Cisco's Chambers: Tough Talk on Data Centers

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Data Center Cost Savings

Another Cisco UCS customer is Terremark (TMRK), a hosting company that runs the federal government's USA.gov site, among others. Terremark Chief Strategy Officer Marvin Wheeler says his company will rely on the UCS machines because they will help his company more easily shift jobs between its data centers around the globe—say, to provide disaster-recovery backups. And James McGibney, an IT manager for construction giant Tutor Perini (TPC), says Cisco's technology has helped him consolidate five big data centers into one. He says the company, which had sales of $5.6 billion in 2008, now has just 22 servers, down from 480 in the past. "We've definitely cut our [data center] costs by more than 50%."

Another customer is Taser International (TASR), maker of the stun gun, which is planning to expand beyond this flagship product to become a provider of cloud computing services to police departments and law enforcement agencies. Taser guns now include video cameras that law enforcement officials can use to record parts of their shifts. Processing hours of video chews up huge amounts of storage and server capacity. So Taser created a service called Evidence.com that charges a set fee—about $5,700 per officer over three years—to handle the tasks.

Yogesh Saini, a Taser senior vice-president, says he chose Cisco's servers because they have massive amounts of memory, making them a more efficient way to process all that video. As a result, the company thinks it will need 25% fewer servers than if it had gone with one of the traditional server makers. Taser Chairman and co-founder Thomas Smith says the company has already saved $900,000 as a result, plus another $40,000 in reduced power bills to run the machines. While Taser now has only two racks containing eight Cisco servers each, it will need 300 racks within a few years if Evidence.com hits its growth targets.

Server Market Leaders

While Cisco's server effort is just ramping up, Cisco Vice-President Soni Jiandani says, the trends are heading in the right direction. She says more than 70% of customers have come back to buy more. "We are very pleased at the pace at which we've been able to convert trials into production, but we're especially happy about the rate at which people are coming back to give us more business," she says.

No doubt, the company is not going to challenge the server market leaders anytime soon. IBM, Hewlett-Packard, and Dell together controlled more than 75% of the worldwide server market in the third quarter, according to market researcher Gartner (IT).

HP's $2.7 billion acquisition of network equipment vendor 3Com (COMS) on Nov. 11 accelerates competition with Cisco in its core market, and HP says it plans to attack Cisco on price—including 3Com models that are also used in the data center. "Customers get upset if they feel they've been overcharged by their current supplier," says Dave Donatelli, an executive vice-president at HP, in a recent interview.

The computer companies have decades-old customer relationships and can provide their products efficiently on a large scale. And Cisco may not have the necessary breadth to be a true soup-to-nuts player. IBM and HP, for example, sell their own storage gear. Cisco recently announced a partnership with storage provider EMC (EMC), but many tech executives think Cisco needs to make some other large acquisitions to fill out its product line. "If Chambers really wants to whip HP, he better get real busy, real fast," says the CEO of a leading corporate software maker. "Companies are looking for a small number of giant players who are willing to take major project responsibility," says Tom Nolle, president and founder of consulting firm CIMI. "Cisco doesn't really qualify. The earth is going to have to take a few whirls before they have enough history" to make big customers comfortable, he says.

But some analysts think the networking giant—flush with more than $30 billion in cash, and an ambitious strategy to maintain annual growth of around 15%—will be a player.

With Aaron Ricadela in San Francisco. Burrows is a senior writer for BusinessWeek, based in Silicon Valley.

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