A source tells BI's Julie Bort John Chambers asked his top execs to study the impact an all-out embrace of software-defined networking (SDN) would have on Cisco (CSCO -0.5%). Their reported conclusion: Such a move would turn Cisco from a "$43 billion business into a $22 billion business."
While Cisco is overhauling its switch/router lineup to support SDN, it's doing so by offering controller software and APIs directly tied to its proprietary, ASIC-based switches and routers. Thus, if broadly adopted, Cisco's offerings wouldn't threaten its switch/router sales (60% of FY13 product revenue), or the high margins attached to them.
However, VMware/NIcira, Juniper, and Facebook (among others) are pushing solutions enabling SDNs featuring commodity hardware based on off-the-shelf processors from the likes of Intel, Broadcom, and Marvell. Bort reports Cisco saw a $1B deal with Amazon fall through after the cloud infrastructure giant decided to opt for "cheaper hardware and SDN."
In a recent Cisco coverage launch report, Credit Suisse (Underperform) predicted SDN "could make networking look more like other areas of IT spend," with hardware, software, and services "delivered in a far less integrated manner."
BI's report comes ahead of the anticipated launch of Cisco's Insieme switches. Insieme, an 85%-owned Cisco "spin-in," is building high-density switches based on proprietary ASICs. It's looking to enable SDNs supporting both Cisco and non-Cisco hardware, albeit while arguing its ASICs allow for novel features.