Cloud computing infrastructures
Cisco Systems (CSCO) announced its new data center product, HyperFlex Systems, on Tuesday, March 1, 2016. HyperFlex contains software from Cisco’s data center startup partner, Springpath, that allows machines to work easily in conjunction with cloud computing infrastructures.
Companies would have purchased on demand cloud computing infrastructures from market leaders such as Amazon.com (AMZN) and Microsoft (MSFT). HyperFlex also contains software that will help firms such as Uber and Yelp (YELP) to build and operate complex applications. As shown in the graph below, Technavio expects the data center market to reach $14 billion by 2019, thereby growing at a CAGR (compounded annual growth rate) of 7%.
Cisco expects UCS customers to upgrade
According to Cisco, approximately 50,000 of its UCS (Unified Computing System) customers will likely upgrade their existing devices, despite the worldwide slowdown in technology purchases. In this segment, Cisco faces competition from startups such as Nutanix and Simplivity, which are valued at over $1 billion.
According to ZK Research founder, Zeus Kerravala, while startups cater mainly to SME (small and medium enterprises) businesses, Cisco can penetrate the market by offering services to medium and large enterprises. In addition to startups, Cisco is also competing with EMC Corporation (EMC) in this space. EMC and VMware (VMW) recently released a similar product. This market is expected to attract the attention of other tech giants as well this year.
Notably, Cisco accounts for 3.2% of the Technology Select Sector ETF (XLK).
Now let’s look at the potential role of cloud services in Cisco’s data center traffic.