Why HP and Cisco broke up - or the future of network hardware
It wasn't likely that Cisco and HP could stay BFFs when HP bought 3Com, who makes network hardware and when Cisco made moves into HP territory with unified communications and high-definition video conferencing. The breakup note on YouTube from Cisco senior vp Keith Goodwin was very clear: "Over the last few years our relationship with HP has evolved from a partner to companies with different and conflicting visions of how to deliver value to customers. Despite this shift in industry dynamics, HP had remained a Cisco Certified Channel Partner. Being a Cisco Certified Channel Partner has numerous benefits including access to proprietary information (such as product roadmaps) and partner profitability initiatives. Given the evolution of our relationship it simply no longer makes sense to provide these benefits to HP."
It’s been interesting to watch the convergence (and divergence) of the two companies. Both are responding to the rise of cloud-based architecture, both public and private. By abstracting virtual infrastructures away from the physical, the traditional infrastructures that are the heart of both companies’ businesses are becoming commoditised, in order to deliver what Microsoft’s Yousef Khalidi describes as “24x7 availability with 9-5 management”.
The key to winning in this new enterprise market is a stack of enterprise products, from networking hardware to servers to storage. HP is working to deliver all of the above, while Cisco is concentrating on network hardware and is relying on partnerships to deliver the rest of the stack. It’s no wonder then that the two companies have parted company, with HP building out its networking capability from its own and 3Com’s product lines.
Last spring, at the Future In Review conference, HP CEO Mark Hurd took part in the keynote interview. Talking with futurist and analyst Mark Anderson, he described a future for HP’s networking, storage and server businesses. It’s one where the three get closer and closer, converging on using commodity server hardware to deliver what he described as systems that “Source the same components in future, building on x86 surrounded by software and services”. It’s building on what HP’s already done with the transition to blade architectures, where 80% of what is in a desktop PC is in a server, and 80% of that server is in a blade. That’s a lot of commonality – and an excellent way to drive margins out of a business. As Hurd says of tomorrow’s enterprise architectures, “It’s all about the infrastructure pieces”.
It’s hard for a dedicated network hardware vendor to compete with that sort of margin-reducing thinking. There’s certainly a place for an alliance of hardware and networking vendors as competition for the market presence of HP, but there’s also a place for a company like HP to break down the traditional walls between networking, servers and storage – and to build on its own software skills to integrate it all into a coherent, easy to manage cloud infrastructure that can help businesses reduce their costs.
The desktop PC market commoditised a long time ago, and companies now compete on design and on quality. It’s now happening to enterprise infrastructures, with x86-based hardware starting to dominate the storage world, and x86-powered network appliances adding new features to networks. In this world the divorce between HP and Cisco is inevitable. As the market continues to commoditise there will only be one winner – and that’s neither HP, nor Cisco. It’s Intel.
I suspect there a lot of happy folk in Santa Clara this week.
But can Intel stay BFFs with both Cisco and HP? It looks like it’s going to be an interesting few years in the infrastructure world.