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Where VMware Is Outdoing Cisco

Craig Matsumoto
7/30/2012

1:00 AM -- Is VMware Inc. (NYSE: VMW) about to pull off what Cisco Systems Inc. (Nasdaq: CSCO) couldn't?

I'm not talking just about the acquisition of Nicira Networks Inc. -- although Cisco might, in the long run, wish it had done that instead of trying to build Insieme. (See VMware to Buy SDN Startup for More Than $1B, VMware Insists It's Not Warring With Cisco and Cisco Outlines an SDN Plan.)

I'm talking about company transformation. Cisco prides itself on having survived multiple industry catastrophes, each time emerging as a remade entity with a broader mission. CEO John Chambers even said he's preparing for those transitions to come more frequently. (See Chambers Promises a Simpler Cisco.)

But it's VMware that looks like it's preparing itself for the next industry phase, one that it's calling the software-defined data center.

On its earnings call Monday, VMware described Nicira and other recent acquisitions (DynamicOps Inc., Wanova Inc.) as R&D fuel -- purchases that won't bring any revenue this year but are driving VMware toward that software-defined future.

On top of that, VMware is starting to embrace open-source developments. It leads Cloud Foundry, the open-source platform-as-a-service project, and has kept it open. And Nicira is heavily into Open vSwitch, an open-source virtual switch that competes with VMware's own -- and which VMware so far says it will continue to support.

A more literal sign of change is that Pat Gelsinger took over as CEO last week, while former CEO Paul Maritz moved to EMC Corp. (NYSE: EMC), VMware's parent company. Granted, this could be unrelated to Nicira; it looks like Maritz is being groomed to be EMC CEO eventually, and this might just be the first phase in the changing of the guard. (See VMware Preps Its Next Act.)

This all adds up to VMware moving now -- while the company is still doing well -- to react to a major shift that's coming. Its executives are not waiting for a threat to emerge, and more importantly, they're showing a willingness to dilute today's product franchises (not necessarily by a lot) in order to keep from being left behind tomorrow.

Cisco, by contrast, has responded to software-defined networking in a way that would preserve the importance of routers. Its approach of using application programming interfaces (APIs) to make the network programmable might work, and it might win out in the market -- but a lot of people see it as Cisco being unwilling to endanger its router franchise. (See Cisco Takes ONE Step Beyond SDN.)

I think Cisco is sincere about wanting to transform itself more quickly. It's just that for this particular transition, VMware might be showing Cisco how it's done.

— Craig Matsumoto, Managing Editor, Light Reading

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jes
jes
12/5/2012 | 5:25:38 PM
re: Where VMware Is Outdoing Cisco


There has always been romours about Cisco aquiring EMC.. And Chambers and Tucci both deniying this in the past...Now that vmWare is making a move to virtualize the network, whats the chances the Cisco will try a rather big transformation by trying to aquire EMC (for the vmware part at least) ???


Or is it too big for Cisco who has managed aquistions well in the past ??


 

Pete Baldwin
Pete Baldwin
12/5/2012 | 5:25:37 PM
re: Where VMware Is Outdoing Cisco


Excellent point, Jes. Personally, I think EMC wouldn't want to be bought at this point; they seem to have the upper hand. And Cisco is favoring offshore acquisitions, to keep rubbing the government's nose in the repatriation issue.


I like this blog entry that Brad Casemore did in December -- recounting how Cisco should have bought VMware in the first place:


http://nerdtwilight.wordpress.com/2011/12/13/reflecting-on-the-big-acquisition-cisco-didnt-make/

Pete Baldwin
Pete Baldwin
12/5/2012 | 5:25:36 PM
re: Where VMware Is Outdoing Cisco


You know what, buying Xsigo might be an option.


OOPS.

BigBro
BigBro
12/5/2012 | 5:25:32 PM
re: Where VMware Is Outdoing Cisco


There is NO WAY Cisco can acquire EMC: CSCO's market cap is "only" $85B, while EMC's is $55B. In fact, if you take the companies' cash hordes ($48B for CSCO, $5.5B for EMC) out of their market caps, EMC's stock is valued HIGHER than CSCO!


These companies are on a collision course.


Don't believe the BS about Insieme being about "SDN", that's a smoke screen. They're building the next-gen Nexus 7000 (or maybe they'll call it the Nexus 8000? 9000?), and probably have some sort of storage angle. Andiamo and Nuova were two earlier attempts at integrating storage and networking (and eventually compute, in the case of Nuova) to various degrees, maybe the third time is a charm and they actually integrate the back-end storage arrays.


So EMC is probably positioning itself to get deeper into networking. The question is whether they try to compete head-to-head with traditional box vendors (they'd probably have to acquire a switch vendor), or whether they hope to just "move beyond the hardware era with SDN" (i.e., Nicira).

obaut
obaut
12/5/2012 | 5:25:31 PM
re: Where VMware Is Outdoing Cisco


The winner will be the company that takes the innovation to the services, rather than software (virtualization etc) or hardware, market.


The service provider with defendable differentiator in producing network services will be able address the largest market - with a right business model also with high profit margin and capital efficiency.


The innovation however needs to reach down to the hardware layer, to allow cross-layer architectural optimization, and thereby breaking free from the limits of legacy concepts eg for service configuration and software/hardware layering that are relics from the era of when SPs bought closed systems from equipment vendors/ISVs and services where configured for relatively static use cases.

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