Structural storage industry changes green light Cisco

No legacy drag and server-led opportunity


Structural changes in IT and storage technology are green lighting opportunities for Cisco as it has no legacy storage products holding it back and server-led storage opportunities are growing and growing.

William Blair analyst Jason Ader has issued a note called "Day of Reckoning for IT Infrastructure Is Near" which talks of "massive secular disruption in the IT infrastructure market," secular being analyst-speak for long-term and fundamental changes as opposed to cyclical changes, such as seasonal trends.

Because of these changes "consolidation is inevitable, historical partnerships increasingly lose relevance, and activist and private equity investors gain greater sway." Seem familiar?

The IT industry restructuring era has already started;

  • Dell has gone private
  • HP and Symantec are each splitting in two
  • IBM has sold off its PC, server and semi-conductor operations
  • Activist investors gave their hooks into EMC, Juniper, NetApp and others
  • Tibco and Compuware have been the subject of private equity takeouts

Ader says "The magnitude of industry change has taken many vendors by surprise and has left some in denial - a situation that occurred during previous technology transitions (mainframe to minicomputer from the 1970s to mid-1980s, minicomputer to client-server from the mid-1980s to late 1990s, and now client-server to cloud, starting in the 2000s). This is a textbook example of the “innovator’s dilemma,” in which incumbent vendors often fail to make the bold moves necessary to address disruptions in their markets, in the hopes of protecting their mature and lucrative businesses."

What are these changes?

Ader identifies the public and private cloud, software-defined architectures, white-box hardware products and open source software. These play into enterprise customer desires to control runaway IT spending and lower costs within the IT budget, helpful to vendors offering subscription pricing and pay-as-you-go business models.

The impact of the cloud will have four aspects:

  • It will limit vendor pricing over time as spending becomes more concentrated with a small number of large, powerful customers,
  • Higher utilisation rates of cloud infrastructure will create a persistent headwind to hardware and software capacity requirements,
  • Cloud companies are more likely to employ white-box and software-defined architectures to power their data centres,
  • Cloud services are typically defined by consumption-based or subscription pricing, which can often be disruptive to traditional infrastructure vendor business models.

White box products "decouple software control and intelligence from the underlying hardware of a computing, storage or networking device" and so disaggregate existing product stacks and lower margins. If the hardware is the same between white-box and integrated systems, why should customers pay a premium for integrated systems?

Ader Matrix

Our amended version of Ader's strategic value matrix for selected IT system system suppliers. Click image to enlarge it.

Dell is responding well here, he says, as the "recently introduced ... XC Series of Web-scale Converged Appliances [are] essentially white-box Dell hardware integrated with Nutanix software."

Vendor consolidation is overdue

Ader reckons that one large vendor response is to build vertically-integrated (consolidated) product stacks as a way to increase margin. This will boost pressures for industry consolidation.

But, he writes;

We have frankly been surprised by the lack of vendor consolidation in the sector over the last few years. Our best guess as to why consolidation has been slow to occur: potential acquirers and targets have been trying to make sense of all the industry changes and trying to understand how much of the issues are secular versus cyclical. We suspect that more companies large and small have come to realise that the IT industry changes are secular, and thus an improving economic environment will not be the antidote.

Why is Cisco well-placed?

Ader asserts that "Cisco is the “best house in a bad neighbourhood,” as networking faces fewer headwinds than servers and storage, the cloud has positive implications for Cisco, and storage is a natural stack extension for Cisco."

He says Cisco will seek a deeper level of IT stack integration;

Evidence for this may be seen in Cisco’s acquisition of flash storage provider Whiptail in 2013, which it is now integrating into UCS (servers) for a high-performance storage capability, together with Cisco’s recent decision to sell its stake in the VCE joint venture back to EMC (which sold Vblocks). This could signal that Cisco is interested in making more acquisitions in the storage space in the months ahead.

Summing up, Ader thinks "Combining UCS with its own storage technology makes both strategic and financial sense, in our view."

Other well-placed industry players from the cloud adoption point of view, as well as customer focus on data security and application availability, are Aruba, Barracda, F5 and Ruckus, Ader believes.

Potential acquisition targets

The William Blair analyst fingers Arista, CommVault, Juniper and Nimble Storage as potential buyout candidates. (This was written shortly before Juniper abruptly fired its CEO for unseemly practices, which should increase pressure on Juniper. The exited Kheradpir was appointed 10 months ago partly as a result of activist investor Elliott Management pressure.)

(Check the IT system suppliers strategic matrix table above.)

Whether Cisco will buy one or more of these companies is obviously open to question. Much might depend on a retirement schedule for Cisco CEO John Chambers. In 2012 he indicated he might go in the 2014-2016 period, so there are a couple of years left yet if he feels a restructuring itch.

We've only summarised Ader's paper here. Contact William Blair to find out how to read the whole thing. ®


Other stories you might like

  • Cisco warns of security holes in its security appliances
    Bugs potentially useful for rogue insiders, admin account hijackers

    Cisco has alerted customers to another four vulnerabilities in its products, including a high-severity flaw in its email and web security appliances. 

    The networking giant has issued a patch for that bug, tracked as CVE-2022-20664. The flaw is present in the web management interface of Cisco's Secure Email and Web Manager and Email Security Appliance in both the virtual and hardware appliances. Some earlier versions of both products, we note, have reached end of life, and so the manufacturer won't release fixes; it instead told customers to migrate to a newer version and dump the old.

    This bug received a 7.7 out of 10 CVSS severity score, and Cisco noted that its security team is not aware of any in-the-wild exploitation, so far. That said, given the speed of reverse engineering, that day is likely to come. 

    Continue reading
  • Datacenter networks: You'll manage them from the cloud, eventually, claims Cisco
    Nexus portfolio undergoes cloudy Software-as-a-Service revamp

    Cisco's Nexus Cloud will eventually allow customers to manage their datacenter networks entirely from the cloud, says the networking giant.

    The company unveiled the latest addition to its datacenter-focused Nexus portfolio at Cisco Live this week, where the product set got a software-as-a-service (SaaS) revamp.

    "It's targeted at network operations teams that need to manage, or want to manage, their Nexus infrastructure as well as their public-cloud network infrastructure in one spot," Cisco's Thomas Scheibe – VP product management, cloud networking for Nexus & ACI product lines – told The Register.

    Continue reading
  • Cisco execs pledge simpler, more integrated networks
    Is this the end of Switchzilla's dashboard creep?

    Cisco Live In his first in-person Cisco Live keynote in two years, CEO Chuck Robbins didn't make any lofty claims about how AI is taking over the network or how the company's latest products would turn networking on its head. Instead, the presentation was all about working with customers to make their lives easier.

    "We need to simplify the things that we do with you. If I think back to eight or ten years ago, I think we've made progress, but we still have more to do," he said, promising to address customers' biggest complaints with the networking giant's various platforms.

    "Everything we find that is inhibiting your experience from being the best that it can be, we're going to tackle," he declared, appealing to customers to share their pain points at the show.

    Continue reading
  • Mega's unbreakable encryption proves to be anything but
    Boffins devise five attacks to expose private files

    Mega, the New Zealand-based file-sharing biz co-founded a decade ago by Kim Dotcom, promotes its "privacy by design" and user-controlled encryption keys to claim that data stored on Mega's servers can only be accessed by customers, even if its main system is taken over by law enforcement or others.

    The design of the service, however, falls short of that promise thanks to poorly implemented encryption. Cryptography experts at ETH Zurich in Switzerland on Tuesday published a paper describing five possible attacks that can compromise the confidentiality of users' files.

    The paper [PDF], titled "Mega: Malleable Encryption Goes Awry," by ETH cryptography researchers Matilda Backendal and Miro Haller, and computer science professor Kenneth Paterson, identifies "significant shortcomings in Mega’s cryptographic architecture" that allow Mega, or those able to mount a TLS MITM attack on Mega's client software, to access user files.

    Continue reading
  • Leading Arch Linux derivative Manjaro puts out version 21.3
    A simpler, easier remix sounds like a good thing, but glitches like these shouldn't be in a point release

    Version 21.3 of Manjaro - codenamed "Ruah" - is here, with kernel 5.15, but don't let its beginner-friendly billing fool you: you will need a clue with this one.

    Manjaro Linux is one of the more popular Arch Linux derivatives, and the new version 21.3 is the latest update to version 21, released in 2021. There are three official variants, with GNOME 42.2, KDE 5.24.5 or Xfce 4.16 desktops, plus community builds with Budgie, Cinnamon, MATE, a choice of tiling window managers (i3 or Sway), plus a Docker image.

    The Reg took its latest look at Arch Linux a few months ago. Arch is one of the older rolling-release distros, and it's also famously rather minimal. The installation process isn't trivial: it's driven from the command line, and the user does a lot of the hard work, manually partitioning disks and so on.

    Continue reading
  • RISC-V International emits more open CPU specs
    First edicts of 2022 include firmware, hypervisor-level specifications

    Embedded World RISC-V International has grown its pile of royalty-free, open specifications, with additional documents covering firmware, hypervisors, and more.

    RISC-V – pronounced "risk five", and not to be confused with the other architecture of that name, RISC-5 – essentially sets out how a CPU core should work from a software point of view. Chip designers can implement these instruction set specifications in silicon, and there are a good number of big industry players backing it.

    The latest specs lay out four features that compatible processors should adhere to. Two of them, E-Trace and Zmmul, will be useful for organizations building RISC-V hardware and software, and the other two could prove important in future, aiding the development of OSes to run on RISC-V computers.

    Continue reading
  • RISC OS: 35-year-old original Arm operating system is alive and well
    1980s refugee, open source, and runs on modern kit

    RISC OS, the operating system of the original Arm computer, the Acorn Archimedes, is still very much alive – and doing relatively well for its age.

    In June 1987, Acorn launched the Archimedes A305 and A310, starting at £800 ($982) and running a new operating system called Arthur. At the time, it was a radical and very fast computer. In his review [PDF] for Personal Computer World, Dick Pountain memorably said: "It loads huge programs with a faint burping noise, in the time it takes to blink an eye."

    Arthur was loosely related to Acorn's earlier MOS, the BBC Micro operating system but looked very different thanks to a prototype graphical desktop, implemented in BBC BASIC, that could charitably be called "technicolor."

    Continue reading

Biting the hand that feeds IT © 1998–2022