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ODM Direct server revenue is growing as fast as Cisco's UCS server revenue

With ODM direct server revenue and market share growth keeping up with Cisco's highly touted UCS servers, what are the long-term implications for Cisco?

Hummelstown, PA:   Mon, 12/9/13 - 11:59pm    View comments

IDCCiscoEarlier this month market intelligence provider IDC released its:

Third quarter 2013 worldwide server market report

Worldwide server systems factory revenue, third quarter of 2013 (revenues are in millions)

Vendor 3Q13
Cisco $599 $419 +42.8% 5.0% 3.3% +51.5%
ODM Direct $783 $540 +45.2% 6.5% 4.3% +51.1%

Source: IDC

Interestingly during last month's Q1'FY14 earnings call, Cisco's CEO bragged:

"Our data center business grew 44%, as customers continue to adopt our unified computing systems. We continue to see success with solutions such as SAP HANA that incorporates our UCS servers."

Well, when you compare Cisco's server revenue as reported by IDC above, it matches exactly Cisco's quarterly data center sales as shown below (Cisco's Q1'FY14 = IDC's 3Q13 and Cisco's Q1'FY13 = IDC's 3Q12).

Cisco's quarterly data center sales (view the spreadsheet without frames):

Source: Cisco Systems

Cisco's annual data center sales (view the spreadsheet without frames):

Source: Cisco Systems

With ODM direct server revenue and market share growth keeping up with Cisco's highly touted UCS servers, what are the long-term implications for Cisco?

Well according to the transcript below, Cisco does not consider ODM direct servers to be a competitive threat to Cisco UCS servers!

Cisco UCS Server Conference Transcript - 12/10/2013:


"Now there is another group classically called the Web 2.0 players, whether it's Facebook, Microsoft, Amazon, now you did mention Terremark as a customer, but when we think about this group of Web 2.0 companies, that group has been raising their CapEx forecast, what they are spending on data centers, but they are not necessarily customers of yours. What does that tell you in terms of the overall market? Does their spending indicate a shift of dollars or does it indicate the overall growth of compute spend?"


"I think that a lot of it is related to the adoption of mobility [inaudible], not a lot of it. That class of customers have a few distinguishing characteristics. Number one is their business model. So, the business model, right, those customers have a business model that's based on advertising revenue. They have a smaller set of very large apps. So their environments are fairly homogeneous. And the other distinguishing feature is that they have spent a significant amount of R&D dollars to create custom, as we spoke, automation frameworks that suit their needs in a very tailored way. And because of that, it frees them up to leverage basically what Taiwan and FedEx can provide, okay, so bare-bones to compete. And we are not actually in that market although we have some customers like LinkedIn in that space. We tend to go after markets where we can provide value."


"So it's often referred to as the white box market, sort of no branded servers, and I think in some recent interviews back in September, John Chambers, your CEO, talked about white box as competitive threat. So for your business unit, how do you think about the white box trend as a competitor?"


"Yes, I think in the context of Cisco, we have a fairly large percentage of our business which is service provider, to additional service providers. We are talking the AT&Ts, Verizon, et cetera of the world, and to those customers, potentially companies like Google that self-assemble could be a threat. So I think of white box as being an indirect threat to our business because it threatens our customers. We do run into instances where a customer who is willing to experiment with white box may not consider UCS, but clearly at a sustained clip of 44% year-on-year every quarter, it hasn't been much of a threat until now and we don't foresee it being a big threat in the near-term."

Related story:

Information Week: Cisco's Chambers: Rival White Box Model 'Fatally Flawed'

What's your take?

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