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Cisco Preps Server-Switch As HP Prepares Flank Attack

Code-named California, Cisco's server is expected to meld Cisco's Nexus 5000 switch, Intel's Nehalem processors, and virtualization management with help from VMware.
Goldman Sachs and Credit Suisse are believed to be testing Cisco's system; they declined comment. California interests Hilton CIO Tim Harvey, whose company has a strategic relationship with Cisco but who hadn't heard of the technology until being told in an interview.

"I love to see people expanding capabilities that were on several boxes into a single platform. It just means a simpler environment for us," he said in an interview. "The management side and reliability side of computing has become harder as things have gotten more complex."

It's likely not only technology that's pushing Cisco in this direction, but Wall Street as well. The company consistently aims for more than 10% growth year over year, and it's running out of big growth opportunities. The server market is worth tens of billions of dollars, and that may be too lucrative to ignore, said Vikram Mehta, CEO of Cisco competitor Blade Network Technologies, who has seen California being tested by several organizations. He calls this Cisco's "world domination strategy." However, he added, it may even alienate relationships Cisco has had with HP and IBM.

Facing HP, IBM, and Dell, none of which would comment for this article, will certainly be a challenge.

"Servers have higher mind space with CIOs," said Yankee Group senior VP Zeus Kerravala. "You can make the same argument that why would somebody buy VoIP from Cisco, so they've done it before. The difference is a larger class competitor here. I wouldn't bet against them, but if they get into the server space, it would be the riskiest move the company has ever made."

Price could be one of Cisco's advantages, but it doesn't look like Cisco wants to play that game. According to a source, Cisco believes it will make roughly the same margins from California as typical Cisco products, which carry much higher margins than servers. It's difficult to count Cisco out, but unless it can make a compelling argument that California can compete on features, Cisco faces an uphill battle in the server market. Cisco's strength in networking, combined with technologies from VMware and Red Hat, would make this much more than a me-too product launch.