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Wedbush Morgan's Roy told TheStreet that HP can happily take gross margins of more than 30% in its switch products because the company's overall corporate margins are at around 24%. "HP has lot of room to cut prices on the switches, without hurting its overall corporate gross margins," he said. "On the other hand, Cisco has been enjoying fat gross margins in the 60s -- it is harder for them to take gross margins in the 50s or 40s."

Even Cisco CEO John Chambers acknowledged his company's switch travails during the recent Wells Fargo technology conference. "Switching is our challenge, it's going to be a tough market for us," he said, adding that unnamed competitors are attacking Cisco on price while others are taking a leaf from Cisco's book and using their own silicon to build switches.

This is a key issue, particularly at a time when companies like Juniper ( JNPR) are also hitting Cisco's key market. "It's not only HP, but Brocade ( BRCD) and Juniper that are putting pricing pressure on Cisco," said Brian Marshall, an analyst at Gleacher & Company, in an email to TheStreet.

Cisco, which is now frantically attempting to resolve its execution problems and revive its flagging share price, can hardly be welcoming this type of distraction.

Despite holding the lion's share of the enterprise switching and routing market, Cisco has launched a major offensive in an effort to reorganize, and is undergoing some major internal changes.

Earlier this week, the company said that David Yen, who led development of Juniper's acclaimed QFabric switch technology, has joined Cisco. In his new role, Yen will head up Cisco's UCS and Nexus server access switching businesses.

As for UCS, Cisco says that the technology is gaining rapid traction among enterprises, with the product's annual run rate increasing to $650 million at the end of the second quarter, up from $500 million in the first quarter. The big question remains whether UCS sales can continue to ramp up quickly enough to offset HP's networking onslaught.

At this stage, though, particularly with Cisco scrambling to get its house in order, the jury is still out on whether the decision to retaliate against HP was a wise one.

In terms of third-quarter metrics, analysts surveyed by Thomson Reuters expect Cisco to quarterly revenue of $10.86 billion and earnings of 37 cents a share, compared to $10.4 billion and 42 cents a share in the prior year's quarter.

Investors will also be watching Cisco's June quarter outlook, which analysts expect to come in at 42 cents a share on $11.67 billion in revenue.

--Written by James Rogers in New York.

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