IBM buys Blade Networks

IBM has “run for the stack” as customers ask for end to end guarantees for servers and networking in the data center. With Cisco and HP playing the FUD card and telling customers that only a single vendor solution can guarantee the next generation of blade servers and networks, IBM has been forced into delivering their own switch.

Why note Brocade ?

Hard to tell, but some guesses:

• Brocade bought Foundry two years ago, and still no new products of note. Ergo, their ethernet products aren’t up to much.
• Brocade’s share price is falling most of the time. Thus everyone else thinks they haven’t got much
• Brocade continue to think they are market titans and didn’t want a reasonable deal.

IBM isn’t returning to Networking, yet

What seems clear is that IBM does NOT want to build a networking division. By purchasing the smallest switch vendor that is focussed on just one tiny market segment for a rumoured $400 million, IBM aren’t taking on HP and Cisco. So Uncle John gets his wish to keep selling Cisco gear to IBM customers, but with a little bit of fear that IBM could change their mind anytime.

That’s a good way to keep the business relationship level, don’t you think ?

IBM Partnerships

Blade Networks makes switches that live inside the blade server backplane, and some top of rack, but not so much the backbone. Although, it wouldn’t take much to make a simple Layer2 switch with lots of ports, it’s all the rage with the VMware kids right now ( until they find out it doesn’t work quite the way they expect ). Oh, and HP has been kicking Blade Networks out of bed since buying 3Com and thus half (?) their revenue was going away. So, IBM will continue its love in with Cisco, selling Cisco WAN and Security gear, and packaging up juicy profitable services on all of Cisco’s satellite product divisions such as IP Video Surveillance, Smart Grid, Teleconference etc.

What does it mean ?

I think Cisco’s Nexus 7000 switches become further niched into the VCE stack and have less relevance in the open market. Without HP and IBM using them to connect 10GbE ports from servers, sales volumes are going to be low. And the Nexus 7K is not ready for 40GB / 100GB due to silicon problems (possibly both manufacture and design issues due to slow corporate process). This means that innovation on Nexus7K will slow down as product investment will match sales volumes. Impact ? The NX7K will get even further behind the innovation curve.

Since they haven’t upset Cisco, IBM will continue to sell professional services as their primary focus and hardware sales remains as loss leader. Hur, what else is new.

And we will wait a few more weeks to see the next consolidation move in Networking Industry. HP needs a firewall / security product of some sort, and maybe will buy a wireless company to own the technology. DELL needs an entire networking stack – at least a data centre partner such as Force10 Networks.

The EtherealMind View

Cisco has been vulnerable to this sort of attack for some time. Making large profit margins meant that other companies were going to attack them and their customers eventually. What isn’t clear yet is what the new Cisco will look like ? Will Cisco look like IBM with a full stack of sales and professional services (and limited resellers partnerships) in lots of vertical markets ? Or more like HP with a “we’ll sell you anything at a good price” ( with lots of reseller partners ) in any market ?

And what happens to resellers and customers who are caught in the market transition ?

Cynical Note

Interesting times perhaps but still not as interesting as the last Networking consolidation in 1998. This is just the same thing over again, with bigger numbers.