Cisco Muscling Into Server Market

 |  About: Cisco Systems, Inc. (CSCO)
by: ValueWalk

By Clayton Browne

Cisco (NASDAQ:CSCO) knows servers. Cisco is a successful and well-known manufacturer of network hardware such as switchers and routers. However, anticipating a cyclical slump in network hardware, Cisco execs made the decision to enter the highly competitive server market back in 2009. Analysts and pundits questioned the move at the time, but almost five years later, it's becoming pretty clear that it was a good decision.

In Cisco's most recent quarterly report, it reported the data center group (ie, the server business) revenues were up by 30% over the last three months. Data from a number of industry analysts also show that the networking giant is significantly growing its share of the server market.

The good news about server sales comes as Cisco's other divisions are not performing as well. The company reported in its August earnings that revenue from switchers was off by 4%. Routing gear also was down by a worrisome 7%.

Cisco racking up server market share

Hewlett-Packard (NYSE:HPQ) is currently the largest server manufacturer, holding a 25% share of the global market, but it only saw server revenue growth of 4% in the second quarter, per IDC. Server revenue at IBM also declined 10.2% and Dell's server sales were down by 6.5%.

Cisco is currently ranked No. 5 among server manufacturers, with just 5.8% of global server sales. However, the firm's 35.4% revenue growth year-over-year means more than a percentage point gain in overall market share.

But Cisco's management isn't content, and the firm is expanding out of its blade server comfort zone to offer a variety of "down market" rack servers that are typically preferred by large and small Web companies and cloud-computing services.

Statement from Cisco

Moreover, Cisco is clearly serious about its foray into servers. "Our goal is to be No. 1 in computing worldwide," said Paul Perez, vice president and general manager of the unified computing system division in a recent interview.

Disclosure: None.

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