Back in June, as recounted in a Wall Street Journal article published online earlier this evening, JMP Securities’ Sam Wilson speculated that IBM’s recent manufacturing agreements and software acquisitions “appeared to signal a shift away from hardware.”
He went on to suggest that IBM “will continue to sell large quantities of Cisco gear,” and that IBM does not want “to enter a full-fledged war against Cisco the way that H-P has thus far.”
Unlike IBM, HP owns a networking business, its HP ProCurve group, and it has been competing increasingly against Cisco, particularly at the network edge, for some time.
For its part, IBM, which typically takes a services-led approach to its customer engagements, resells and OEMs a range of networking equipment, including products from Juniper, Cisco, and Brocade.
In the context of Wilson’s commentary, a dispute has arisen as to whether IBM is “moving away from hardware.” IBM representatives say that’s not what the company is doing.
Strictly speaking, IBM’s spokespeople are correct. The company manufactures and sells its own server hardware, and, as Crawford Del Prete of International Data Corp. notes, as long IBM can take profits from that hardware portfolio, it will continue to make and sell servers.
As of today, IBM has differentiated data-center hardware, and it’s selling that hardware into customer accounts. In the near term, that approach won’t change.
That said, I don’t doubt that IBM has set a strategic course for the future that will deemphasize hardware in favor of software and services. Hardware will still be included in IBM’s data-center solutions, obviously, but that doesn’t mean IBM will continue indefinitely to manufacture those products itself.
Cisco isn’t a major presence in servers today, but its Unified Computing System servers will gradually gain traction in many accounts that already look to Cisco for networking gear from the routing core to the wiring closet. Cisco has signaled its intentions, and it will not go away. The competition for data-center real estate will be fierce, and Cisco will scrap for every inch of exposed ground. Cisco wants its “fair share,” which means as much as it can get without violating antitrust laws.
HP, as Wilson says, has decided to match Cisco stride for stride, product for product. For HP, there is no middle ground, no room for accommodation or compromise. As an HP representative informed a Wedbush analyst, “We have declared war on Cisco.”
Wilson is also correct in saying that IBM is not taking the bluntly antagonistic approach to Cisco that HP has espoused. IBM, I think, has decided on a course that plays to its strengths, not to those of its adversaries.
Compared to most vendors, IBM is very good at giving enterprise customers what they want. If that means IBM must lash together a mix of servers, storage, networking gear, plus various layers and types of software, then so be it. IBM can wrap professional services around everything and make it work, still managing to come away with a tidy profit and an ongoing revenue stream.
HP acquired EDS, and it could conceivably play the same service-driven cards that IBM wields so adeptly. Not really, though. EDS is still new to HP, the HP culture remains oriented toward engineering and products (despite attempts to change it). As a result, HP does not have the same range of options that are available to IBM.
IBM could change tack, I suppose. It could decide to buy a major networking-equipment player – say, Juniper – make some smaller point-product networking acquisitions and completely reverse field, challenging Cisco head to head, just as HP has decided to do.
I wouldn’t bet heavily on it, though. From IBM’s perspective, that would be a path fraught with great risk and uncertain reward. There’s much that could go wrong, and only a modest probability of everything falling perfectly into place.
IBM remains a server-market leader, and it will manufacture and sell its own servers as long as it makes business sense to do so. When it doesn’t, IBM will simply resell somebody else’s servers. It will still have its services, its software, and its relationships with various networking vendors, perhaps even one with Cisco.