Virtualization Leads to Changes at Cisco

Networking giant's entry into server market could impact public-sector IT.

by / January 21, 2009

Changes are coming to Silicon Valley, and not everyone is happy about it.

According to a recent New York Times article, Cisco Systems, the leader in networking equipment manufacturing, plans to move into the server market, which is currently dominated by companies such as Dell, Hewlett-Packard and IBM.

Cisco has announced its plan to introduce a server computer that caters only to virtualization applications into the market as early as March. It will contain virtualization software from both Cisco and VMware, the market leader in virtualization technology.

Brent Bracelin, hardware analyst for Pacific Crest Securities, told The New York Times that "This will be the most important and most talked-about product of the year."

A major reason for this move to the server market is due to a fairly new technology, virtualization software. Virtualization allows companies to run multiple business applications on each server, saving electricity and getting more use out of hardware purchases.

The software also has had a growing impact on business computing systems; the mobility of virtualization software blurs the lines between network hardware, computers and storage systems. Cisco sees this as a chance to create new management systems that expand across whole data centers and allow customers to manage their data centers as a single entity.

According to a report at, Cisco is pursuing a plan to dominate the data center. Rather than pursue HP and IBM's computer-centric approach to data center management, Cisco believes managing a data center can be done through the network switches and routers. Virtualization helps make that possible.

For the public sector, which is trying to control IT costs by consolidating the number of data centers that have proliferated over the years, Cisco's entry into the market could have an impact, driving costs down even further. Most analysts predict that data centers will become heavily commoditized over time. With government's demand for heavy discounts on hardware and software, those costs could drop further as Cisco enters the server market.

The company has already begun making other market changes. In September, Cisco began to move beyond networking equipment, selling software, cable TV boxes and video-conferencing centers. This line of business, known as unified communications, is traditionally controlled by companies such as Oracle, IBM and Microsoft.

While Cisco's CTO Padmasree Warrior explains that the company is only trying to adjust to new technologies, the impact of this adjustment on Cisco's relationships with other companies remains to be seen.

Read the full New York Times article.

Read Government Technology's Cloud Computing, Virtualization and Software as a Service Could Dominate 2009.