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New IBM, Cisco Data Center Partnership: Details, Analysis


Dec. 8, 2014 6:35 PM ET | 17 comments | About: International Business Machines Corporation (IBM), CSCO, Includes: EMC, HPQ, ORCL



Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)






Summary
•VersaStack Solution Combines Cisco UCS, IBM Storwize.
•Similar to Cisco, NetApp Relationship.
•Over Time, Optimized for IBM Business Applications.
•Competes With HP, Oracle, Dell Alternatives.





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Cisco Systems Inc. (NASDAQ:CSCO) and IBM Corp. (NYSE:IBM) have launched VersaStack, a new data center solution that combines Cisco's UCS (Unified Compute System) with IBM's Storwize storage offering.

At first glance, the strategy isn't surprising. Cisco has spent recent years converging and integrating network, storage and server hardware in the data center, and then optimizing third-party applications from Microsoft Corp. (NASDAQ:MSFT), SAP SE (NYSE:SAP) and even Oracle Corp. (NYSE:ORCL) for the new infrastructure. Now, Cisco is adding IBM storage and applications to the mix.

What's At Stake

Cisco and IBM have worked together on various projects for about 15 years. But the expanded Cisco-IBM relationship, announced Dec. 4, comes at a critical time for both companies.

Cisco's relationship with storage leader EMC Corp. (NYSE:EMC) is strained at best. The companies had partnered on VCE - a data center company that converged Cisco, EMC and VMware Inc. (NYSE:VMW) technology into an integrated bundle. But the Cisco-EMC relationship became strained as VMware (largely owned by EMC) and Cisco began to compete in software defined networking. EMC ultimately took ownership of VCE, buying out Cisco's stake.

Cisco must also balance on-premises data center build outs with public cloud infrastructure sales and the company's own Intercloud strategy.

IBM, meanwhile, is striving to reverse 10 consecutive quarters of flat or declining revenues. Although IBM sold off its commodity x86 server business to Lenovo, IBM still competes in the higher-end data center market.

Common Enemies

Cisco and IBM have several common data center enemies, including:
•Amazon.com Inc. (NASDAQ:AMZN): Yes, Amazon. When Cisco executives exit the company, they're often required to sign non-competes stating they won't join Amazon Web Services. And IBM acquired SoftLayer last year to compete more effectively against AWS.
•Dell Inc., which pitches Modular Datacenter gear.
•Hewlett-Packard Co. (NYSE:HPQ), which promotes Converged Infrastructure for data centers. HP and IBM work together on some fronts, but HP and Cisco essentially ended their working relationship in 2010.
•Oracle, which promotes Engineered Systems for the data center but still manages to partner with both Cisco and IBM, optimizing Oracle software for the respective company's hardware.
•White Box hardware: No-name servers and networking gear built and sold at lower prices than Cisco and IBM gear.

The Strategy

In a Dec. 4 press release, Cisco and IBM said:
“

The new VeraStack solution is designed to deliver high levels of ease, efficiency and versatility for cloud, big data and analytics and mobility deployments. Over time, the platform will be optimized for IBM business applications, while integrating Cisco innovations...

Similar to Cisco's work with NetApp (NASDAQ:NTAP), the VeraStack offering is a pre-test system designed for fast deployment, Cisco claims.

The potential sales opportunity sure looks big. Cisco and IBM say they have 25,000 mutual customers worldwide. But I suspect many of those customers are at an inflection point, trying to decide whether to:
•Build new data centers or leverage public clouds like Amazon, IBM SoftLayer or Cisco Intercloud partners.
•Stick with traditional networking gear or move to software-defined networks or virtualized networks like VMware NSX or Cisco API (Application Centric Infrastructure).
•Pay premiums for converged, fully tested hardware or pursue lower-cost White Label servers and networks.

Secret Sauce

For Cisco and IBM investors, there are two pieces to the VeraStack announcement worth watching.

First, both IBM Global Financing and Cisco Capital have introduced financing offers for the Storwize hardware, software and services. Those efforts could help businesses to more easily select, buy and pay for Storwize.

Second, it's clear to me that IBM analytics and Watson applications will eventually be certified for VeraStack. That could make Cisco's hardware a preferred platform for Big Data applications.

Overall, I suspect plenty of CIOs will give VeraStack serious consideration. But plenty of outside forces - including public cloud services-- also are vying for CIO attention these days.
http://seekingalpha.com/article/2740485-new-i...ysis?ifp=0