Showdown

HP Networks is stepping up its rivalry with Cisco in the enterprise networking stakes

Tags: Cisco Systems IncorporatedHewlett-Packard Company
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Showdown HP is going after the enterprise networking market with vigour
By  Daniel Shane Published  June 16, 2011

For two decades, US vendor Cisco has held a relatively unchallenged position of dominance in the enterprise networking sector. However, there have been signs of a significant sea change in this regard over the last couple of years or so.

Figures published by research firm Dell'Oro earlier this year showed that Cisco's share of the network switching market, a key barometer of the enterprise network industry as a whole, has fallen from 73.8% in 4Q2008, to 70.4% in 4Q2010.

It is not only sliding market share in its strongest segment that Cisco has been made to face. In April, the company practically admitted that its product strategy over the last few years had become a mess, and that its market-leading position was no longer a foregone conclusion. "Bottom line, we have lost some of the credibility that is foundational to Cisco's success - and we must earn it back," conceded CEO John Chambers. "Our market is in transition, and our company is in transition."

One of the biggest criticisms levelled at Cisco has been that it has of late focused too heavily on low margin consumer products, which included its Flip video camera, a product that was canned on the back of widespread derision earlier
this year.

Cisco's dwindling market share has coincided with Hewlett-Packard, the world's largest IT company by market capitalisation, muscling in on Cisco's network monopoly.

Just two years ago though, such a development would have been more or less unthinkable.

Historically, Cisco has worked intimately with HP and IBM, who both recommended and resold Cisco networking infrastructure to customers to complement their own server technology. This relationship changed radically though, when in 2009 Cisco unveiled its own line of servers, complete with virtualisation software, as part of its Unified Computing System product strategy. The move transformed Cisco from an HP partner, into a direct competitor.
And HP's response? Just months later, the vendor went out and snapped up US network infrastructure and security provider 3Com for $2.7 billion, and in the process gave its own resounding statement of intent for that market.

Prior to that acquisition, HP had sold its own solutions targeting the network via its ProCurve division, but the addition of 3Com transformed HP into an end-to-end network solutions provider, and one of the few players with the scale and resources to subtract market share from Cisco.

Following the close of the 3Com deal, HP has made big strides in the networking sector, seeing its share of the market rise from 6% in early 2010, to 10.7% at the end of last year, according to Dell'Oro's data.

In May 2011, HP turned up the temperature on Cisco higher still, unveiling a new architecture and accompanying set of solutions the vendor claims will simplify and streamline management of geographically disparate corporate networks.
The company's FlexNetwork architecture purports to be the industry's first unified architecture for the data centre, campus and branch, which HP claims will enable organisations to leverage the potential of virtualisation, mobility, and cloud computing.
According to HP's marketing collateral, the FlexNetwork architecture will enhance the flexibility of existing IT infrastructures by allowing customers to deploy network solutions "based on modular building blocks and open industry standards". The vendor emphasises that such open standards will help enterprises avoid becoming locked-in to Cisco networking gear.

"We're setting up an architecture that will allow us to bring together all of the individual parts of our existing portfolio," says David Sturgess, EMEA director, networking product management. "We have one of the largest portfolios of networking products in the industry - it spans everything from the data centre, to the enterprise core, to the edge, branch, wireless, wired, security - and providing orchestration across all of that."

Key to the company's FlexNetwork strategy is the launch of its new A10500 enterprise grade Ethernet switch. The A10500 delivers three microsecond latency and 128 wire-speed 10GbE ports, figures HP says are 75% lower and 270% higher, respectively, than the equivalent Cisco product.

Sturgess claims that proliferation of video traffic in the enterprise is pushing the requirement for higher performance in Ethernet switching products. "The biggest driver we're seeing at the moment is a tremendous growth in video traffic - everything from broadcast video to video phones, video conferencing and people downloading and watching video - it's driving tremendous growth in traffic," he explains. "But not only do you have to grow the capacity of your network to accommodate that, but you also need to make sure you've got low latencies."

However, HP's challenge to Cisco is not just based on its claim to provide higher performance solutions: the vendor also says it provides significantly lower cost of ownership. "Much of the argument [in favour of HP] is about cost of ownership," Sturgess believes. "We can give an extremely compelling cost of ownership proposition, and if you look at the current economic climate, that is forcing many organisations to look very carefully at their IT budgets and ask ‘am I really getting the maximum value for my spend here?"

HP's EMEA VP for networks, Carlos Sartorius, believes that the sands are shifting in the networking market. He says that the industry is evolving away from proprietary hardware standards, which he says typify Cisco products, and toward open, industry-wide standards. "[Cisco] have a certain go-to-market way - they need a lot of margin to sustain the company - and it's been very convenient for them to have a lot of proprietary standards, because they're the only ones who provide [network infrastructure]," he explains.

HP's networking market share is still marginal - less than 7%, compared to Cisco's 70% - but the company says that it is the only vendor whose scale and portfolio allows it to provide large enterprises with the full networking piece. Sartorius claims that other competing companies in this space remain niche players. "If you go to any of the others ones, they're strong in certain aspects and with certain products," he observes. "Juniper Networks are very strong on the service provider side, [and Chinese networking vendor] Huawei are very strong on the SMB side, and are trying to get into the enterprise."

However, Sartorius believes that much like how mobile industry players like Ericsson and Motorola adopted GSM, the networking segment will move towards interoperable, vendor-neutral hardware standards. "[Cisco] do it the way they want to, and they launch whenever they're ready, but I think the industry has changed," he observes. "Go back to other technologies, and at a certain point in time they've had to adopt standards - like GSM - and this is what is happening to Cisco. Customers are asking for it."

2284 days ago
Vinod Mehra

The cross turf war will erode margins that could have gone towards better technology innovation.
In the cross turf war consumers are getting better value for money but eventually they will also get delayed technology innovations due to the eroding margins.v

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