Today, IBM officially announced the formation of its System Networking group (it’s buried in this PR). I’m on the record saying that IBM’s acquisition of BNT is not to attack Cisco. IBM is a master at the practice of co-opetition, and has a stated commitment to maintain partnerships, unlike HP, which has openly declared war on Cisco. The networking industry has undergone a realignment that will challenge Cisco’s dominance in the space.
The relationship between the server and network has continued to strengthen, partially due to blade server volumes increasing to one third of the overall data center server market. Embedded networking in blade servers and top of rack switches are typically sold as a complete solution. We have seen the server vendors acknowledge this reality with an increased focus on the networking space. Over the past three years: Cisco entered the server marketplace with its Unified Computing System (UCS) that has tightly coupled compute and networking; HP broadened its HP Networking group through acquisition of 3COM; Dell created a Networking Business Unit; and even Oracle has made a strategic investment in networking by purchasing 10% of Mellanox shares. IBM System Networking, led by BNT CEO Vikram Mehta, includes BNT products (which are also OEMed by HP) and partner products including Fibre Channel from Brocade and InfiniBand from Mellanox. Mehta says that Juniper and Cisco Ethernet products will remain strategic in the core. Mehta also said that IBM is not looking to create “stacks” like HP or Cisco (with EMC and NetApp).
Last week Cisco announced during its Q2FY11 earnings call that switch sales were down 7% year-over-year. Cisco faces a consolidated and reinvigorated competitive field. Not only do the server vendors all defend the edge with bundled solutions, but HP (networking revenue up 227% and ProCurve revenue up 50%) and Juniper (last quarter, Ethernet switching revenue up 66% year-over-year) are challenging Cisco’s dominance in core switching. According to 10Gb Ethernet market share data shared by IBM, Cisco is still far ahead of the competition with 53% share of units, BNT is #2 with 17.4%, Juniper #3 with 10% and HP #4 with 8%. Since BNT’s products are predominately embedded, Cisco’s lead in stand-alone (edge and core) switches is larger than the overall market share. All of the vendors in the space are working at “flattening” the network from 3-layer to 2-layer (even 1-layer in the case of Juniper’s “Project Stratus”); as part of this transition, Cisco has the challenge of transitioning from the very popular Catalyst product line to the newer Nexus family.
While IBM has professed that it is not interested in creating a “stack”, there is no doubt that it is looking to increase its share of dollars through offering a growing spectrum of IT products and services. The general trend in the industry is one of consolidation where CIOs are looking to reduce the touch points by making strategic bets on the vendors that they will work with. Customers should be looking to work with vendors that provide infrastructure that enables the creation of IT as a Service (ITaaS). IBM System Networking helps solidify a strong portfolio for competing with the other top-tier vendors in this era of cloud and big data.