ALLEN, TX — Nokia’s $16.6 billion acquisition of Alcatel-Lucent is an example of the industry shifting just as Cisco predicted, its CEO said this week.
Cisco CEO John Chambers has said that the IT industry is in for some “brutal” consolidation with perhaps only two or three of the top five companies standing in five years. Alcatel-Lucent may be vanishing if Nokia’s offer to swallow the company up is approved.
“The market is playing out just as we expected,” Chambers said during an exclusive interview with Network World at Cisco IT Data Center Day here. “It’s going to be brutal, with some musical chairs. They missed market transitions so now they have to move rapidly.”
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Spotting market transitions is how Cisco separates itself from competitors, and it’s winning big deals for the company, Chambers says. Three customers at this week’s event spent $100 million in the last quarter to upgrade their networks to support Cisco’s current market transitions, like the Internet of Everything (IoE).
“This is purely about being prepared for the future,” Chambers said of the customer upgrades. “This isn’t about infrastructure, this is about the next generation of IT where the network enables it.”
IoE is currently on a $4.5 billion annual run rate at Cisco in incremental product pull through, growing at 40% to 50% per year, Chambers says. In addition to product sales, the opportunity is also in consulting services for customers looking to instrument just about everything with IP.
But it was a long row to hoe. Cisco first recognized the IoE opportunity almost a decade ago but is realizing the fruits of it only now.
“IoE took a little bit longer to take off than I thought,” Chamber said. “I had to buy people drinks eight years ago, or even three years ago. At CES last year it was a surprise; this year it was everything. World Economic Forum, one panel topic a year ago, 21 this year. The size of our deals are the biggest they’ve ever been. And when entire countries do that, that’s never occurred before.”
Chambers was referring to deals Cisco has to digitize France, Germany, India and other countries. The next major market transition will be to digitize everything, he says, so that anything can be processed anywhere as long as the network is at the center of it all.
“It’s not just about connectivity; it’s IoE, mobility, architectures, compute/networking/storage, apps anywhere in the network,” he says. “It’s security, data analytics processed anywhere, business process change. Everything is network-centric, it is the cloud of clouds.”
A focus on end-to-end architectures is another area where Cisco feels it left its competitors behind. The company had a 10 year lead before rivals attempted to catch up, Chambers says, though with limited success.
“Our competitors let us go almost a decade without challenging us on architectures and the ones who tried to copy our style – whether it’s an HP or a Juniper – got themselves spread too thin that they’re now going backwards,” he says.
When Cisco entered the server market with the Unified Computing System architecture in 2008, “HP said we’d be out in a year and we’re eating their lunch,” Chambers crowed.
Cisco’s chief competitor now is the anti-architecture ushered in by white box, bare metal switching and open source “free” software, as Chambers calls it. These cheap, easily replaceable systems are favored by webscale companies that grow capacity quickly and need to swap out or add horsepower rapidly.
“It won’t be IBM or HP in servers, or Dell; we’ll beat them,” Chambers says of Cisco’s next competition. “It’ll be an architectural play that allows us to beat them and to lead against white box and bare metal with free software. The total cost of ownership of (Cisco’s Application Centric Infrastructure) is 40% less than a white box solution with free software. That’s before architectures and business outcomes. I consider white box more of a challenge in the future than an HP or Juniper.”
Another competitor in SDNs is VMware, the virtualization company majority owned by Cisco storage partner EMC. VMware claims to have 400 customers for its NSX network virtualization overlay software, while Cisco claims over 300 customers for its Application Centric Infrastructure (ACI) fabric.
Chambers doesn’t believe VMware’s acquisition of Nicira for the NSX product line was as successful as 400 customers might indicate.
“You have to look at large implementations vs. a give away for free or as part of a software license,” Chambers says. “Ask VMware how many NSX SDN implementations they have in volume. Four hundred is a great marketing term. Ask for 20 names to go talk to.
“It’s unfortunate that VMware threw a hurdle into our EMC relationship because if you watch the economic payback for their acquisitions, it’s been a disaster.”
VMware declined to comment.