Maybe. We'll have to see. If Dell is going after the low end, then it may not effect Cisco's margins as much as you might think, because Cisco gets most of its revenues (and customers) from the high end equipment.
In Marketing 101, they taught us that price is the last thing you compete on when you've run out of the ability to compete on everything else. Then in Econ 101, they taught us that price matters only in demand elastic markets.
First, this market is for networking gear, which is very temperamental and requires complex software and a high level of expertise to install, operate and maintain effectively. In the high end of the market, enterprise and service provider companies prefer to rely on the best equipment and price is a secondary or tertiary consideration. In other words, demand is inelastic and price doesn't matter.
Second, Cisco only competes on price when they don't have the best product or if a competitor's product is of similar quality. In addition, Cisco many times doesn't have to compete on price even in those cases due to the high level of service and customer attention that they give their customers. Then top it off with the software that makes the dump hardware actually work. Software isn't easy in the networking business and Cisco has 15 years of experience over Dell in this area.
So Dell has some tough sledding ahead. They can carve out a niche, but it will take time. I remember when the same ballyhoo emerged when Intel decided they were going to compete in networking. Well, so far they haven't made much of a dent on Cisco either.
Anyway, I don't want to take anything away from Dell. They are a great company and they can be a player. But let's not exclaim the fall of Cisco just yet. :) |
