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It has been a very interesting week on the datacenter front.

First, Cisco announced its entrance into the server market, unveiling what it calls the Unified Computing System. In short, Cisco has begun selling servers aimed at datacenters that combine computing, storage and virtualization technologies.

The move pits Cisco directly up against IBM, Hewlett-Packard, Sun Microsystems, and Dell, companies that the networking giant has long viewed as partners. Although, rather than cast itself as a direct rival, the term being bandied about these days is co-opetition.

Then later this week came word that IBM was making a $6.5 billion bid for Sun. If the deal goes ahead, IBM would combine its 32% share of the server market, according to research firm IDC, with Sun's 10% share, giving it a whopping 42%.

Doesn't sound much like IBM heard Cisco's co-opetition message.

The move by Cisco to get into the server market is questionable, but IBM's decision to make a bid for Sun makes plain sense. Here's why:

First of all, IBM gets Sun at a bargain. Sure, Sun has been losing market share and faced an uncertain future, but this is still a quality company. The Santa Clara, Calif.-based company had $13.9 billion in revenue in 2008, and while it lost a considerable amount of money between 2002 and 2006, it worked hard to get back to profitability and earned $473 million in 2007 and $403 million in 2008. Admittedly, the first quarter of the current fiscal year was ugly - a $1.7 billion loss, but Sun announced 6,000 layoffs and was taking steps to cut $800 million in costs. The ship was damaged but not sinking.

IBM can secure server and storage share. Cisco brings a considerable amount of heft to the server market, but with a combined 42% marketshare IBM has a lot of room to outmaneuver a new entrant. And all this talk of co-opetition . . . Cisco can talk about partnering, but IBM can take its business elsewhere (is that Juniper smiling?) if it pleases.

Open source Linux gains new clout. Sun has pushed hard on open source Linux, with somewhat limited success. Now with IBM's expanded market reach and backing, its investments in this arena could really pay off. 

Getting its head in the cloud. Sun has formulated plans to get into cloud computing in a big way. IBM less so. The purchase would allow IBM to evaluate and possibly capitalize on Sun's cloud services plan.

Take that HP. Yes, this deal seems to take a swipe at Cisco, but consider as well the impact on HP. Last May, HP struck a blockbuster $13.9 billion deal to acquire EDS and directly take on IBM in consulting and services. Now it faces an even more formidable player for its core hardware business. Careful whose sand box you try to play in.

Comments (3)

	1. 03-19-2009 13:59
	I see this as a great play by IBM, a strong American tech company, to expand IBM's reach and grow market share at a time when many other players in the industry are down. It allows IBM to capitalize on their market position and gives investors reason to believe in IBM for the longer term future. Registered

John Sane

	2. 03-19-2009 16:16
	So there are questions that I see before I see this as a positive.    1) What about Sun\'s Oracle revenue?   Oracle has traditionally had issues with IBM hardware because of DB2. When IBM purchased Sequent - the Oracle revenue fled why would this be different?    2) SPARC revenue - If I was a SPARC customer I would look at IBM funding the second processor product line and think - not a long term investment. Then human nature takes over and who do I replace this with? The company that killed my favorite machine or another vendor.    3)How are you going to handle the product overlap?    The x86 lines are replacements for each other. The two storage companies are also replacements for each other. Not really any possible of pricing upside because of lack of competition as there are enough vendors left to take up the slack. Registered

Timothy D. Witham

	3. 03-19-2009 19:30
	This is a very interesting play (more on the part of Cisco). The IBM Sun acquisition makes sense - Cisco getting into servers makes no sense.     My guess is that Cisco will buy someone up in the server space and muscle data center consumers into buying bundles of network gear and server technologies.    Of course I'm looking at this from the security perspective -- never deploy a single vendor's technology across your entire enterprise. With Cisco already in the switching/routing/wireless/security/voip/video scene, I see organizations getting trapped in a single-vendor scenario and placing themselves at risk down the road.    Not to mention, will Cisco maintain it's course of certification-driven experience markers?     Buyer beware, in my humble opinion Registered

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