HP's ProCurve networking group has quietly sold switching gear for years, garnering a tiny 3 percent share of the enterprise market. But now it's beginning to make some noise with new products and features aimed squarely at Cisco, the market leader responsible for more than two-thirds of all Ethernet switch sales.
Among other things, HP on June 8 agreed to spend US$28 million to acquire high-speed Ethernet switching technology from Riverstone Networks, in an effort to build a more complete line of networking gear to match Cisco's portfolio.
Though HP won't threaten Cisco's dominance in the enterprise switching market anytime soon, heightened rivalries between the two companies could fray their long-standing alliance at a time when Cisco is aggressively courting new partners to fuel growth.
"HP is one of Cisco's biggest distributors," said Zeus Kerravala, an analyst from The Yankee Group. "HP's sales guys are being compensated for selling Cisco gear. It may not be a problem right now, but over the long term, I see this becoming a much bigger issue for them."
Cisco is increasingly basing its future on big alliances, and managing relationships with partners such as HP will be crucial to its plans. Cisco CEO John Chambers has repeatedly underlined the importance of partnerships for the company. The strategy was manifest in a deal announced in April to expand Cisco's sales partnership with wireless phone giant Ericsson, as well as in recent comments signaling Cisco's openness to a possible tie with rival Nortel Networks.
Cisco's outreach efforts come amid growing competition among makers of corporate network switches and routers -- an arena Cisco dominates with more than 90 percent market share. Earlier this month, Juniper Networks announced the J-Series to compete directly against Cisco's 1700, 2600 and 3700 enterprise routers. Juniper has been stealing market share from Cisco in the high-end router space, providing hardware to Internet service providers and telephone companies.
Unlike the case with Juniper, which has always been a straight competitor to Cisco, HP and Cisco are also strategic partners. In fact, until last year, HP CEO Carly Fiorina served on Cisco's board of directors. With $56 billion in sales last year, HP offers Cisco a major sales channel into corporations. The two companies often sell into the same accounts. HP often provides network integration services in addition to certain products, such as servers, storage hardware, network management software and computing gear, while Cisco contributes networking gear.
ProCurve an upward one
Over the last couple years, sales of HP ProCurve networking products have grown more rapidly than those of competing products from companies such as 3Com, Cisco, Nortel Networks and Enterasys Networks, said Josh Johnson, an analyst with Synergy Research Group. In the first quarter of 2004, HP ProCurve moved to third in terms of revenue, from fifth place in the previous quarter. Cisco led the market both in terms of revenue and ports shipped.
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