why is the plan kooky, why is a single vendor bad? Was it a kooky or bad plan for IBM? Hmmm, don't think so...

  • Report this Comment On October 28, 2009, at 5:26 PM, m0n3yman wrote:

    I believe it was IBM, DELL, and HP who entered Cisco's business first by trying to offer low-cost commodity networking gear.... Not Cisco stepping on their toes first... HP did this while they were still a large reseller of Cisco, which is like cheating on your spouse.... Cisco got sick of many of it's so-called partners, and said they will move forward with a spirit of co-opitition. It's not Cisco moving with a scorched earth policy, it's these partners that don't know how to compete where there's overlap, and cooperate where it is to the customer's benefit.... I don't see Cisco having issues here, I think they'll only gain share on top of their already healthy business...

  • Report this Comment On October 28, 2009, at 5:28 PM, Hoosiersoccer wrote:

    It is very interesting that people are so wired up about this move. HP and Dell both sell switches. Shouldn't Cisco have been upset about this. Also, from what I understand Cisco offered to HP and IBM to build a server for this management system, they turned it down. Last, Cisco identifies a management problem, due to the virtualizing and convergence of storage, computing and networking and comes up with a solution. If they others had done this I am sure the two big guys would not have asked Cisco. Frankly the Virtual Connect switch that HP sells is a networking switch that partly solves the problem. Frankly those two large companies should be ashamed they didn't think of this first.

  • Report this Comment On October 29, 2009, at 1:53 AM, nospmoth1 wrote:

    True this is a bold move for Cisco. But as a long standing customer it makes sense. What they are offering is seemingly thought through and exactly what I been asking for in the data centre for some time. Ok FC over Ethernet is going to take some time to gain ground but once it does and people start getting their calculators out and discover the savings available from a consolidated fabric the move will be significant and rapid. My storage guys are a little cold at the moment but even they are sure this will be the thing within 3 years. The fact that Cisco has 2 key partners in the shape of EMC and VMWare must mean they are serious. The act of building a server is, I would say, Cisco's way of dragging the competition in the direction of their Data Centre 3.0 philosophy...."get with it or get outa the way". As soon as the 3rd party cards start appearing in greater quantities the ibm's of the world will be able to save face and oem the tech. All will be back to normal. Just hand it to Cisco they have managed the get 3 of the current big data centre players to collaborate on a solution. When HP were recently asked to take part in a data centre futures session here they refused to play which is a shame as they currently hold our server business...

  • Report this Comment On October 30, 2009, at 6:23 AM, Timb0Bagg1ns wrote:

    Servers will be a challenge for Cisco. They make big margins on network gear, but servers are lower margin products. And servers are a different ball game to networking, how long will it take Cisco to be truely competitive in this area? IMHO they over reacted to HP, IBM et al selling their own network gear - they have tiny market shares compared to Cisco. Also, how many companies want to put all their eggs in one basket? Many people/analysts say that multi-vendor best of breed is the way to go, 'cos once you go single vendor they have a real hold on you. I have been in this business long enough to remember the adage "no one got fired for buying IBM" and that hasn't been true for a long time, so why go 100% with Cisco? As for Cisco partners - Cisco demand a lot from partners, and the networking gear margins have been commoditised and trashed in recent years. Why would they want to see that happen with servers - their bread and butter - as well? Cisco will make the Cisco server market happen but my gut feel is it won't be the success they expect.

  • Report this Comment On November 11, 2009, at 12:08 AM, 2humble2fool wrote:

    CIOs don't get fired for buying Cisco network products. Juniper, et al aren't even in the same league reputation wise. Most firms already have Cisco in place and don't want the headaches of integrating off=brand products.

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