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HP fired its latest shot against networking market leader Cisco
Systems with its “Cisco-free data center” product, escalating a hot war
that has been building up since the two companies stopped playing nice
and launched products in the other’s spaces (HP more strongly targeting
the networking space and Cisco launching its own line of servers).

The fact that the vendors decided to schedule their partner conferences
for the very same week just means that channel partners that play both
sides of the fence are being forced to choose, said Charles King,
president and principal analyst of Pund-IT, an IT industry analysis

According to King, changes in the networking market – particularly HP’s
acquisition of 3Com – are muddying the boundaries between traditional
systems vendors and speciality vendors.

“You might say it started when HP started pushing forward with its
ProCurve line and very aggressively positioning those products against
some of Cisco’s traditional solutions,” King said. “Then a few months
after that, we had Cisco announcing their unified computing initiative
and announcing they were going into the server business, which I think
threw another curve at the market thinking that a networking provider
could also be a server provider. This 3Com acquisition certainly upped
the ante between HP and Cisco.”

The move toward commodity-based servers has opened up opportunities for
a number of vendors in the space, allowing them to expand their
interests into different parts of the overall networking market, but it
has left the channel at something of a disadvantage, he said.

“There are certainly many folks in the channel who have very friendly
and successful relationships with both HP and Cisco, and in the case of
both companies essentially invading each other’s turf, it’s left the
channel considering whether to continue pursuing a relationship based
on their former model or are they being pressured … to expand the
products they’re purchasing there. It’s very challenging. It’s
intriguing from a technological perspective, but I think it’s pretty
confusing for folks in the channel.”

With the vendors’ partner conferences going toe-to-toe and many
partners having agreements with both companies, it only makes sense
that some partners are being forced to choose between one or the other
partner conference, King explained. Alternately, some may be sending
one executive to HP and another to Cisco.

“I think that we’re at a place in the IT business where most every
vendor is looking for effective ways to expand beyond their base
clientele. There is the sense that the conventional wisdom is if
vendors aren’t getting bigger then they’re falling behind. I don’t
think that’s typically correct, but it certainly is the conventional
wisdom. Whenever a vendor expands into a new area outside of its normal
comfort zone, there are some inherent challenges and risks.”

For instance, Cisco’s entrance into the server market was met with a
great deal of skepticism, he said. In that respect, HP may be in better
shape because of its acquisition of 3Com, which may not be the
powerhouse it once was in the North American market but has a strong
presence in China, he said. 3Com also has an existing track record,
whereas Cisco designed its own servers with almost no experience in the

According to another long-time industry observer, the war between Cisco
and HP has been heating up for about five years, but it’s really in the
past year that it’s intensified.

“It has been heating up for about five years, I’d argue. It has
certainly stepped up over the past year. It’s intensified, I’d say.
There’s always been the competition and coopetition. That’s always
existed, but certainly in the past year it’s intensified,” said
Michelle Warren, president of MW Research & Consulting, an IT
industry research and consulting firm.

HP has stepped up its game in the networking space and Cisco has
targeted the server market, and it’s no surprise that the companies
have targeted these markets, Warren said. Both tend to have high profit
margins in hardware and services. Partners have been able to reap the
rewards in both spaces.

The lines are drawn in the market; and in the channel, both have good
ammunition for coming battles. Cisco has often been referred to as a
pioneer in the channel programs space, and HP also has a solid channel
presence. As competition between the two giants increases, Warren said
product quality will go up as prices go down. That’s a win for IT
departments, but what about for the channel?

“It will lock the channel partners a little bit,” she said. Partners
will feel the pinch if prices do go down, and they’ll have to look
elsewhere for revenue to make up for that (which will likely be found
in services).

Shrinking price points mean shrinking margins. However, if prices do
get pushed down, partners are unlikely to see it immediately, she said.

HP networking products already come in at a lower price point than
Cisco, but price isn’t everything. Cisco has received a lot of
accolades for its products and is a well-respected networking vendor.
HP has fought over the No. 2 spot with fellow competitor Juniper
Networks for the last few years. The 3Com acquisition has the ability
to be a game changer in the market, Warren said.

The full integration of 3Com staff and products into HP isn’t going to
happen immediately, though, King said. He said he plans to keep a close
eye on HP’s networking sales over the next few quarters to see if the
types of synergies HP executives have been intimating actually come to