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.
"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."