Cisco’s Unified Computing: Many Risks, Questionable Rewards (CSCO, VMW, EMC, BMC, MSFT, RHT, ACN)

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Cisco Systems, Inc. (NASDAQ: CSCO) came out with its big technology platform announcement, as prior reports had hinted at.  This includes announcements for services and products involving Microsoft Corp. (NASDAQ: MSFT), Red Hat Inc. (NYSE: RHT), VMware, Inc. (NYSE: VMW)and EMC Corp. (NYSE: EMC), BMC Software Inc. (NYSE: BMC), and Accenture Ltd. (NYSE: ACN).  While this sounds complex, it is not really that complex.  But there are some risks.  This could cloud the waters at Cisco in determining if it wants to use the business model of an arms dealer or a mercenary.  It may also open the company to risks in new businesses which it has been able to avoid to date.

The Cisco Unified Computing System is a next-generation datacenter platform that unites computer, network, storage access and virtualization into a cohesive system and, coupled with the VMware vSphere generation of products, will provide an efficient, reliable, scalable and flexible environment for delivery of IT-as-a-service.

This could bring  Cisco into a war with longtime partners.  A lot of it depends on just how deep Cisco goes into branding this effort.  Does this or does this not sound like what IBM (NYSE: IBM) has done in datacenters and what Hewlett-Packard (NYSE: HPQ) with its equipment and IT services?  It is hard to see  if this will put Cisco in competition where IBM and H-P  start asking customers to shift IT spending away from Cisco.  It is easy to see where Cisco could ask enterprise clients to give it more of the total IT spending.  And guess at whose expense that would be?

As far as Microsoft (NASDAQ: MSFT) Cisco will pre-package, resell, and support Microsoft products.   That is a spot that Cisco couldn’t get away from in today’s world even if wanted to (or wants to).

As far as Red Hat Inc. (NYSE: RHT), Cisco will act as an OEM for Red Hat’s Enterprise Linux platform to allow customers to purchase a complete solution from Cisco along with services and support.

BMC Software Inc. (NYSE: BMC), the BMC Business Service Management and Cisco’s Unified Computing System will enhance customer ability to provision and reconfigure the stack of mission-critical business services.

The Accenture Cisco Unified Computing Solution is meant to help companies migrate their ERP and computing applications to the more cost-effective virtualized platform.

This ties in the upcoming virtual data center operating system, the VMware vSphere, to give customers access to a virtualized and physical computing system over an intelligent and unified network fabric.  As far as EMC Corp. (NYSE: EMC), the two will continue collaboration on design and testing integrated technology architectures for seamless deployment of technologies.  The two will also focus on discovery and dependency mapping, automated root cause analysis, and policy-based configuration management.

We are not yet ready to endorse this or slam this.  There are pros and there are cons.  Cisco could be expanding its total share grab of enterprise IT spending.  There is no doubt about that being part of the goal here.  But now you could have others in the space, who also deal with all or many of these same partners who might start encouraging customers to direct more of that same total IT spending away to other players in the communications equipment space.   Cisco is a powerful technology foe in any space it enters.  But there are also many new companies which still compete in the space.

The market looks like it is undecided on just what this will ultimately generate.  So far, there is a very mixed reaction in all of these stocks.

JON C. OGG