With the introduction of some impressive new products, the networking giant Cisco may be looking for more than sales. It may be trying to change the conversation about itself.
On Thursday, Cisco announced a series of products for its Unified Computing System, the company’s server business. First on the list were U.C.S. machines for cloud service providers and big companies that want to deploy lots of applications; servers with lots of data storage for analytics or delivering media. The list also included a combination server, storage and networking box for running a computing system in a remote location while managing it from a central point, and powerful computers for data analysis and heavy workloads.
Still think Cisco is only in the computer networking business?
“We always think of ourselves as being in the computing market,” said Paul Perez, vice president and general manager of U.C.S. “I like to think of U.C.S. as the substrate on which the rest of Cisco is built.”
Increasingly, he said, aspects of Cisco are sold inside U.C.S. boxes, as when companies buy the high-end specialty servers and put on top of them things like Cisco collaboration software. Over the last several years, Mr. Perez said, new customers who bought U.C.S. added over $1 billion of Cisco products onto it.
It sounds impressive, so much so that it calls for a bit of a reality check. Routing and switching, the core networking businesses, were 46 percent of Cisco’s fiscal 2014 revenue. U.C.S., which Cisco calls on its balance sheet the data center business, was 6 percent.
And while $1 billion is a big number, it happened over several years. In fiscal 2014 alone, Cisco’s revenue was $47 billion. And yet Cisco’s chief executive, John T. Chambers, flagged Thursday’s announcement in a quarterly earnings call in August.
So what is going on here? Mr. Perez and his bosses are proud that U.C.S. is growing 30 percent annually, for one. More important, they believe that these servers can be a place into which other parts of Cisco can be placed.
This is important not just as a way of way of selling more products but over the longer term as a way of holding up overall profit margins. Put a simple networking product on the market, and its high margins can be targeted by someone’s more commodity-oriented product. Package it in several things, particularly if, like U.C.S., it has custom-made semiconductors, and the profit margins can disappear into the overall product.
“We approach things by selling architecture,” Mr. Perez said. “It’s a worldview that allows us to build more value.”
It is interesting that Cisco should choose to package its many products around U.C.S. After all, Cisco has a strong legacy in networking. Data storage is now a hot business as well, referred to by analysts as the place “where the stickiness is,” or a good way to hold customers.
It may also be partly because companies like Dell are coming at Cisco with software-based networking built inside commodity servers. If the war is going to be based on computing, why not take it head on?