Rackspace not a good fit for Cisco, says Chambers

CEO pours cold water on rumors that company might buy cloud provider

SAN FRANCISCO -- Rackspace doesn't fit Cisco's acquisition profile, CEO John Chambers told a room packed with reporters this week at the company's annual conference and exhibition.

The rumor mill has been rife for the past week with speculation on which company might acquire cloud provider Rackspace in order to fortify its own cloud strategy. In addition to Cisco, other companies mentioned include HP, Google, Amazon, EMC, VMware, Red Hat and Dell.

The speculation was fueled when Rackspace hired Morgan Stanley to explore strategic options for the cloud provider in the face of intensifying competition and eroding profits.

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“We don’t move into a market unless we think we have a realistic chance of gaining 40% market share with sustainable differentiation,” Chambers said at the Cisco Live conference when asked if the company needs to acquire an established cloud provider like Rackspace to succeed in cloud services. “And we try not to move into markets that don’t have really good gross margins, unless they’re unusually strategic for us. That’s a market that is very, very price sensitive; that’s taking on the big giants in Google, Facebook, Amazon, Microsoft, etc. So those are the types of scenarios we look at as a partnership opportunity (rather) than we do acquisitions. I’m not going to comment on if we looked at them or not. It doesn’t fit into our normal sweet spot and core competency area.”

Cisco’s InterCloud cloud services strategy seeks to build a “star alliance” of cloud providers, said Rob Lloyd, Cisco president of worldwide sales.

“Any one of those companies that are in that space today, whether they are competitive or not, should be part of our roadmap to build the InterCloud,” he said. “If they embrace (InterCloud) constructs, we will expand the ecosystem and it could include any of the companies we think of today as major cloud providers.”

Chambers also expanded on his communication last week with the Obama administration over allegations that the NSA was adding surveillance technology to Cisco routers during the shipment process. Photographs emerged last week allegedly showing an NSA official tampering with a Cisco router to add surveillance technology, ostensibly without Cisco’s knowledge or approval, before the product was shipped to the customer.

“When I saw the picture, I didn’t know how to interpret that,” Chambers said. “That was probably, if it was true, it could have very likely been a training program. Within it, the issue is very simple: it is too important to the global supply chain for our customers to trust each of us in this environment. This isn’t an issue about U.S. high tech; it’s Europe, it’s Asia, it’s China, it’s Latin America. And you’ve got to have a consistency of trust from your customers in the global supply chain when things begin to break down. So I made a decision that was hard for me because I do believe the country’s been protected very well since 9/11. But this is so important to our industry and the future of the Internet that we’ve got to change. And I’ve asked a leader that I like very well in our president, and NSA is good people, they’re a good customer for us. But things have changed and we have to change. It isn’t so important to how we got to where we are now; it’s what we must change as we go forward.

“If you don’t trust the supply chain it breaks down what the Internet is all about, it becomes fragmented,” Chambers said. “So you’ve got to say, regardless how we got there, we’ve got to move forward. I felt it was important enough for a president that I believe in to say, ‘Mr. President, could you lead us?’ Because I believe it does take that level of leading from the U.S. first. We’ve got to get a standard of conduct that we agree upon and say, ‘How do we work through these issues together?’ Because it’s too interdependent on the economy for this not to work.”

Jim Duffy has been covering technology for over 28 years, 23 at Network World. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy.

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