Has Cisco Lost Its Edge?
Cisco has made much of its push beyond network routing and switching into areas such as security, VoIP, video, wireless and virtualization and its efforts to integrate those technologies into its flagship infrastructure products. It's a strategy that many Cisco partners credit for part of their success, providing an end-to-end technology strategy that is difficult for other vendors to compete against.
But as Cisco moves its focus deeper and deeper into new technology areas, some channel partners say the San Jose, Calif.-based vendor is taking its eye off the edge, leaving room for ProCurve to infiltrate the network with its lower-cost edge switches.
That could be problematic for the Cisco channel, as it has the potential to drive down partners' margins as they go up against ProCurve's lower-priced wares. It also opens a door for ProCurve to infiltrate other parts of the network, solution providers said.
And, contrary to conventional wisdom, it's not just smaller customers giving HP the nod over Cisco. Cisco partners said they're seeing more enterprises take the ProCurve plunge as well, and they're looking to Cisco to put a stop to it.
"I'm seeing the commoditization of the edge. People are looking at HP. I'm hearing of people buying it, enterprise customers," said Mike Mogavero, executive vice president of sales and marketing at Woodland Hills, Calif.-based solution provider Data Systems Worldwide, in an interview at the Cisco Partner Summit earlier this year. Mogavero said he only started seeing ProCurve show up competitively since last fall. "I think and#91;Ciscoand#93; needs to do something to counter HP's message. They need to find a silver bullet to stop the momentum, to stop HP."
Steve Larson, director of sales at Plymouth, Minn.-based Cisco partner Enventis, a subsidiary of HickoryTech Corp., also said ProCurve is making inroads with bigger companies, particularly over the last year.
"I've seen it more in larger companies, Fortune 500 companies," Larson said. One of HP ProCurve's highest-profile customers, Minneapolis-based food company General Mills, happens to be headquartered in Enventis' back yard.
Lane Irvine, manager of network services at Long View Systems, Calgary, Alberta, said he's not running up against ProCurve in enterprise accounts but that the rival appears more frequently on the SMB competitive landscape in times such as these, when the economy takes a dip. "When things are slow and budgets are tightened, that's when people look at it," Irvine said.
According to recent numbers, HP ProCurve must be doing something right. The company grew worldwide port shipments by 28.4 percent in the first quarter compared to the same quarter a year ago, while the rest of the networking industry grew by 7.82 percent, according to research firm Dell'Oro Group, Redwood City, Calif., which ranks ProCurve as the world's second-largest enterprise LAN networking vendor, behind Cisco. In North America, ProCurve grew port shipments by 10.4 percent, while the rest of the market declined by 11.8 percent, Dell'Oro reported.
Next: Sales Growth On the revenue front, HP ProCurve grew its first-quarter worldwide Ethernet switch sales by 27.42 percent compared to a year ago, according to Synergy Research Group, Reno, Nev., which ranked ProCurve third in the market by worldwide revenue behind Cisco and 3Com for the quarter. That compares to growth of 6.94 percent during the same period for Cisco and 16.42 percent for 3Com.
Mark Thompson, global director of sales and marketing at HP ProCurve, said the vendor is gaining in notoriety. "The world is beginning to know of ProCurve. More and more people are becoming aware that there is a choice," Thompson said.
ProCurve's growth in the first quarter spread across regions and across product lines, including its Layer 3, Gigabit Ethernet and Power-over-Ethernet products, Thompson said. "Layer 2 also grew. We refreshed our product line, and we're doing a lot better job of doing channel marketing," he said. "It's a combination of a good channel program and the good work the channel is doing."
One of the most appealing elements of ProCurve's strategy is the lifetime warranty it offers. That, combined with lower-cost products, proves to be attractive to budget-conscious customers that aren't afraid to stray from the market leader.
One wrinkle in ProCurve's ascension so far is the June departure of John McHugh, vice president and worldwide general manager of HP's ProCurve division, who has since been replaced with Marius Haas, former HP senior vice president of strategy and corporate development. McHugh is widely credited with building ProCurve up from scratch, and his departure surprised many HP solution providers.
"Losing a guy like that can be a setback," said John Barker, president of Versatile Communications, a Marlborough, Mass.-based ProCurve solution provider. "But my sense is I think the timing would have been a lot worse if this had happened a few years ago."
Cisco partners say the vendor's best defense against HP ProCurve is its end-to-end portfolio and the technology integration it enables. They say that customers choosing HP on the edge now will not be able to implement advanced features such as security and videoconferencing down the line.
"Cisco needs a strong message about the impact of the edge," Mogavero said. "If customers make a decision now based on reduced costs, then two to three years from now when they want to do unified communications or and#91;Ciscoand#93; TelePresence, they're not going to be able to do that. NAC is not going to work with HP switches."
Plus, the operational efficiencies gained by Cisco's integration of more features and functionality into products can make it a more cost-effective path over time, Mogavero said.
"Not that HP has a bad product, but if you're doing an enterprise-class or medical-grade network, you want end-to-end and#91;Ciscoand#93; IOS, particularly to do voice and video," said Frank Scanga, executive vice president of Axispoint, a Cisco partner in New York.
Scanga said he's confident that Cisco will act to quell the growing ProCurve threat. One necessary step would be to introduce a lower-cost, scaled-back version of its Catalyst 3750 edge switch, something he hopes Cisco is already planning. "Cisco is such a great organization and they do so many things well, but HP has found a way to pique the interest out there. On the edge, they're touting their free support for life. But I think Cisco does realize and#91;the threatand#93;. I've heard rumors that they're going to come out with an edge switch to compete and nip that in the bud," Scanga said.
If that's what Cisco is saying privately to partners, then publically executives are taking a different approach. In recent interviews, several executives said they haven't heard from partners that ProCurve's position in the market is cause for concern, particularly at the enterprise level.
"I'm not sure we have a specific strategy against them. We haven't been woken up to having a specific problem," said Edison Peres, senior vice president of worldwide channels go-to-market at Cisco.
Wendy Bahr, vice president of U.S. and Canada channels at Cisco, said she also has not heard channel partners express concern about HP ProCurve. "ProCurve has got what I consider a lower-end product. We always go back to the value proposition of end-to-end," Bahr said. "Our mission is to keep our eye on the bigger ball: what we can do with end-to-end."
ProCurve's Thompson dismisses Cisco's end-to-end argument. "I'd turn that argument completely around. If you stick with an open-standards-based solution, you have a better chance of making a multivendor unified communications solutions work. You're not locked in," Thompson said. "Having to buy your telephony solution from your networking vendor makes and#91;as muchand#93; sense as having to buy your desktop from your networking vendor. We can run Cisco, Microsoft, Avaya, 3Com, Nortel. Pick who you want."
Andrew R. Hickey contributed to this article.