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Cisco and IBM: Partners Forever?

Posted by: Peter Burrows on May 15, 2009

Philosophically, I don’t partner and then compete later. I won’t enter into strategic partnerships that I think will not have lasting evolution. Secondly, using IBM as an example, that company is my best partner today and it will be my best partner 10 years from now. Third, we see the market evolving similarly. We share what we’re doing with IBM very closely, and IBM shares what it is doing with us very closely. And both of us have the same philosophy.

That’s a quote from an interview Cisco Systems CEO John Chambers did with trade publication Network World. I saw it in a slick brochure put out by Cisco and IBM in 2007 to sing the praises of their lucrative partnership. But now, many are wondering if these tech titans will remain best pals even through New Years, much less in 2017.

As I wrote about in this week’s story on Cisco, there’s a lot of concern that the networking giant’s move into the server business will cause IBM’s consultants, who some analysts say now drive as much as $2 billion a year in Cisco sales, to push gear from Juniper, Brocade and others instead (IBM’s server business may move another $1 billion a year, say these sources). After all, Cisco’s servers are aimed at the data center—or put another way, at the cloud computing trend that looks to be the next mega-opportunity for tech companies. That’s not a niche to IBM, that can be easily written off as just another area for coopetition. Indeed, on the day Cisco announced its Unified Computing server and vision, Cisco executive VP Rob Lloyd told me that: “we have probably doubled or possibly tripled our addressable market” in the data center. Currently, Cisco has eight to ten percent of data center spending, he figures.

But regardless of what the analysts say, Cisco execs insist the so-called rift is simply not there. Nick Earle, who heads marketing for Cisco’s services effort, says that Cisco’s business with IBM has in fact grown in the last two to three years (though he declines to say what’s happened in the months since Cisco made its server announcement). That’s because the more markets Cisco tries to evangelize—VoIP office phones, telepresence, digital billboards—the more opportunity there is for IBM’s consultants. He notes that while initially Cisco creates service practices to figure out how to best sell and deploy these technologies, Cisco’s strategy is to very quickly share that expertise with services partners. The reason: Cisco would rather have hundreds of thousands of consultants from IBM, Accenture, Wipro and others pushing its gear, rather than rely only on its own services staff of just 9,000, only 3,000 of which are consultants. Plus, Cisco buys a huge amount of chips from IBM, Lloyd point out. “We are competing in this area, but it’s not going to knock a multi-billion relationship off the rails,” he says.

Chambers reiterated that view in my interview with him on May 11. While he admits Cisco’s ambitious expansions may cause it to lose some old partners, he says everything is kopasetic with Big Blue. In fact, he said he’d spoken with IBM CEO Sam Palmesano the day before, and there was no talk of tensions. Chambers also told me that Cisco has been totally transparent about its plans relative to the server market. “IBM knew exactly what we were going to do—not a month or two ago, but last summer,” he says.

So are IBM and Cisco heading for a divorce? Not anytime soon. But I do think their relationship is going to get a lot more stormy. Chances are, they’ll keep those disagreements behind closed doors, since both sides have far too much to lose.

Then again, I found it interesting that IBM refused, despite many tries, to put someone on the phone for my story, to reiterate their loyalty to Cisco. That’s a sign of ambivalence, if you ask me. And the more successful Cisco becomes in the computer business, the more ambivalent Big Blue will be.

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Brad Reese

May 18, 2009 12:48 AM

Does Huawei have the most potential to eat Cisco's lunch?


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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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