John Chambers’ last quarterly conference call as Cisco CEO this week was as bullish as it’s ever been, especially on switching. Chambers left little doubt what he thought about prognostications that software-defined networking and whitebox switching would ultimately kill Cisco’s switching dominance:
So all this garbage about new players coming in and software coming in and white label killing our approach was entirely wrong… We are beating our competitors that you all were worried about.
In Cisco’s fiscal Q3, orders for the Nexus 9000 switch and APIC controller, the guts of its SDN – or SDN killing – offering grew sequentially 27%. As we reported earlier, APIC customers just about doubled and Nexus 9000 customers grew 56% since January.
VMware says it has more than 400 customers for its NSX network virtualization platform, and this week provided a little more granularity around that: over 70 are in production and over 50 have invested more than $1 million in the product.
And despite Cisco assertions that NSX sales are counted as a bundle with an ESX, vSphere or other VMware virtualization software license, that is not the case says Martin Casado, senior vice president and general manager of the Networking & Security business unit at VMware.
“We don’t bundle in any suite at all,” Casado said. “NSX is an independent SKU. We are building a new business, not protecting an existing one.”
Some of that new business will come from new deployments of NSX in mobile and inter-data center connectivity, in addition to its current data center network virtualization and security applications, Casado says. The company is looking at NSX as a way to apply mobile aware security policies to handheld device access to data center assets; and to move VMs and associated policies from one data center to another for planned maintenance or disaster recovery needs.
New business for the Nexus 9000 and APIC is also expected to continue into Cisco’s fiscal Q4. Chambers says sequential growth for the products will accelerate from Q3.
Q3 also saw “good momentum” in Cisco’s campus switching business, but in fixed configuration switches – modular is seeing some pressure. That’s due to transitions at the high-end of the portfolio: Nexus 7000 to Nexus 9000, Catalyst 6500 and 6500-E to Nexus 9000, and Catalyst 6500 to Catalyst 6800.
The impact of that transition will be felt for a few more quarters, Chambers said, but gross margins are stable and “Nexus 9000 growth is off the charts.”
Also off the charts, according to Chambers, is switching revenue, which is up 6% this quarter and 11% last quarter:
That is market share gains at tremendous speed.
We have yet to see the calendar Q1 and Q2 numbers, but previous quarters don’t bear that out. At 60.1% in calendar Q4, 2014, Cisco’s revenue share in switching was the worst it’s been in eight quarters, according to Dell’Oro Group. It stood at 66.3% in the first quarter on 2013.
Annual share has slid from 65.6% in 2012 to 61.2% in 2014.
And Chambers himself has said on several occasions that whitebox switching with “free” open source software is Cisco’s No. 1 challenge or competitive threat. With the trend just building, it’s way too early to pass it off as garbage.
In the next 20 years after Chambers, it may be the switching phenomenon that’s growing off the charts.
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