Cisco’s UCS servers were downplayed in yesterday’s Cisco Investor Day presentation to financial analysts, suggesting servers are not a high-priority in Chuck Robbins’s company. So, what next for the UCS server line — disposal?
Update: William Blair analyst Jason Ader’s view added. 17 Sep 201.
This was Cisco’s first Investor Day since 2017, hence a major event. In his presentation, CEO Chuck Robbins outlined the six key pillars of Cisco’s strategy:
Wells Fargo analyst Aaron Rakers told subscribers: “Cisco … will be adjusting its reportable segments to… :
- Secure, Agile Networks — Campus Switching, Datacenter Switching, SD-Branch Routing, Compute & Wireless;
- Hybrid Work — Collaboration & Contact Center solutions;
- End-to-End Security — SASE + NetSec, Zero Trust, Detection & Response, Application Security;
- Internet of Future — Routing Optical Networking, Public 5G, Silicon, & Photonics;
- Optimized Application Experiences — Full Stack Observability and Cloud Native Platforms.
Servers (compute) are included in the Secure, Agile Networks segment. Todd Nightingale, EVP and GM for Enterprise Networking and Cloud, presented on the Secure, Agile Networks topic and confirmed this in one of his slides:
Rakers pointed out that there were “No Meaningful Comments on Cisco’s UCS x86 Servers. One [topic] that was not meaningfully discussed during Mr Nightingale’s presentation was the strategic role/importance of Cisco’s x86 UCS solutions to the overall enterprise datacenter strategy.”
For Rakers the key points of Nightingale’s pitch were the installed base Catalyst 9000 campus switch upgrade opportunity, the $90billion core enterprise networking total addressable market, and subscription renewal traction.
William Blair analyst Jason Ader told his subscribers that: “servers [were] (completely ignored during the analyst day despite the data center segment being around 7 per centof product revenue, based on our estimates).”
Servers no longer core
Let’s make a statement: UCS servers are no longer a core part of Cisco’s strategy. Could it exit the business?
Cisco exited the building energy management business in 2011. It disposed of its Home Networking division, including Linksys, to Belkin in 2013. In its fourth fiscal 2020 quarter results, which were poor — nine per cent down year-on-year — Robbins said: “Over the next few quarters, we will be taking out over $1 billion on an annualised basis to reduce our cost structure.”
Its servers don’t make enough revenue for Cisco to be included in IDC’s top five server companies [IDC Worldwide Quarterly Server Tracker, 2021Q1] which were Dell, HPE, Inspur, Lenovo and IBM. Big Blue had the lowest share of the five, at 5.3 per cent of a $20.9 billion market. Enlyft estimated Cisco had a 3.71 per cent market share earlier this year.
The company is under cost pressure, its servers have a low market share, and it has disposed of under-performing, non-core businesses in the past.
We might imagine that both Dell and HPE would like to pick up the UCS business and allied HyperFlex HCI products, and so add to their respective market shares. Dell might be particularly keen as UCS servers form part of its VxBlock converged infrastructure systems, and to have HPE pick up the UCS business would be embarrassing.
It is, we think, quite possible that Cisco could have exited the server business by the end of 2022.