Cisco: Those Who Lie In Wait
Cisco: Those Who Lie In Wait Oct. 16, 2017 2:58 PM • CSCO Summary @Cisco markets @ACI as an #IBNS software and branded hardware combination, with many components built on the company’s Digital Network Architecture. @Gartner states ACI is not yet fully integrated, as competition in IBNS is to escalate rapidly and exponentially. Market evolution drives toward generic switches and routers which use open source software, with Cisco slow to follow. @Juniper and @Arista profile better in light of market direction of commodetized networking. Cisco will have over one thousand IBNS competitors by 2020, asserts Gartner. ￼ Mistakes Of The Past Just days ago Cisco Systems Inc. (NASDAQ:CSCO) introduced upgrades to its ACI (application-centric infrastructure), a software-defined product offering intent-based networking for customers’ data centers. But as the troubled company attempts to transition its business model into the SDN environment and away from its exclusive brand history, Cisco is raising questions as to whether the company’s old ways are being dragged into the future, threatening to repeat the mistakes of the past. After seven consecutive falls in quarterly revenue, layoffs, and years of loss of market share, Cisco is increasingly beset by both the consequences of market evolution to SDN and elevated levels of competition. An intent-based networking system, or IBNS, permits customers to identify tasks they wish the network to effect, and then have the system’s AI management capability execute them. The product of proprietary code, Cisco’s ACI 3.0 claims intent-based improvements in multi-site management, operational flexibility and visibility, Kubernetes integration, and security. Unconstrained As To Hardware As an inference application of machine learning, an IBNS is the cutting edge integration of AI into network management. It can automatically calibrate the network to the customer’s requirements, and provide feedback on whether the customer’s performance specifications are viable. The IBNS also administers collection of network data to act as a reference for automated decision making, and upon which an optimization function is based. Yet there are questions about Cisco’s ACI. The philosophy behind an IBNS is that it is a software overlay of a network, and should be unconstrained as to the hardware construction of that network. Cisco, though, markets ACI as a software and hardware combination, either integrated or separately, with many components built on the company’s Digital Network Architecture. Cisco claims IBNS readiness for its Nexus switches, with planned intent compatibility in its Catalyst products. Tetration is the company’s network analytics software. ￼ Not Fully Integrated Gartner, however, has expressed concern that ACI is not yet properly and fully integrated, and does not represent a full IBNS, manifesting complexities that make integration difficult. Advertisement ￼ Meanwhile, competition in IBNS is evolving rapidly, with the number of rivals looking to claw market share from Cisco growing exponentially. Gartner states that while there are fewer than 15 IBNS suppliers currently, there will be in excess of 1,000 by the year 2020. Juniper Networks Inc. (NYSE:JNPR) is building on the base of its open source Contrail software-defined networking controller. While it has of yet not achieved full IBNS functionality, the foundation is there technologically for Juniper to bring a full IBNS to fruition. Importantly in differentiating itself from Cisco’s ACI product, Juniper’s Contrail works on any network hardware and on any operating system models. Future Of Networking Networking customers are now migrating to generic switches and routers which use open source software, approaches which offer the benefits of lower cost and greater user refinement. If this is to be the future of networking, Juniper meets this profile perfectly, while Cisco, with its proprietary source code and branded hardware, continues policies which saw it end up on the wrong side of the market, and so suffer through falls in revenue, layoffs, and deteriorating market share. With a history of being slow to respond to market change, it still seems that old habits die hard. In the IBNS segment, Apstra Inc., a startup, offers a network operating system which manages network resources and monitors and controls changes. Apstra’s operating system is hardware-agnostic overlay software which runs on any hardware or on whitebox switches. Other areas of the networking market exemplify the shift to commodetized networking. The network extensible operating system of Arista Networks Inc. (NYSE:ANET) utilizes a stock Linux kernel and a userland based on Fedora, permitting the employment of regular Linux tools and standard configuration management systems, and also flexible approaches to programming. All of the Arista’s switching products are built with commodity silicon, and not custom switching ASICs, lowering cost and offering greater production flexibility. While some of Cisco’s Nexus switches have featured the Trident processor from Broadcom Ltd. (NASDAQ:AVGO), arguably the company’s movement in the direction of market transition has not been far enough or fast enough to withstand the burgeoning wave of competition that lies ahead. Conclusion With the level of IBNS competition as projected by Gartner to rise dramatically in the next three years, and with a qualitative market shift under way to generic switches and routers using open source software, Cisco continues a closed code and branded hardware approach which has already seen the company’s profitability and market share erode substantially. As has been demonstrated in years past, the future ramifications of this policy are not encouraging for investors. Consider following this author. To receive immediate alerts upon publication of future articles by this author, please click on either of the “Follow” buttons at the top and bottom of this page, and then select “Real Time Alerts.” To review previously published articles by The Structure Of Price, click on the author’s name at the top of this page. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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