On Wednesday, Bloomberg reported networking technology giant Cisco Systems has begun selling a crucial datacenter component individually. The firm is now offering its switch chips with the hope of attracting hyperscale clients like Microsoft and Google. The company announced the slight change to its business model during a December 11 San Francisco-based event.
Why Cisco is Selling Semiconductors Now
For decades, Cisco only made its proprietary components available as part of its equipment and software packages. Thus far, the strategy has proved successful as the firm is one of the world’s largest network technology companies. However, the marketplace in which the corporation operates has changed significantly in recent years.
Notably, Amazon, America’s largest digital infrastructure provider, has begun producing its own semiconductors. Indeed, last month, The Burn-In reported the e-commerce giant is developing a new ARM-based processor to service its clients. In the conglomerate’s reckoning, it’s more cost-effective to build equipment for its networking segment than to seek an outside supplier.
Cisco’s revenue has already begun to reflect the industries move away from outsourcing data center services. In the first fiscal quarter of 2020, its sales fell by 21 percent year-over-year. Accordingly, CEO Chuck Robbins has taken a proactive stance on recent changes in the market.
The executive told Bloomberg his firm has evolved from its stance on only offering holistic networking solutions. Now, the 35-year-old corporation is content to let organizations build their own equipment using its components. “We really want our customers to consume this technology in any way they want,” said Bobbins.
Cisco’s Prospects as a Chip Seller
With a market capitalization of $190 billion, Cisco can realistically be called an underdog. However, the corporation is now attempting to break into a market dominated by some long-established brands.
Raymond James analyst Simon Leopold told Bloomberg Broadcom represents 80 percent of the data center switch market. The industry insider also pointed out Intel has recently taken an interest in the sector. In July, the chipmaker purchased switch and software maker Barefoot Networks to diversify its components portfolio.
That said, there is one factor that might allow Cisco to secure a good market share. The San Jose, California-based corporation’s latest components combine features of both switches and routing chips. Accordingly, the firm’s product can direct large scale network traffic while still offering clients programmable functionality.
Therefore, the multifaceted nature of Cisco’s networking chips may give it an advantage with cost-conscious corporate clients. Moreover, the firm’s coming to the market with a strong and favorable brand identity. The entire industry knows its components are high-quality; they just couldn’t buy its semiconductors before.
As far as advertising goes, Cisco has a compelling message.