Is it safe for Cisco and HP partners to go in the water again?
It may seem like the pressure is off, since Cisco and HP’s channel partner conferences don’t fall during the same week this year. But, really, is the pressure off? Or is the competition just as acute as last year.
Lee Doyle, group vice president of network infrastructure and security products and services at IDC notes that Cisco does appear to be losing market share and a bit of margin to tech giant HP, although he’s still working on his analysis of the last quarter of 2010.
“Are they staying focused enough on their core markets is a rational response,” he told Channel Insider. “Juniper’s still tiny in terms of market share. HP is doing well, but Cisco’s still the dominant player. Their market share ebbs and flows,” Doyle said.
Since the last Partner Summit (the one that competed directly with HP Partner Conference last spring), Cisco has continued its expansion into non-networking markets, but that’s nothing new, he said.
“It’s a continuation. Data center, video, UC, telepresence, you start looking at things like smart grid and smart cities, so they do continue to broaden their offering to the channel,” Doyle said.
“That’s both a benefit and a challenge, because the channel’s got more things to learn and more products and more qualifications to get to the highest level. It’s an evolution, not a revolution.”
Although there seems to be less focus on core networking products and more effort put into advanced technologies and consumer products, Doyle said that’s necessary for Cisco to grow. The company has been expanding its product categories to several different non-networking technology areas over the last few years, and that doesn’t seem to be slowing down.
After all, Cisco is building a growing consumer practice with the likes of Linksys, Valet, Cisco Explorer and The Flip video camera. That kind of expansion isn’t a concern, and is expected, Doyle said.
Whether any market share loss is a near-term reset or a longer-term challenge for Cisco is still unknown, he said.
Over the past year, Cisco’s traditional market has gone through what California would call a “seismic event,” said Charles King, president and principal analyst of Pund-IT. Traditionally, Cisco has been the networking partner of choice for most enterprise data systems vendors, but there has been significant realignment of traditional systems vendors in the last 1.5 years, he said.
Systems vendors like HP and Oracle are actively competing against Cisco with increasingly vertically-integrated solutions, King said. This has caused some of Cisco’s alliances – mostly notably the partnership with HP – to topple.
“I don’t think that Cisco has been caught flat-footed here. It’s pursuing its own kind of partnership acceleration efforts on its own,” King said. “For example, the company started developing and selling its own unified computing system, which is basically x86 blade servers that Cisco is selling on its own and in concert with partners like the VCE Coalition.”
At the end of the day, vendors that dance in the overall networking space are stepping on others’ toes a lot more than they were before. That old Silicon Valley notion of co-opetition? It’s still exists, but it’s a much more delicate dance, King said.
“I think Cisco’s earnings are probably reflecting some of that pain and some of those new realities,” King said. He added that he hasn’t seen any solid evidence that Cisco has actually lost market share to HP since HP’s acquisition of 3Com. Rather, HP is still playing strongly in the markets it was at the time of the 3Com acquisition – most notably in Asia.
Cisco is feeling the pinch in its financials, though. Cisco CEO John Chambers announced earlier this month that for the third quarter in a row, Cisco was feeling pressure from shrinking public spending and weaker margins because of tougher competition. In response to that announcement in early February, Cisco’s shares dropped 10 percent. However, competitors Juniper, F5 and Riverbed also experienced reduced share prices.
Financial expectations for Cisco have certainly been reduced significantly over past years. Although the company’s revenue continues to grow on a year-over-year basis, the growth rates aren’t what they used to be.