SAN JOSE, Calif. (TheStreet) -- Cisco's (CSCO) attempt to get its house in order pits the networking giant increasingly against tech behemoths IBM (IBM) and HP (HPQ), while pushing it closer to the likes of EMC (EMC), VMware (VMW) and even Xerox (XRX).
With Cisco wrestling with problematic switch and public sector businesses, TBR analyst Beau Skonieczny told TheStreet that its fast-growing services division will help lift it out of its funk.
"From the services perspective, Cisco has been driving pretty aggressively," he said, pointing to the firm's recent partnership with Xerox around managed print services, which will intensify competition with print giant HP. "Cisco, with their smart [energy] solutions and green grid technology will [also] be pushing more aggressively against IBM," added the analyst.
IBM, with its vast services arm, has been making a song-and-dance about its green offerings for the last few years. Cisco, though, has also been ramping up its efforts in this space, touting, for example, its EnergyWise energy management technology.With big questions being asked about Cisco's long-term growth strategy, TBR's Skonieczny told TheStreet that its high-margin services business is particularly crucial. "Cisco's efficient use of their [services] channel partners allows them to offload a lot of their costs so that they can focus on development," he explained. "This has been boosting their services margins." It is not just services, though, where Cisco will be banging heads with the heavyweights of Silicon Valley. The company's entry into the server market with its UCS technology in 2009 damaged its long-standing partnership with HP, which is now attacking Cisco in its own backyard; networking. Jayson Noland, an analyst at Robert W. Baird, says that Cisco's ongoing push into the server is also complicating its relationship with IBM. "Cisco's entry into the server market has created antagonism with its partners HP and IBM, each of which resells over $1 billion in Cisco equipment per year," he wrote, in a note. "These companies may reduce the amount of Cisco infrastructure they resell while enhancing their own networking businesses through partnerships, acquisitions, and internal development."
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