A few years ago, we attended an Intel Labs display and one of a some-more engaging segments was on a record it was sensitively building for vast network switches. Intel argued that it could do to a unequivocally costly and high-margin switch business what it did to UNIX servers over a final dual decades to cut costs dramatically.
Apparently, Intel has now started executing on that plan with a acquisition of Fulcrum Microsystems, a fabless semiconductor and associated program vendor, targeting low-cost, high-performance, high-end switches.
This will be good news for HP, yet bad news for Cisco. Let me explain.
Cisco: The Sun of Switch Vendors
Sun was a large crook in a pierce to x86 and lower-cost servers. It was also a large customer of large-scale UNIX servers that cut into a mainframe and mid-range mechanism marketplace like a prohibited blade by butter. However, ironically, it was IBM, HP and visitor Dell that benefited from a pierce to x86, and Sun initial attempted to quarrel a pierce and then, after it was too late, attempted to welcome it, eventually unwell and being bought by Oracle.
At a core of this problem was a existence that Sun didn‚Äôt wish to scapegoat a high-margin products for low-margin competitors and unsuccessful to recognize, until too late, that a association didn‚Äôt unequivocally get a vote. The marketplace was relocating with or yet Sun, which, ironically, was a same formidable preference Sun had presented to IBM that contributed to IBM‚Äôs eventuality in a late 1980s. (As a side comment, it is unequivocally engaging how a record marketplace repeats cycles and how many record companies provide any identical cycle as if it were a surprisingly new and singular event. Kind of like being astounded when a object comes adult each morning.)
So a cycle we are articulate about here is one where a chip vendor, traditionally Intel (though it is function to some border to Intel by ARM in intelligent devices), comes in and finds a approach to commoditize a high-margin business. The widespread provider stumbles since it can‚Äôt adjust to a new lower-margin reality.
Clearly that would harm Cisco, yet because would that assistance HP?
HP might not be alone here, as we design Dell to get on this bandwagon comparatively fast as well. HP is a severe businessman carrying bought 3COM as a response to Cisco‚Äôs entering a server business and HP has been slicing into Cisco‚Äôs marketplace share and increase significantly. In fact, a coming 6,500 layoffs that Cisco has announced appears to be material repairs from Cisco‚Äôs preference to change HP from a partner to a competitor. (Oracle should compensate courtesy as these outcomes tend to come several years after a trigger event.)
HP is already on a commoditization trail and is regulating that as a primary arms opposite Cisco. HP is already a tighten partner with Intel on x86 and Itanium so it wouldn‚Äôt be tough for them to welcome this new Fulcrum record fast and even some-more aggressively cut prices in sequence to cut even some-more deeply into Cisco‚Äôs marketplace share and profits. Dell is on a identical sum provider trail and it seems expected it will see a blood in a H2O as good and pierce on a event if usually as a rival sidestep opposite HP. But Cisco would be a vastly easier and some-more appealing aim given a relations distance in this market.
The finish result, if Cisco didn‚Äôt aggressively pierce on a same event to equivocate Sun‚Äôs mistake, would be a vital change in marketplace makeup and power. Though it would be impossibly mocking if Oracle (assuming it is still around) finished adult shopping Cisco during a finish of this cycle as it did Sun, yet we consider that is unlikely.
When Intel enters a market, as Sun schooled opposite a vastly weaker Intel, it tends to change a marketplace dynamic. Long-time Intel partners like HP and Dell should advantage from this pierce and a stream widespread player, Cisco, will be put during risk by it. The doubt now is either Cisco has schooled from Sun‚Äôs disaster and can equivocate it or either it will repeat a same mistakes. As remarkable above, a engaging thing is that executives don‚Äôt seem to wish to learn by examination others and seem to suffer creation these mistakes themselves. That doesn‚Äôt bode good for Cisco, yet would be a good benefaction for Intel, HP and Dell presumption I‚Äôve review this right.