Cisco's Application Centric Infrastructure (ACI) response to the software-defined networking trend could provide a 3X TCO advantage relative to VMware's NSX network virtualization platform, even when NSX is implemented on a white box switch with a Cumulus Networks open source-based operating system, according to an April report from Goldman Sachs. Goldman compares a 40G port on a Nexus 9300 switch - with both merchant silicon and Cisco custom ASICs - software licensing and subscriptions, and annual maintenance vs. street pricing of VMware's NSX subscription and Cumulus' Linux operating system license on a $250 40G port on a white box line card.
The TCO is calculated over three years but does not account for a number of additional plug-ins or third party devices that may need to be added to achieve full comparability of the two approaches, the Goldman Sachs report notes. The report also notes that software sales would be purely incremental to VMware, while for Cisco they could be offset by share losses in data center switching to the extent a portion of the market moves to competitive switches with third party network virtualization offerings like VMware NSX.
+MORE ON NETWORK WORLD: Examining the differences between VMware's NSX and Cisco's ACI+
The breakdown is this: $300-$390 for a 40G port on a Nexus 9300, with $78 for a perpetual ACI software license - 20% more per ACI port -- and $70, or 15% per port, for annual maintenance; vs. $250 per 40G white box port, plus $8 street pricing for annual license and support of the open source operating system - assuming a 32-port 40G switch at $250 per port -- combined with a $600 annual subscription at $10 per VM per month, assuming five VMs per port, for NSX.
Cisco has not yet disclosed the details of its ACI pricing, but the Goldman Sachs reports states that the company noted at an investor presentation that ACI would represent ~20% incremental software revenue to standalone networking. Goldman Sachs expects ACI to be available in both subscription and up-front software license packages, with the pricing structured for small, medium and large deployments.
The report prices NSX at $40 per VM per month list but indications are that street pricing is closer to $10. Most initial VMware NSX deployments have been free trials, with the company not expecting meaningful revenue to begin ramping until 2015, the Goldman Sachs report states.
The investment firm expects NSX revenue to be incremental to VMware's hypervisor server virtualization installed base rather than a standalone networking software revenue stream.
Goldman Sachs expects SDN to be a net positive for Cisco, not a crippler to the company's business model as many in the industry have assumed. Even if Cisco were to give up 20 points of data center switching market share - which Goldman Sachs considers highly unlikely - in the next five years, the company would still see net growth in revenues and gross profits in its data center switching business, assuming it gets solid traction with its ACI platform, the report states.
Goldman Sachs estimates the gross margin on ACI software to be 95%. Here's the firm's disclaimer:
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
At Cisco Live this week, Cisco announced plans for including legacy enterprise switches and routers in an ACI policy networking environment. The APIC Enterprise Module, which was announced early this year, will incorporate Catalyst switches, ISR and ASR routers, and Cisco WLAN controllers and mobility engines into ACI after the current second round of beta trials concludes.
The first release of APIC Enterprise Module will support Cisco's ONE PK and CLI, and OpenDaylight and NETCONF/YANG southbound interfaces. A subsequent release will add Cisco's OpFlex policy southbound protocol to those platforms if they have enough CPU horsepower to support it, said Jeff Reed, vice president and general manager of manageability and SDN in Cisco's Enterprise Networking Group.
Northbound interfaces in APIC Enterprise Module are REST and Cisco's ONE DevKit.
Cisco's Nexus 9000 switches, the hardware foundation for ACI, have been shipping for six months in "standalone" - non-ACI - mode and have 175 customers. ACI's APIC controller will ship this summer.
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