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Cisco plans to sell computer servers

March 17, 2009|Associated Press

NEW YORK — Cisco Systems Inc. wants a bigger chunk of the corporate computing market and plans to start selling servers in competition with old partners such as Hewlett-Packard Co. and IBM Corp.

The servers are part of a package put together by Cisco and partners including BMC Software Inc. and VMware Inc. to harness the power of a recent technology called "virtualization" that lets one computer act like several.

San Jose-based Cisco is the world's largest maker of computer networking gear, but Monday's announcement greatly expands its ambitions in the corporate data center market.

It's moving from selling the switches that allow the computers to talk to one another to selling virtually entire data centers, in conjunction with its partners.

In a videoconference, Cisco Chief Executive John Chambers emphasized that its Unified Computing System was not an attempt to move into the commodity server market.

"We have very little interest in the product space," Chambers said. "We're after: 'How does it tie together?' "

Chambers called the unified computing product the biggest step for Cisco since it added switches to its original router products through the acquisition of Crescendo Communications Inc. in 1993.

Since then, the company has used the cash generated by its enormously successful computer networking gear -- it had $29.5 billion on hand in its last quarterly report -- to buy up numerous companies, adding consumer gadgets and cable TV equipment to its portfolio. This time, however, it's diversifying not through an acquisition but by building its own products.

IDC analyst Michelle Bailey said Cisco wasn't trying to take on HP and IBM in the broader market for servers but rather is focusing on a certain set of very large customers. Their data centers, for instance, keep track of customer accounts, run large websites or deliver movies to PCs or cellphones. That's a $20-billion business annually.

Through virtualization, servers can be shifted quickly between different tasks, reducing the number that are needed. Cisco said the new system could reduce the capital cost of a data center 20%, and operating expenses 30%.

Cisco shares fell 6 cents to close at $15.45.

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