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Cisco, H-P, Gear Up For All-Out War

Cisco formally cuts partner links with H-P and prepares for a showdown.

Updated with H-P's comments.

SAN JOSE, Calif. (


) -- The writing was on the wall when


(CSCO) - Get Cisco Systems, Inc. Report

entered the server market with the

launch of its UCS product last year

, but the networking giant is now gearing up for

all-out-war with its longtime partner Hewlett-Packard (HPQ) - Get HP Inc. Report


Investors, however, are unlikely to feel the effects of the Cisco/H-P battle, at least for the foreseeable future.

In a blog posting on its Web site on Thursday afternoon, Cisco explained that it is now ditching server giant H-P as a services and channel partner, citing "the changing IT landscape."

"We recently notified H-P that we will not renew its System Integrator contract when it expires on April 30, 2010, resulting in H-P no longer being a Cisco Certified Channel or Global Service Alliance partner," explained Keith Goodwin, senior vice president of Cisco's worldwide partner business.

Goodwin added that Cisco's channel partners get access to proprietary information such as product road maps, making a split inevitable. "Given the evolution of our relationship, it no longer makes sense to provide these benefits to H-P," he said.

It could still be some time, though, before investors see UCS make a meaningful impact on Cisco's numbers, although the Silicon Valley heavyweight says that its server blade business is starting to ramp. Cisco acknowledged that UCS is in the "early stage of customer acceptance and pilots" during its recent second-quarter conference call, but said that orders increased more than 100% sequentially. Some 400 customers have already ordered the technology from Cisco, it added.

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During the call, Cisco CEO John Chambers explained that the firm is "probably two quarters out" from having a "meaningful discussion" on its UCS business, which suggests that the technology could become material later this year.

Some 80% of Cisco's business comes through its partners, although the networking giant clearly feels confident of its ability to challenge H-P. Cisco

sent shockwaves through the tech sector

when it unveiled its UCS offering last year, effectively stepping on the toes of its longstanding partner. Clearly riled by Cisco's move, H-P has taken every opportunity to

talk trash about its former buddy


The Palo Alto, Calif.-based HP is the 800-pound gorilla in the blade jungle, with 50.7% of the market, according to tech research firm IDC, followed by


(IBM) - Get International Business Machines Corporation Report

with just under 30%, so Cisco's UCS move was seen as an act of aggression.

Cisco has been touting the blade-based system as a foundation for users' virtualization efforts and is partnering with a number of companies, including


(VMW) - Get VMware, Inc. Class A Report





BMC Software


around its UCS technology.

H-P, however, has hardly been sitting on its hands, bolstering its own ProCurve networking products and launching its

BladeSystem Matrix

, a direct competitor to the UCS. Last year H-P also

forged a 10-year global alliance with telecom-equipment maker Alcatel-Lucent (ALU)

and spent

$2.7 billion to acquire Cisco rival 3Com (COMS)


Tellingly, on the same day that Cisco confirmed the end of its partnership with H-P, switch specialist



announced that H-P will be selling its 8-Gbit/s Fibre Channel switches, which can be used with H-P's server and storage products.

H-P, which

beat analysts' first-quarter estimates and raised its guidance

earlier this week, has been

touted as a good buying opportunity for investors

, something that is unlikely to change in the aftermath of Cisco's announcement.

As soon as the UCS launched last year, it was apparent that the two companies were going their separate ways, so Cisco's announcement yesterday was hardly a bolt out of the blue.

With its 3Com acquisition approaching completion, and a rapidly improving IT spending climate, H-P still has plenty of scope for upside, even without Cisco at its side.

H-P appeared to take a swipe at Cisco in a statement emailed to


on Friday.

"Most major players compete in one deal and partner in others to best serve clients' needs," it sniffed, without mentioning its rival. "We do not believe it is in the customer's best interest to take a proprietary stance."

The tech bellwether went on to assure customers that its hardware and software platforms will be "optimized for all leading networking platforms."

Cisco has not yet responded to


request for comment on this article.

-- Reported by James Rogers in New York

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