Cisco is rightly making a lot of noise about the success of their UCS server products after IDC ranked them as Number 1. Here is Cisco’s press release: Report: Cisco Achieves Top Rank in Americas’ x86 Blade Server Market, Named No. 1 in Revenue Market Share
There are two sides to this success. The very positive side is that Cisco has cracked the server market in 5 years from a zero start. That’s an impressive result considering Cisco had only limited credibility in the server market. And UCS sales in the last financial results show that growth continues at about 15% per quarter and selling $400MM or so. In particular, the success of Cisco/NetApp partnership selling FlexPods converged infrastructure is a highlight.
There are some concerns. The “leadership” is by total revenue not volume and suggests that Cisco is able to sustain a high price for its product. Customers must love the product and happily pay more for it then competitive products. Secondly, it is only for blade servers – a category which appears to have limited growth as customers turn back to rack servers for high density virtualization. Finally, shareholders should be a little concerned since UCS profit margins are rumoured to be at 40% compared to more than 60% for other products. Every Cisco UCS sale is a drag on profit margins which shareholders value highly.
I like Cisco UCS products myself. They have a load of features that are well suited for legacy compute requirements that every Enterprise has. UCS handily meets the current market need. The extended network capabilities that provides converged storage, hardware-based network features and the deep integration with the UCS Fabric Internet is going to drive a real chafe for automation in the Enterprise. Cisco UCS allows for automation of technology that was previously impervious to change and has great value for customers that can afford it and choose to buy Cisco.
At the end of the day, Cisco is reselling a well known x86 product from Intel and adding some value with network integration. I do not regard the product as innovative but evolutionary – Cisco rode the wave of convergence that I now see, in hindsight, as inevitable.
What I also know is that large parts of the industry are turning to whitebox or commodity servers from companies like Supermicro and Dell to run virtualization platforms that don’t require Cisco UCS features. Both Dell & HP are showing signs of returning to their core focus and the market competition will get tougher from here.