Cisco's fourth quarter results and outlook juiced the company's shares, but don't dismiss CEO John Chambers spirited talk on network virtualization. The big question is whether Cisco can walk the line between riding the network virtualization wave and selling hardware.
Going into Cisco's earnings report this week, many analysts expected Chambers to talk about the software defined network (SDN). In short, the software defined network means switches and routers will be virtualized. Over the long haul, it's possible that enterprises and carriers will buy less Cisco gear.
That latter point is debatable. Server virtualization is now commonplace, but the likes of HP, IBM and Dell still sell plenty of systems. Virtualization may mean less hardware to sell down in the future, but the timeline is up for debate.
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VMware's purchase of Nicira kicked off a lot of interest in SDN. Now there's a run on SDN-focused startups as VMware eyes networking and companies like Citrix see an opportunity to get closer with Cisco's massive distribution.
With that backdrop, Chambers' needed to deliver the following messages on SDN:
- Cisco is an SDN player;
- SDNs won't happen overnight;
- Cisco will keep share and be a leader in networking and the virtualization that goes with it.
On most counts, Chambers was on point. Jack Clark, however, noted that Cisco's legacy makes the network virtualization movement tricky to navigate. Here's how Chambers set up Cisco's role in network virtualization.
Cisco pioneered network virtualization in 2009 when we introduced the Nexus 1000V, the first virtualized switch. Today, while start-ups in this space can generally count their production customers on at most two hands, Cisco has more than 6,000 Nexus 1000V production customers using the distributed virtual networks to deliver highly secure, multi-tenant data center environments. We have been driving the future of the data center for a number of years now together with our strategic partners whether it is EMC, VMware, Microsoft, IBM, NetApps, Citrix, Intel, and many others, our open approach is driving innovation and unique customer value. To be clear, we will continue to utilize our unmatched expertise in this evolution of the network and build, buy, and partner as we've always done to drive network leadership for generations to come. And while we view this trend as a positive business driver for us going forward, it is also important to realize this evolution will play out over many years in the future.
Translation: Nicira is a baby. A baby doesn't punch goliath in the mouth overnight. And by the way, Cisco will hit back if necessary.
Chambers was later asked about VMware and Nicira and he did a nice two-step. After all, VMware is a key partner along with EMC on selling Cisco's Unified Computing System (UCS). He said:
When you really think about SDN, and I want to be very candid, we think the future's going to be hardware and software combined. We think when you have knowledge of the network and are able to know what's going on in the network, you can program to it. You can give dramatically better flexibility, et cetera. It's a nice way of saying we think it's going to be hardware and software combined.
Secondly, if you watch what we've done in this area, we saw virtualization coming early. So it wasn't like it snuck up on us. We went into the virtualization with the Nexus 1000V in 2009, which is exactly when we entered the data center market with the UCS and our movement there. So we saw both of these trends coming.
Our view on this SDN OpenFlow Nicira type of activity is you're really looking multiple years out in terms of its impact one way or the other. And our ability to handle transitions with our partners and at times compete and times partner has been unprecedented in the industry. So as we look forward, we're completely staying committed with VCE (the partnership with VMware and EMC) and our ability to work together.
We are looking at the innovation that we can do in our market, and we will have partnerships like what occurs with Microsoft and IBM and Citrix in this area as well. So good growth this last quarter, but if you look at it, we think we will encompass this in really architectural play pretty aggressively.
Add it up and Cisco basically said that the data center will support multiple hypervisors, applications and operating systems. VMware is a partner and soon to be a foe, but Chambers thinks the two sides will work it out. "With VMware and EMC, it's been a very strong partnership. We both benefited greatly from it. They can learn from us, and we like very much being a partner with them," said Chambers. "So I think you'll see us work this out in terms of our direction. But we are going to be an open player and we've shown in the marketplace when we compete, we can be really, really tough."
It remains to be seen if data center buyers agree with Chambers. Clark noted:
There are signs that major IT organisations are going in a different direction to Cisco. Take Google, for example. It builds its own networking gear and recently announced it has implemented an all-SDN OpenFlow-based networking system to run on top of this. As a result, Google expects to boost network utilisation to close to 100 percent, compared with the industry's typical 30 to 40 percent.
This is all made possible by the efficiencies in traffic routing that can be squeezed out when all the intelligence comes from a central control plane giving orders to underlying hardware, rather than the other way around.