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Cisco Gets Squeezed by New Competition

Stocks in this article: CSCO HPQ JNPR DELL BRCD ADTN IBM

BOSTON ( TheStreet) -- Cisco's (CSCO - Get Report) dominance of the market for computer-data networking has long been unassailable, but a handful of companies are successfully nibbling from behind.

They include Hewlett-Packard (HPQ - Get Report), Juniper Networks (JNPR - Get Report), Brocade Communications (BRCD - Get Report), Dell (DELL - Get Report), Adtran (ADTN - Get Report) and the privately held Arista Networks.

"Every one of these companies is trying to take business from the other," Morningstar analyst Gary Burkett said in an interview.

It just happens that Cisco is the industry's biggest target. The company's products include network routers and switches, access equipment, and network-management software that allow data communications among computer networks. Cisco has recently entered several new markets, such as video conferencing, Web-based collaboration and data-center servers by making acquistions.

On the high end of the networking market, Cisco is a tough nut to crack because of its long-standing relationships with many big corporate customers. They're not eager to switch to a new vendor given the uncertainties and expense involved.

And that's why Cisco's share of the enterprise-routing and switching market has remained near 70% for the past five years, Burkett said in a research note. "The status quo is still the first option for mission-critical switch installations."

Another reason for its hold on the market is that Cisco has proprietary patents and programming source code that others can't match. But one of the ways competitors are sneaking market share and landing new customers is by releasing their networking products with open-source code, which means independent programmers can develop customized applications for them on the cheap, something Cisco has eschewed.

Hewlett-Packard took a shot at Cisco for that failing in a new initiative announced Monday. Its new FlexNetwork architecture allows companies to run their own network without necessarily locking them into specific vendors.

"Single-vendor, proprietary approaches, such as Cisco's, lock in customers while driving up cost and complexity with different architectures required at each point in the network, including data center, campus and branch," Hewlett Packard said pointedly in a statement.

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