Is Cisco In Danger Of Losing Its Networking Crown?

While VARs typically see Cisco as the top dog of networking technologies, they are noticing other players creeping up, with ProCurve Networking by HP and Juniper Networks being the two most notable threats.

A recent UBS Investment Research survey found that Cisco is losing some of its clout with solution providers, likely due to it focusing more on segments like VoIP, security, wireless, Web 2.0 and a host of others.

Cisco putting its hands in several cookie jars, coupled with fluctuations and uncertainty in network spending, has VARs keeping a keen eye on other, lower-cost networking vendors they say could prove to be true rivals for the incumbent champion's network supremacy.

"If I was Cisco I'd definitely be wondering what's going on," said Jamie Vost, vice president of sales at Novanis Enterprise Solutions, a Springfield, Ill.-based solution provider.

The UBS survey found that solution providers are seeing the competition heating up to control the enterprise LAN and that more VARs will turn to alternative vendors to fill their customers' needs, mainly due to the lower costs and higher returns. According to the survey, VARs see ProCurve and Juniper chipping away at Cisco's visibility in the channel, mainly due to their lower cost and mostly similar functionality.

Another recent survey, performed by Goldman Sachs, also showed that Cisco is slipping in routing and switching, despite seeing market-share increases in nearly every other category it serves. In enterprise routers, Goldman Sachs said, Cisco declined from 84 percent to 82 percent market share and in switching it dipped from 71.7 percent to 71.4 percent.

As VARs see other networking vendors clawing and scratching in their fight to be No. 2 to Cisco's No. 1, UBS's survey found that enterprise demand for Cisco gear is weakening, opening the door for the ProCurves and Junipers of the world to swoop in and snag a piece of the action.

According to UBS, surveyed VARs expect just 4 percent growth from Cisco gear over the next 12 months. That's down nearly a half-percentage point compared with a March 2008 survey and down 1.8 percent from a year ago. In Europe, VARs expect to see only 1.6 percent growth from Cisco sales. In addition, 58 percent of VARs expect to see weaker orders, compared with just 33 percent expecting weaker orders in March.

Frank Kobuszewski, vice president of the technology solutions group at CXtec, a Syracuse, N.Y.-based solution provider, agreed that smaller, lower-cost vendors are popping up more frequently on VAR radar screens, but he said Cisco's large installed base could keep the competition at bay for the immediate future.

Cisco still has "a massive switch installed base," Kobuszewski said, adding that roughly 50 percent of CXtec's hardware sales are switches. Still, Kobuszewski said, vendors like ProCurve, Nortel Networks, 3Com and Juniper are making strides in the bread-and-butter networking arena as Cisco spreads its wings further to incorporate other technologies.

"They all make very good switches," he said. "And when it comes to the edge, a switch is a switch."

Don Gulling, president of Ocala, Fla.-based solution provider Verteks Consulting, a large 3Com partner, agreed. He said the current economic climate is ripe for smaller, value-conscious brands to infiltrate networks while also creating opportunities for smaller VARs to engage larger customers that once ignored them.

"Now we're seeing those customers giving us a shot," Gulling said. "I do see customers re-evaluating their vendor relationships and giving smaller IT shops another chance. Customers are willing to listen now and VARs have got to be on the lookout for that."

Kobuszewski said that despite more vendors looking to erode Cisco's market share, he hasn't noticed their products garnering higher margins just yet. But as customers are looking for the best price for performance available, VARs are seeking out alternatives.

"The more alternatives that we have to let the customer know they've got choices, the better off we are," he said. And for Cisco to maintain its dominance it has to not only focus on the advanced technologies it has begun offering, but also keep alive the message of its "foundation business," which is routing and switching, Kobuszewski added.

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