Cisco woos IBM for blade server partnership

Cisco Systems tried to partner with major server vendors several years ago before coming out with its own blade servers earlier this year, and it's still open to a partnership with IBM, chairman and CEO John Chambers said Tuesday.

"I still firmly believe that it's in IBM's best interests to work with us. That door will always be open," Chambers told the audience at the company's financial analyst conference at its headquarters in San Jose, California. The annual event covered a wide range of topics and revealed company executives' thinking on several issues.

IBM earlier this year announced a deal in which it will resell switches and routers from Cisco rival Juniper Networks.

Chambers and other executives spent much of the day telling financial analysts that Cisco has a window of opportunity now to become the preeminent IT and communications vendor because of the growing importance of virtualization, collaboration and video. One key move in this direction was the company's recently announced partnership with EMC and VMware. Under a joint venture called Acadia, EMC will integrate its storage equipment and management software with Cisco's UCS (Unified Computing System) architecture, with VMware contributing its virtualization software.

Because of that deal, Chambers believes Cisco can achieve a central role in the data center without making storage products itself, he said. If it could have similarly formed as strong a partnership with a computing platform vendor, Cisco would not have developed its own servers, Chambers said.

Analysts at the event said they think Chambers is sincere about his willingness to work with IBM. The two companies have much in common, such as their enterprise customer base, and Cisco's products could fit into IBM's offerings, said Mark Sue of RBC Capital Markets.

But the bridge has been burned between Cisco and another major server vendor: Hewlett-Packard, which once was a close partner of Cisco, analysts said. Cisco's UCS introduction earlier this year took it into close competition with HP's core server business, and HP last month announced plans to acquire 3Com, expanding its competition against Cisco in networking.

Also on Tuesday, Chambers said Cisco foresaw every stage of its recent fight to win over shareholders of Norwegian video systems vendor Tandberg.

On 1 October, Cisco announced an agreement with Tandberg's board to acquire the company for about US$3 billion. After signals that some large shareholders thought the bid was too low and the deal wouldn't reach the required vote of 90 percent of shares, Cisco at first defended its offer and hinted it might drop the deal if forced, but later raised its offer to US$3.4 billion.

But Cisco's management saw all that coming and mapped out various scenarios, Chambers said during a press luncheon at the financial analyst conference.

"We went into it knowing the exact challenges that we would face. ... It unfolded much like we anticipated," Chambers said.

The acquisition, which last week earned just over the 90 percent required support, will give Cisco access to Scandinavian engineering talent as well as five strong top executives, he said. "Their leadership team may be the best total leadership team we've had since the acquisition of Crescendo in 1993," Chambers said. That acquisition brought in executives such as Mario Mazzola and Luca Cafiero, who shaped Cisco's technology for years to come.

Cisco's management may not have known exactly how the takeover drama would play out, but it probably wasn't taken by surprise when Tandberg shareholders demanded more, said JMP Securities analyst Sam Wilson.

Chambers expects Cisco to buy more foreign companies in the coming years, both because the company is expected to invest in countries where it sells a lot of products and because of the strong technology potential outside the US, he said. Both India and China have about 600,000 engineering graduates every year, compared with about 60,000 in the US, he said. "We have to go where the talent is and where the startups are," Chambers said.