Cisco goes up against IBM, HP in computer server market

SAN FRANCISCO -- Ending months of speculation, Cisco said it will sell powerful computer servers for data centers, facilities used to house computer systems and related components such as telecommunications and storage systems. As the dominant provider of routers and switches that direct Internet traffic, Cisco's big advantage is that its network equipment is already ubiquitous in data centers.

Cisco says that by combining its new servers with networking and storage products, it will help customers manage their data centers more cheaply and efficiently.

This "gives us a chance to perhaps become the leading company not just in communications but also in IT along with our partners," Cisco CEO John Chambers said in a videoconference.

The announcement highlights data centers as a new battleground as large customers manage Internet traffic and escalating energy costs, analysts say. "Cisco is making a deep push into (a market), which has historically been the home turf of entrenched players such as HP and IBM," says Mark Sue, managing director of technology research at RBC Capital Markets.

The announcement had little impact on Cisco shares, down 6 cents to $15.45 Monday. But the move is considered important as Cisco looks to expand its $40 billion in annual revenue. Its foray into the server market is considered a direct challenge to market leaders IBM and HP, which resell Cisco's network equipment to shared customers.

This could prompt IBM and HP to pursue alliances or acquisitions to compete with Cisco, Sue and other analysts say. Potential acquisition targets often mentioned include data-equipment maker Brocade Communications Systems and infrastructure-software maker Citrix Systems.

IBM spokesman Michael Corrado says it is not unusual for tech companies to be both partners and competitors. But HP's Jim Ganthier says, "HP is delivering today what Cisco is promising tomorrow."