November 22, 2010
I met recently with Cisco’s UCS group in San Jose to get a quick update on sales and maybe some hints about future development. The overall picture is one of rapid growth decoupled from whatever pressures Cisco management has cautioned about in other areas of the business.
Overall, according to recent disclosure by Cisco CEO John Chambers, Cisco’s UCS revenue is growing at a 550% Y/Y growth rate, with the most recent quarterly revenues indicating a $500M run rate (we make that out as about $125M quarterly revenue). This figure does not seem to include the over 4,000 blades used by Cisco IT, nor does it include units being consumed internally by Cisco and subsequently shipped to customers as part of appliances or other Cisco products. Also of note is the fact that it is fiscal Q1 for Cisco, traditionally its weakest quarter, although with an annual growth rate in excess of 500% we would expect that UCS sequential quarters will be marching to a totally different drummer than the overall company numbers.
Most significantly, Cisco now claims 2,800 customers, with over 40 of them taking $1M or more in UCS products and services. For 18 months of shipment, that’s a lot of new customers, almost every one representing an existing HP or IBM, and to a lesser extent, Dell, account. Based on my stream of inquiries from Forrester clients, I think that in addition to large enterprises, UCS is on fire in the midmarket, where I&O groups are usually marginally funded and more willing to take on novel solutions in the hopes of gaining incremental operational efficiencies. My impression is that customers who are rack server customers or blade customers who have not begun to use either HP’s Virtual Connect or IBM’s Open Fabric Manager are the most vulnerable. A couple of recent client discussions are illustrative of this pattern — a manufacturing company with approximately 300 servers, and a media company with 700 servers, both considering replacing their incumbent vendors rack and blade servers with Cisco UCS.
On the product front, not a lot of explicit information was forthcoming, but a couple of interesting data points lead us to some speculation:
- Product line diversification. Cisco has joined HP and IBM in introducing modified blade offerings with lower entry price points. In Cisco’s case, rather than shrinking the UCS enclosure, Cisco has introduced UCS Express, which includes up to 2 modified form-factor UCS server blades (smaller form factor, LP dual-core with smaller memory and storage configurations) in an ISR router form factor. The target here is small and remote offices and the opportunity to embed additional software value in a communications-focused product. Expect Cisco to push hard to attach UCS sales to its installed network base.
- Cisco recently announced the Nexus 5548 and 5596 switches with 48/96 unified 10G FC/Eth/FCoE ports. Since the UCS Fabric Interconnect based on the Nexus 5500 switch, it doesn’t take much of a leap of imagination to believe that the UCS 6xxx Fabric Extenders will get a significant upgrade in bandwidth in the near future, effectively increasing the size of realistic UCS instances.
- The entire server segment is poised for a major upgrade cycle next year as the first wave of server versions of Intel’s new Sandy Bridge architecture products are introduced, replacing the current Xeon 5600 product as the 2 socket server CPU of choice. It is reasonable to expect that Cisco will be ready with a major cycle of product enhancements when that cycle hits.
All in all, nothing to change our position that Cisco is committed to the server business and that UCS represents a disruptive force in the server market.
We’d like to hear from anyone contemplating or having made the decision to use UCS. How did you make your decision, and how has the experience been?