Tech giant Hewlett-Packard ( HPQ) is not exactly quaking in its boots after Cisco Systems' ( CSCO)' controversial entry into the blade server market.

"Are we scared? No," Jim Ganthier, vice-president of H-P's blade business, told TheStreet.com. "They are coming to the party a little bit late."

After months of rumor and speculation, Cisco finally launched its Unified Computing System (UCS) last week, touting the blade-based system as a foundation for users' virtualization efforts. The new offering puts Cisco on a collision course with its long-term partner H-P.

The Palo Alto, Calif.-based firm owns more than half of the blade server market, way ahead of second-placed IBM ( IBM). After fighting for years to win the lion's share of the blade market, the tech firm has no intention of giving up its lead to Cisco.

"Cisco's announcement last week was an interesting announcement, but, quite frankly, it's things that we have been shipping since last fall," says Ganthier, referring to his firm's BL495c blade. The blade, which fits into the front of H-P's C-Class blade chassis, also features a technology called Virtual Connect Flex10 for managing virtual servers, he added.

Both Cisco and H-P are touting hardware and software that they call purpose-built for virtualization, although the latter is keen to play up its long history in the server market.

"Who would you rather have build your home?" asked Ganthier. "An architect or a plumber?"

Undeterred, investors responded positively to Cisco's launch, and the firm's stock has risen from $15.45 to around $17 in the last 10 days, although this coincided with a broader rally in tech stocks.

Blade servers are certainly grabbing plenty of attention. The small-form factor devices offer a way for IT managers to overcome the challenges of space-constrained and power-hungry data centers.

Despite a spending slowdown that has hammered other parts of the tech sector, blade servers continue to grow in popularity. Worldwide blade server revenue grew 33.3% year over year to $5.4 billion during 2008, according to technology research firm IDC.

Users looking to deploy these systems, however, should bear in mind that the compute blades are not interchangeable between Cisco, H-P and IBM systems as the three manufacturers all use different form factors.

Cisco, however, does build networking blades for both H-P and IBM systems, but controversially decided to go its own way with the UCS. Even during its high-profile launch, the networking giant avoided bad-mouthing H-P, although it is clear that Cisco wants to win its own slice of the lucrative blade server market.

"We felt that there was real need to provide customers with a pre-configured system and we felt that we couldn't do that with the piece parts that were available to us," says Jackie Ross, vice president of Cisco's virtualization business unit.

After dominating the networking space, Cisco clearly wants to open up new routes to market, particularly at a time when users are carefully managing their budgets.

Cisco should beware of counter-attacks, though. H-P, for example, is likely to target Cisco with its own ProCurve networking switches, and Ganthier says that the tech firm will also brandish its blades.

"We take all competitors seriously, and we will compete aggressively," he said, but scoffed at Cisco's partner strategy, which includes virtualization trailblazer VMware ( VMW), operating system giant Microsoft ( MSFT), management software specialist BMC ( BMC) and storage firms NetApp ( NTAP) and EMC ( EMC).

Cisco says that it is also working with Oracle and Microsoft on virtualization, and with Novell ( NOVL), Oracle ( ORCL) and RedHat ( RHT) operating systems, but has not released full details of its UCS roadmap.

In contrast, H-P's blade is good to go with a range of partners, particularly in virtualization, according to Ganthier. "In the case of hypervisors, we can give folks the choice of VMware, Microsoft, Citrix ( CTXS) and Oracle," he said.

Cisco told TheStreet.com that it expects to add more UCS partners over time, but has not given any indications of when these will be added.

H-P also warns that developing blade systems is a time-consuming and expensive matter.

"If someone wants to come into the blade server space, they are going to have to continuously invest, they are going to have to continuously innovate," said Ganthier. "This is an extremely risky bet, it is an expensive bet."

With $30 billion in cash and investments, though, Cisco is hardly hurting for money, although it will likely be some time before tech investors can weigh the full impact of UCS.

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