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Does Cisco have to respond to Dell/EMC?

Other networking vendors with ties with VMware -- like HP -- could be in a bigger bind

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Cisco may not have to respond to Dell/EMC as much as other networking vendors.

Following close of Dell’s $67 billion EMC buy, collaboration with EMC’s VMware business might be hard to come by for Dell competitors like HP, which just formed an open source switch operating system community with the hypervisor leader. HP and others may find they won’t get as much attention from VMware.

For its part, Cisco might be forced to tighten existing storage alliances like the partnership with NetApp, but watchers don’t see a mega-merger in the offing. Cisco is more likely to buy a hot hyperconvergence start-up than a stalwart like NetApp, but then after WHIPTAIL, maybe not.

“Dell's control of VMware will have significant repercussions for other networking vendors,” says IDC analyst Brad Casemore. “Dell switches will become the preferred underlay for VMware's NSX network-virtualization overlay. Many vendors were counting on getting shares of that underlay business, and now those gains are in serious doubt.”

One of those vendors is HP, which just formed the OpenSwitch Community open source NOS project with VMware’s help.

“How will HP's OEM/reseller relationship with VMware for NSX be affected,” Casemore asks. “Does HP skew more heavily toward OpenDaylight, or does it look to get closer with Nuage, or even with Arista? I can envision HP going in any of several directions, but Dell's control of VMware puts HP on the spot. Do not look for HP to stand still.”

HP wasn’t available for comment by posting time.

Dell is buying EMC to offer a stronger IT “stack” – integrated servers, storage, networking and virtualization – to large enterprise data centers. The deal will combine the world's biggest enterprise storage vendor with one of the largest server makers, forming a company that can serve a broad range of enterprise needs, and transforming Dell into perhaps the only IT vendor with a full set of products from the PC to the data center.

Cisco also has its sights set on becoming the No. 1 IT vendor in the industry. Cisco could respond to this deal by acquiring a major storage player of its own, like partner NetApp; or one or more smaller start-ups addressing the hyperconvergence trend in IT.

“As Cisco continues down their publically stated path to be the #1 IT company, we anticipate storage becoming a bigger piece of their strategy,” says Gartner analyst Andrew Lerner.

Rumors have circulated that Cisco has its eyes on Nutanix, a start-up developing integrated compute/storage, networking, virtualization and management products – referred to as hyperconvergence -- for the data center that run on x86 hardware. Cisco and IBM announced almost a year ago an integrated infrastructure offering combining Cisco’s UCS servers with IBM’s Storwize storage system.

Cisco may not have the stomach for another storage acquisition after its purchase of flash storage company WHIPTAIL produced a dead product. Cisco last summer killed its Invicta storage offering which resulted from the WHIPTAIL buy.

“Perhaps they don’t have a strong appetite to be in that business and will continue to work with partners instead,” says Dan Conde, an analyst with Enterprise Strategy Group. “This was back in mid-2015, and of course things have changed, but it is a signal.   There are many new flash storage companies they can partner with, and of course there’s the FlexPod with NetApp.”

Cisco and NetApp have been partners for a while with a reference IT architecture called FlexPod. At the same time, Cisco has an integrated IT infrastructure venture with EMC and VMware called VCE.

As competition became more intense between Cisco and EMC and its VMware business, Cisco sold off a large chunk of its stake in VCE. It now holds 10% of VCE, down from 35%.

Now that Dell will own EMC outright, might that stake be sold off entirely?

ESG’s Conde doesn’t see it happening right away.

“I think VCE still has a good run-rate business and it would not be a great idea to abandon its commitment by selling that off immediately,” he says. “Cisco's partnership with VCE is still important, but perhaps their work with FlexPod will get more focus on the longer term.”

Cisco says it’s business as usual.

“The Dell EMC announcement does not change Cisco’s strategy,” a company spokesperson stated. “EMC and VMware continue to be Cisco partners, and we are seeing great momentum as we deliver value together to our customers, specifically through VCE. Like we’ve said, yesterday's announcement was no surprise. We’ve been on the record saying that industry consolidation has been coming for some time. We’re focused on growth opportunities that position us for where the market is going.”

IDC’s Casemore sees Dell making changes to VCE.

“Dell likely will supplant Cisco for compute and networking,” he says. “Cisco will act accordingly, considering its storage and hyperconverged options. I see Dell taking care of Dell, which is why it will maintain effective control of VMware.”

And as Dell is hyperconverging with this massive EMC purchase, it is disaggregating with a certain subsection of the market: hyperscale companies favoring bare metal or white box switches with a choice of portable operating systems, and cheaper, more flexible flash storage.

“Dell is front and center of that as well,” notes Gartner’s Lerner.

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