DATA CENTERS

  • 05/19/2014
    10:06 AM
  • Rating: 
    0 votes
    +
    Vote up!
    -
    Vote down!

Cisco Faces Make-Or-Break Week For SDN

Cisco is counting on ACI, its software-defined networking strategy, to keep its hold on the enterprise infrastructure market. We'll see how that plays out this week at Cisco Live.

Following a year of shrinking revenue and profits, Cisco told investors on its quarterly financial earnings call last week that the company's recovery depends on its Application Centric Infrastructure strategy. This week, the Cisco Live US customer event takes place in San Francisco, and the signs are that Cisco will be announcing much more around ACI and SDN. It's now been six months since ACI was announced, and the public release of the first-generation product was promised by next month.

ACI is a big vision
Cisco ACI is not a single technology or product. The basic strategy is to use software applications to manage and operate networks in completely new ways. Cisco ACI product announcements started in November around using custom silicon in Nexus 9000 hardware. Since then, a string of announcements has shown that Cisco intends to extend ACI into many areas of the product portfolio. Announcements on UCS Director, security, and the WAN have already come out, and it seems reasonable to expect that the service provider business unit will make announcements in the near future.

SDN products have already disrupted networking, and Cisco came late to the realization. In many ways, ACI is catching up to competing strategies from VMware NSX and HP VAN. A thriving and expanding startup scene has also emerged to offer competing visions. Cisco is feeling competitive pressure.

Acceptance remains uncertain
The big question around ACI is that of customer acceptance. Customers that are holding back on Cisco are reluctant to speak publicly, but internal sources talk about significant pushback against ACI on the basis of proprietary technology, complexity, and high pricing.

Many organizations perceive that deploying ACI will create a dependency on Cisco technology, not just for routing and switching, but also for UCS servers, firewalls and IDS, and Invicta storage. Logically, this could also extend to other Cisco products such as unified communications -- although Microsoft Lync remains the dominant IP telephony platform in the enterprise.

The recent standards and open-source initiatives around OpFlex, OpenStack, and LISP can be seen as reaction to this criticism (although it also encourages third parties to write for the ACI platform). Many companies -- such as AT&T -- have been highly vocal in advocating that SDN must be open and interoperable to avoid vendor dependency.

In a recent blog post, Cisco claims it has:

  • 70+ active ACI trials with customers and channel partners
  • An ACI ecosystem with 33 ecosystem partners leveraging the open approach and the policy model
  • 1000+ customers in pipeline
  • 175+ customers in its service provider, enterprise, and commercial divisions, with several in production deployments

Some critics make the point that Cisco has been promoting ACI to customers since mid–2013. Cisco has 75% market share, which makes these numbers seem low compared to the total number of addressable customers. And 33 ecosystem partners seems limited, when the opportunities for orchestration are so large. For example, consider Vnomic, a Cisco ACI partner that is providing application modeling to automate the deployment of SAP and HANA landscapes. This type of specific orchestration provides enormous opportunity.

On the other hand, slow uptake is to be expected because ACI is an early-stage technology, highly disruptive to IT operations, and the product is not yet shipping. The early-adopter model is well entrenched at Cisco to seed deployments for companies willing to take risks so that deployments are ready at launch. Cisco executives will, of course, assure you that they are pleased with the uptake and customer interest to date. The early marketing program has been as vigorous and comprehensive as Cisco can make it, and many customers are looking forward to ACI.

One final concern is purchase price. VMware NSX pricing has been widely criticized in recent months. This is in part because of its emphasis on rental licensing, but mostly because it is simply expensive and perceived as overpriced. Cisco is already known for high product pricing, but until actual ACI/APIC pricing is available, a proper evaluation cannot be made. Customers are looking to reduce their overall IT spend, and any attempt to increase top-line spending is likely to meet significant resistance.

Cisco financial struggles
Cisco has had a few quarters of poor business with mixed outcomes in different business units. In the last two quarters alone, profits and revenue have dropped by 5% or more, with the gross profit margin now reduced to slightly more than 60%. Most financial news suggests that Cisco's share price has remained flat due to huge buybacks of shares. Cisco has announced a $10 billion share buyback, funded by debt raising in the US and backed by $30 billion net cash in offshore funds. (Head to page 2.)

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.