Cisco's Chambers Shoots Down Speculation About Rackspace Acquisition


Ever since Rackspace announced its intention to explore a “strategic partnership" last week, speculation has swirled throughout the tech world about which companies would line up as suitors for a possible acquisition.

One of the big names bandied about was Cisco, which many tech insiders, including some Cisco partners, said was a deal that made sense. By acquiring Rackspace, Cisco could make an immediate move to bolster its Intercloud chain of regional data centers with its own infrastructure.

Not so fast.

[Related: Rackspace Channel Partners Bubbling With Speculation About Possible Acquisition]

Speaking at Cisco Live in San Francisco on Tuesday, CEO John Chambers put all that speculation to rest.

“I'm not going to comment on did we look at [Rackspace] or not ... but it doesn't fit into our normal sweet spot and core competency area,” Chambers told the company’s partners in the IT industry.

The Cisco CEO explained that the cloud market posed a business challenge that didn’t fit into the Cisco acquisition model.

"That is a market that is very, very price-sensitive that's taking on the big giants in Google and Facebook and Amazon and Microsoft, etc.,” he said.

"We don't move into a market unless we think we have a realistic chance of being 40 percent market share with sustainable differentiation. And we try not to move into markets that don't have really good gross margins unless they are unusually strategic for us,” Chambers said.

So now, with Cisco ostensibly out of the picture, the gossip mill can focus on any number of other potential buyers, generally falling into two categories: companies already in the OpenStack ecosystem that Rackspace had a major role in developing, and companies that might be looking to make an authoritative entrance into the premium end of the public cloud market.

In its SEC filing, Rackspace said the price wars in the public cloud space were forcing it to seek a strategic partnership. But many industry watchers note that Rackspace never really was head-to-head with Amazon or Google, instead positioning their cloud as a premium offering, one built around a concept that the company dubbed “fanatical support.”

Whoever buys the company, some say, will be interested in using this commitment to top-tier services to differentiate themselves from the big commodity cloud players Rackspace claims are pushing them to seek acquisition in the first place.

PUBLISHED MAY 21, 2014