Cisco: Facing threat from specialized switch makers?

Cisco's Swiss Army knife approach to data center switches may equate to market share losses in 2011 as networking companies with specialization in hot areas like virtualization gain ground.

That's the argument from Oppenheimer analyst Ittai Kidron. In a research note, Kidron makes the following points:

• Data centers are becoming more complicated.
• IT managers are requiring more specialization as data centers are rejiggered to accommodate virtualization.
• These new data center architectures may require Cisco to step away from its broad market approach to switches.

Kidron writes:

Cisco has long supported the Swiss Army knife switching approach given its broad customer base and their varying needs. But technological and structural changes could pressure Cisco and create opportunities for other vendors to address niches in the evolving data center switching market. As we discussed, the traditional, siloed and hierarchical approach isn’t efficient and scalable enough for growing virtualization and cloud computing traffic. As a result, vendors are looking to optimize by flattening data center networks.

He continues:

The rising complexity in the data center and the varying enterprises’ and applications’ performance needs are making for increased fragmentation at the high end of the Ethernet switching market. We see three emerging Ethernet switching categories in the data center: dense virtualization, high performance/low latency and general purpose switching. We believe a general purpose data center switch can no longer address all of these categories to the degree required by specific high performance applications. Therefore, specialized data center switches optimized to address targeted subsets of these areas but not all at the same time are emerging.

In other words, one size doesn't fit all in the data center and optimized switches have a role. As the data center switch market fragments, Cisco's risk increases. Companies like Force10, Blade and Arista could all benefit from this data center sea change. Kidron notes that two flavors of switches are emerging---gear specialized to dense virtualization environments and boxes that offer high performance and low latency.

Kidron reckons that Cisco's data center market share will rise to 79 percent with 72 percent share in the switching market. However, 2011 will be a different story with Cisco's data center market share falling to 73 percent and switching share going to 69 percent.