HP has argued that buying its networking equipment would save a company from 30% to 50% on capex, citing an IDC report from September 2010 that studied HP networking-based IT systems at a range of 12 companies. The study showed that the companies were able to reduce their total costs of networking by an estimated 66%, achieve a 466% return on investment, as well as payback on their initial investment within 8.4 months. The IDC study was funded by HP.
Cisco responded with its own study, released Oct. 10, that acknowledges Cisco’s capex is higher than HP’s but put the range lower, at 25% to 30%. But Cisco’s study, which it paid an unidentified consulting firm to conduct, calculated the total cost of ownership differently, using a hypothetical enterprise of 10,000 end users. It calculated the five-year TCO Cisco premium over HP at a much smaller 4% to 7%.
In addition, says Ross Fowler, VP of Borderless Network Architecture at Cisco, there are other "intangibles"--such as the cost of network downtime, improved productivity and better security--that can close that gap and make Cisco the better choice: "Even though they’re intangibles, if they’re only in the 4 to 7% range, why take the risk of going with a so-called 'good-enough' network?"
While arguing that Cisco is the better choice, Cisco is not ignoring the HP challenge, he says, adding, “We are not being complacent." Although the rivals are engaged in spirited competition, challenging each other's figures and claims, it’s still unclear how much of a dent HP will ultimately make in Cisco’s command of roughly two-thirds of the market, says Alan Weckel, senior director at Dell’Oro Group.
Weckel cites macroeconomic conditions that have distorted the picture. In late 2008, the networking market started to slide with the rest of the economy in the wake of the banking crisis, and 2009 was a bad year for sales in the depths of the recession. Worse yet, Cisco was hampered by supply chain shortages, particularly from silicon suppliers in China. So, Weckel argues, when the IT market began recovering in 2010, Cisco’s numbers were "artificially low in 2009 and artificially high in 2010," compared to the previous year and to normal market cycles. "To me, the verdict isn’t in yet on who is really gaining or losing share," he says, looking to the first half of 2012 to see some hard trend data.
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