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Are White-Box Manufacturers a Threat to Cisco?

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Facebook’s Open Compute Project

Last year, Cisco’s (CSCO) CEO Chuck Robbins stated that white-box manufacturers are the biggest long-term threat to the company.

A white box is a personal computer or server. White-box manufacturers are unbranded players. They’re also often called original design manufacturers (or ODMs). These systems are not only cheaper than branded systems, they also provide opportunities for companies to get their systems customized according to their computing needs.

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Facebook (FB) has been leading this initiative by taking an open-source approach, trying to disrupt the data center hardware industry. Facebook has launched the Open Compute Project, through which it will buy hardware directly from white-box manufacturers. These manufacturers will also meet Facebook’s specific requirements, providing customized solutions.

Worldwide server market share

Amazon (AMZN) and Google (GOOG) (GOOGL) have also started to promote this trend by buying white-box systems. The result of this trend is that white-box manufacturers and ODMs are seeing rapid growth in their businesses.

According to a research report from Gartner, and as shown in the above chart, Cisco saw revenue growth of 20.2% in 2015 in the worldwide server market. It was closely followed by the Others category, which includes ODMs. Other top players include IBM, Dell, and China’s (FXI) Lenovo, which had revenue growth of 10.3%, 4.5%, and 2.9%, respectively, in 2015.

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