In the world of computer hardware, servers are sexy. They're more profitable than desktop and notebook PCs. They're more complicated, too. And they drive sales of high-margin add-ons such as storage systems, software, and services.
And in the world of servers, blade servers are one of the most attractive places to be. In the first quarter, blade-server revenue grew 24% year over year, twice the rate of the server market overall. It was the second-fastest-growing segment behind mainframes, which are benefiting from an IBM
Another horse in the race
But blade servers have recently gone from a three-horse to a four-horse race. New entrant Cisco
Cisco isn't just picking on Dell. Hewlett-Packard
The biggest loser
It's not personal; it's just business. But Dell may feel as if Cisco painted a target on its back. With x86 systems -- which use industry-standard processors from Intel
Worldwide Server Systems Factory Revenue, Q1 2011
Q1 2011 Market Share
Q1 2010 Market Share
Q1 2011/Q1 2010 Revenue Growth
Source: IDC's Worldwide Quarterly Server Tracker, May 2011.
Although there's a lot going right at Dell -- and wrong at Cisco -- servers are a key source of profits for Dell. If Cisco continues to gain traction in blade servers, it could nip Dell's potential turnaround in the bud. It could also exacerbate HP's agony and act as a slight drag on IBM, but Cisco's impact on HP and IBM is likely to be far less noticeable and unlikely to change their course. Success in blade servers is also unlikely to turn Cisco around.
What do you think: Will Cisco continue gaining blade server market share? An easy way to stay on top of market developments is The Motley Fool's free new My Watchlist feature. You can get up-to-date news and analysis by adding these stocks to your Watchlist now:
Fool contributor Cindy Johnson owns no shares of any stock mentioned in this story. The Motley Fool owns shares of IBM, Intel, Cisco, and Oracle, has bought calls on Intel, and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Cisco and Intel and creating a diagonal call position in Intel. 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.