Cisco readies assault on server market

Cisco could unveil its first product designed for the highly-competitive server market - a server which makes heavy use of virtualization software - as early as March.

The company's strategy will be centered around virtualization, a Cisco representative told the New York Times. The company sees an opportunity to produce a new class of hardware and software management systems that can serve as an entire data center.

But analysts believe Cisco's entry into the server market could antagonize its existing players - such as Dell, IBM and HP - and disrupt the symbiotic relationship the companies have built up over the years.

Cisco believes the company's entry into the $50 billion server market is not likely to cause any serious conflict.

"We see this not as a new market, but a market transition," CTO Padmasree Warrior told the Times.. "Any time there is a major transition occurring, there will be large companies that have to compete in some areas."

Cisco is facing dwindling profits in a slowing routing market, leaving it searching for alternate growth strategies.

But while Cisco enjoys a margin of nearly 65% in the router market, servers generally deliver margins of just 25%. Cisco expects its bundling strategy to lead to higher than average profits.

Website GigaOm, which first reported on Cisco's possible move into servers last March, said the networking firm should expect "hand-to-hand combat" in the new market.

"It faces a bloody battle against IBM, Hewlett Packard and Dell, who are all used to making a living off lower-margin boxes. I am not sure Cisco would be able to command a premium in this market, however fancy its products might get. HP and Dell are making strides against Cisco in the enterprise when it comes to lower-cost networking gear."

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