Cisco CEO pegs his odds in storage
LAKE BUENA VISTA, Fla. (CBS.MW) -- The odds are 50-50 that Cisco Systems will eventually climb to the No. 1 or No. 2 sales position in the multi-billion-dollar storage-networking market, the company's chief executive said Monday.
"It's a natural time to enter this market, given the role storage will play in this environment," said John Chambers in a keynote address at the Gartner Symposium, an annual tech conference in Lake Buena Vista, Fla.
Cisco, the company whose shares are the most heavily traded U.S. stock, already dominates the worldwide market for equipment that handles network traffic, with annual sales of $18.9 billion.
But with Cisco's orders sliding and sales down from the previous year, Chambers is looking to enter high-profit areas of the storage market, where analysts say the outlook for tech spending is better than in the rest of the company's main business lines.
Following the announcement, shares of Cisco (CSCO: news, chart, profile) fell about 4 percent in Nasdaq trading, to $9.04 -- what would be another new 52-week low -- while would-be storage competitors Brocade Communications Systems (BRCD: news, chart, profile) and McData (MCDT: news, chart, profile) also lost ground.
Cisco currently accounts for less than 1 percent of sales in the overall $55 billion storage industry, according to research from Pacific Crest Securities in Portland Ore. Overall storage leaders include EMC Corp. (EMC: news, chart, profile) -- which issued a profit warning last week, prompting sharp selling in its shares -- as well as IBM (IBM: news, chart, profile) and Hewlett-Packard (HPQ: news, chart, profile), among others.
But Cisco has plans to sell gear used to build storage-area networks -- large, centralized pools of shared storage resources that are supposed to be easier to manage and cost less than disk storage attached to computers.
Management first announced its storage market plans in May. Cisco is expected to start selling products by December.
"There are a number of emerging areas ... I think eventually Cisco winds up the dominant player, and you wouldn't think of Cisco as a dominant storage player, but they are," said John Webster market analyst with Data Mobility.
Bringing acquisitions to bear
Cisco added to its roster of storage technologies last week, after it acquired Andiamo Systems, a maker of storage-networking switches, for as much as $2.5 billion. The purchase is expected to help Cisco enter the market for fibre-channel storage switches used to provide speedy connections between servers and storage subsystems.
Cisco has one other storage asset -- a Minnesota-based company called NewSpeed it bought about two years ago. NewSpeed specializes in gear that connect the storage on low-end server computers to a company's central storage repository.
Cisco might have one acquisition left to go, according to Chambers. The company usually makes three acquisitions, he said, when it enters new markets. He didn't say if, when, and what storage technology he might look to buy.
While Chambers said he has no interest in manufacturing storage disk arrays, or subsystems, he didn't rule out a possible software purchase -- a market he said he'd enter if he felt he had to.
"How do you maintain margins if you're Cisco? You want to stick with the high-value stuff -- and in storage, the high-value stuff is software," said Mark Fabbi, networking analyst at Gartner Inc.
Chambers said, however, that San Jose, Calif.-based Cisco's main storage software plan involves forming sales partnerships with three or four storage software companies -- one of them being Veritas Software (VRTS: news, chart, profile).
To be sure, Cisco has a chance at becoming a major storage-networking company, due to its overall networking market position, brand recognition, buying power and management's previous experience with strategic acquisitions.
Alliances as challenge
The challenge will be building strong industry partnerships, Fabbi said. He said that Cisco's management may be hard-pressed to forge alliances with market leaders EMC, IBM and others that already have strong an allegiance to Brocade and McData.
More importantly, Brocade and McData also have strong customer relationships. Both companies have been selling and installing gear for building storage networks for four years.
By contrast, Cisco has yet to sell its fibre-channel storage equipment, which led analyst Webster to observe, "Chambers is spot-on: Cisco could score big, or fall flat on its nose." |
