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Is Cisco on the Outs With EMC, VMware?

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Updated. Wednesday, Cisco (s csco) and NetApp (s ntap) announced more than 150 customers have adopted their joint FlexPod converged infrastructure architecture, a sign that might point to a falling out between Cisco and EMC (s emc). Those two companies are part of a joint venture called the Virtual Computing Environment, which sells Vblock systems composed of Cisco servers and networking, EMC storage and VMware (s vmw) virtualization, and the Cisco-NetApp partnership is directly competitive. Why would Cisco two-time EMC like this?

Here’s one possibility: Cisco is tired of getting the short end of the Vblock stick. I noted in February that Vblock sales have been growing at a fairly rapid clip — roughly 40 percent per month at that time — with an average deal size of $2.5 million. However, I heard recently from a well-connected source that Cisco gets only a small fraction of those profits, and it isn’t happy about it.

Perhaps the NetApp partnership is a tactic to get a bigger piece of the VCE pie. Or perhaps it’s the prelude to an acquisition that wouldn’t leave Cisco beholden to storage partners at all. Suggestions that Cisco will buy its way into the storage business to complement its server business are nothing new, after all, and NetApp would make Cisco a storage big shot immediately.

Nor are rumors that Cisco is interested in buying VMware away from EMC anything new, but that’s simply not going to happen. This makes Cisco’s involvement in OpenStack all the more intriguing. Apart from Rackspace, (s rax) the three large companies leading the OpenStack charge are Dell, (s dell) Cisco and, curiously, Citrix (s ctx) — purveyor of the XenServer hypervisor. If OpenStack takes off, a tight technology alliance with Citrix around OpenStack makes Cisco less dependent on VMware, the other third of the VCE venture.

But OpenStack users won’t likely ever represent the lion’s share of Cisco’s server customers, which is why buying Citrix would make a lot more sense. Citrix’s server strategy is all about virtualization, and XenServer would give Cisco a built-in set of virtualization technologies. Also, Citrix’s application-acceleration and virtual-desktop products could help Cisco transition from selling just switches and routers to service providers to helping those service providers offers value-added network and cloud services.

The considerable market positions EMC and VMware hold mean Cisco won’t likely ever cut off ties with them completely — there’s just too much business to be done with customers that want VMware virtualization and/or EMC storage — but Cisco certainly has the money to free itself from their grasps if it’s not happy. With restructuring on the horizon for the networking giant, and with its server business now operating at a $900 million run rate less than two years into its existence, the time for Cisco to transform itself into a whole-hog systems vendor might be now.

Update: Regarding the allegedly disparate split of VCE revenues, Cisco PR Manager Pamela Ferris told me Cisco doesn’t comment on rumors. She added, however, that Cisco does maintain a broad partner ecosystem to give customers choice in the storage and virtualization layers, and that it rarely goes into an engagement alone because customers have bought into unified computing architecture. Ferris said Cisco is happy with the traction it’s seeing with all of its partnerships around its UCS servers, including VCE and NetApp FlexPod architecture.

Image courtesy of Flick user DieselDemon.

7 Responses to “Is Cisco on the Outs With EMC, VMware?”

  1. VA, It’s called cleaning house of the bottom percentages needed. There is no place for folks with narrow minded opinions such as yourself. Using one subject/discussion as a platform to inject your worthless statement that’s without merit. I’m sorry if you’re bitter because you fell within that 4000, but it’s always been known for Cisco to “clean house” to ensure they only employ the best in the business. Aside from normal house cleaning, this is a very tough economy like no other times, they still have no debt, and make investments with CASH, investing is risky business, some fail, because of your statement, cisco will not loose a dollar. No VA, not one dollar, your attempt failed. Send resume to HP, some of their internal FUD doc’s lack about the same merit.

  2. Markus

    Hi Derrick,
    I agree on Stu that Cisco is targeting as much as possible Routes to market. The Cisco Strategy is since ever to become one of the Top 3 in each Market segment they enter, that was always John Chambers directive.
    The invest in VCE that is a Joint Venture for Cisco means only one part of the strategy, as it is with Flexpod. Also with Flexpod they don’t sell more Servers. They only leverage more people arguing for their products.
    Cisco also has invested in Vmware and holds a minimal stake.
    Nothing new to me as Cisco always acted in that way, look at theri different technology Areas. They always built that strong eco system with co-opetition.
    The clear battleground is to push Dell, HP and IBM Servers by side and become Nr.1 in the Server Business. They always tried to be everybodys darling in that perspective.

  3. Cisco entered last year with 30 market adjacencies and acquired companies in video, cable etc. etc. all across the globe. Obviously they didnt manange it very well and as a result they are laying off some 4000 people plus dumping few of their recent acquisitions.

  4. It’s simpler than that. EMC are on the east coast, whilst NetApp and Cisco are 10 minutes down the street from each other. Moreover, their engineers get on better with one another since they have similar internal cultures (Unix/Internet/Open systems & protocols).

    To put it simply, Cisco and EMC were a fake couple from the outset. Like a Hollywood marriage, it was only the PR/marketing people who cared about it.

    Cisco’s biggest tech wart right now is the reliance on Windows for their Contact Centre systems, which causes severe deployment headaches. VMware is only valuable because Windows stinks at multiple application hosting.

  5. Stuart Miniman

    I’m sure you’re familiar with the term co-opetition. Cisco (and NetApp) are heavily invested in VMware. Sure they (and even EMC) will work with Hyper-V and Xen, just as VMW works with other networking and storage vendors. FlexPod is doing well, so is VCE and Cisco is heavily leveraging both storage company’s direct sales forces and channels to help sell servers. I wrote more here:
    Twitter: @stu

    • Derrick Harris


      Thanks for the comment. I think you’re right that coopetition is the name of the game overall, but when it comes to the servers and storage, Cisco has an advantage in that it doesn’t have years of history selling either. If it really is upset with the revenue split in VCE, and if it really is eyeing a storage or virtualization acquisition, like I’ve been told, I think Cisco would be happy to sell its own VCE-style architecture. It shouldn’t be too difficult to absorb into an almost-equally-as-new server business.

      Whatever happens, I think you’re right that everyone realizes they need each other to maximize sales.