Computers December 8, 2009, 10:12PM EST

Cisco's Chambers: Tough Talk on Data Centers

The CEO says he's making headway in efforts to challenge Dell, HP, and other computer companies in the $40 billion market

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Cisco Systems Chief Executive John Chambers had pointed words for journalists skeptical of his company's foray into equipment for big corporate data centers, an area of technology traditionally dominated by computer makers. "We've taken on big peers in the past," Chambers said over a bento-box lunch for members of the media at Cisco's financial analyst conference on Dec. 8.

He was referring to Cisco's move early this decade into corporate telephony, a market where it now has a 33% share. "We didn't know anything about that market when we got started," he said. By contrast, data centers are run by big companies, which have been relying on Cisco (CSCO) for networking gear for 25 years. "That's our home," Chambers noted during the break in a series of presentations for analysts.

Tough talk for a company that's just nine months into an ambitious—and some say risky—incursion into this $40 billion market. The first step was to enter the cutthroat market for servers, the powerful computers that handle Web traffic and hefty IT jobs. On Mar. 16, Cisco unveiled its first server, the centerpiece of a "unified computing" vision that placed the networking company in competition with computer giants Dell (DELL), Hewlett-Packard (HPQ), and IBM (IBM), all longtime partners that have resold billions of dollars' worth of Cisco gear each year. Cisco's servers began shipping in August.

Unified Computing System

Cisco says it has landed several $20 million deals for its Unified Computing System, or UCS, which makes the network the most important element of the data center. "We won't get 500 customers moving [to Cisco's vision] tomorrow in the data center," Chambers said. "But we will get a couple of dozen. And if that goes well, we'll get the next hundred, and then a thousand." For now, more than a hundred companies are using UCS, says Cisco. That includes three phone companies and Internet service providers including Savvis (SVVS), which plan to use the gear to provide so-called cloud computing services to businesses or consumers, says Cisco Executive Vice-President of Worldwide Operations Rob Lloyd. "There's a lot of interest from big corporations," says Pacific Crest Securities analyst Brent Bracelin.

Cisco designs its servers so they work closely with data center networks. Each server includes high-speed links to Cisco network switches. That way, the network automatically knows where to route traffic, rather than simply sending jobs to a server only to have them reassigned. Fans of the approach say it lets companies manage an entire data center as though it were a single computer—not hundreds or even thousands of discrete programs, computers, and other types of gear. "It's a game-changer," says Brian Denton, chief technology officer of Atlanta-based consultancy ExamWorks, an early Cisco customer. Because the approach enabled him to get by with fewer servers, Denton says opting for Cisco has helped him shave $300,000 in capital expenses.

ExamWorks is using two Cisco servers to serve all 11 of its locations. The Cisco machines are less complex to run and require fewer IT staff than systems sold by computer makers, Denton says. The setup also lets Denton give employees years-old PCs rather than pricey new models, since all of the actual computing happens inside the Cisco servers in an Atlanta hosting center. "I call around to companies and ask for their old computers," which cost money to dispose of, Denton says. Then he gives the employees a nice flat-panel display, keyboard, and mouse, "and they don't know the difference," he adds.