IBM Unveils Anti-Cisco Strategy

As I noted earlier this month, the recent Cisco Systems (CSCO) decision to to move into the server business came with the risk that it might irritate both IBM and Hewlett-Packard (HPQ), both of whom control big pieces of the server business while also reselling Cisco networking gear. In my previous piece, I noted that there was a growing belief on the Street that IBM was likely to partner with Brocade (BRCD) and possibly others in an effort wean itself away from selling Cisco switches to its customers.

Well, Tuesday IBM made it clear that is is pressing ahead with its anti-Cisco strategy.

• As expected, IBM unveiled a deal to “rebrand and sell” Brocade enterprise IP networking products through the IBM salesforce and authorized partners.
• In a slightly more nebulous announcement, Juniper Networks (JNPR) announced that it is “continuing to broaden” its relationship with IBM. Not a lot of detail in the announcement, which said that IBM continues to sell Juniper switches, routers and security products.
• QLogic (QLGC) announced a deal for IBM to resell its InfiBand switches for the high performance computing market.

See what happens if you mess with Big Blue?

Not that it seems to be bothering Cisco investors; CSCO Tuesday is up 48 cents, or 2.6%, to $18.

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Comments

[Mad Hedge F...:]

Big Blue sees other things. IBM has made public an excellent report on the long term future of the financial industry, one of its largest customers. The survey of 2,750 firms concludes that the age of extreme risk taking and huge bonuses is over. The high returns of the past, which thrived on the opacity of financial products, are history. Their guess is that profit margins will drop from an average 26% to 14%. Lower margins will be more sustainable. Long term compensation will be linked to long term gains, not short term profits. The government is going to mandate capital and liquidity cushions. Product sophistication outstripped investors’ ability to manage, or even understand inherent risks. Up to 88% of past profits came from off exchange, over the counter trades that never saw the light of day. The easy money will be commoditized as the business is moved on to listed exchanges. Large hedge funds with easily replicated strategies will be under extreme pressure. It’s an insightful report with more than a ring of truth which you should get your hands on.

Apr 28 02:13 PM

[Hedged In:]

Informative article - thank you Eric.

Given that Cisco has fully integrated switching with rack servers, IBM will be forced to do the same thing -- and that means an acquisition, not just a partnership. So perhaps we should view these partnerships as just the first step.

It's hard to see how IBM (and Dell and HP as well) have any alternative to acquisitions, given the cost savings of a fully integrated product. See seekingalpha.com/insta...

Apr 29 02:35 PM