Cisco and HP part ways, end partnership

In a move that perhaps seemed inevitable as the one-time strong partners began to butt competitive heads more and more in the data centre, Cisco Systems (NASDAQ: CSCO) and Hewlett-Packard (NYSE: HPQ) have ended the last vestiges of their partnership.

In a video blog, Keith Goodwin, senior vice-president of Cisco's worldwide partner organization, confirmed Cisco was ending its system integrator contract with HP when it expires on April 30th, ending HP's role as both a Cisco Certified channel partner and a Global Service Alliance partner. HP also made a move to back away from Cisco, disclosing an agreement to resell QLogic Corp.-developed 8Gbit/sec Fibre Channel switches, an offering HP formerly sourced from Cisco.

In his video, Goodwin said that in recent years, Cisco and HP have begun to develop differing visions of how to deliver value in the data centre, leading to increased competition between the companies that led to the decision to end the partner relationship.

"Being a Cisco Certified Channel Partner has numerous benefits including access to proprietary information (such as product roadmaps) and partner profitability initiatives," said Goodwin. "Given the evolution of our relationship it simply no longer makes sense to provide these benefits to HP."

Cisco declined to comment on the move beyond Goodwin's statement. HP Canada declined a request for interview, but did provide CDN with a statement saying history has proven that customers and the market demand both co-opetition and collaboration between IT vendors and that most major players compete in one deal and partner in others to best serve clients' needs, adding HP doesn't believe it's in the customer's best interest to take a proprietary stance.

"We will provide clients with consulting, integration, management and support services for their heterogeneous environments and ensure that our hardware and software platforms are optimized for all leading networking platforms," said HP. "Our strategy and platforms will continue to be market driven to create advantage today and into the future for our clients."

Competition between the two companies, once erstwhile partners, has become heated in recent years. HP's expansion of its ProCurve networking portfolio, and its acquisition of networking equipment vendor 3Com late last year have seen the vendor take direct aim at Cisco's market. And with moves such as its Unified Computing System (UCS) and its expanding data centre vision, Cisco has also been moving into HP's bread and butter. Executives from the two vendors have also been waging an increasingly pointed war of words.

Still, the ties between the two companies run deep, particularly on the services side. In Canada, HP is Cisco's largest partner. And particularly with the former EDS business within HP, HP has a lot of Cisco customers to support. Goodwin said Cisco will honour those service contracts for their duration, and has reached-out to HP to work on a "new agreement that ensures business continuity for existing customers and better reflects the current state of our relationship," but the future remains unclear.

If there's a big winner from Cisco's move, it could be partner Dimension Data. Adam Jura, a senior analyst with Ovum, said it's clear that HP needs Cisco more than Cisco needs HP, and with Cisco's 3com acquisition and QLogic partnership likely to take time to bear fruit, there's an opportunity for Cisco's other partners, such as Dimension Data, to capitalize on the void.

"Cisco will need to be able to have better business value conversations with clients, as HP has been clearly superior in this area. With this change in direction, Cisco will still require someone to implement its products going forward," said Jura. "Hence, the major winners out of this will be the remaining partners, in particular Dimension Data, which is continuing to impress in its performance in the Cisco products and solutions implementation space. In light of Cisco's strategy of enabling versus competing against partner services offerings, expect, in particular, DiData to be blessed with more attention from Cisco going forward."

Many unanswered questions

Paul Edwards, director of SMB and channels research with IDC Canada, said he was surprised by Cisco's decision to drop HP. While the two companies have been butting heads more and more, he noted such "co-opition" is far from uncommon in the IT industry.

"We need more details," said Edwards. "What does it mean when they've basically taken away their partner status, yet they're talking about continuing to work with HP within accounts?"

However, Edwards said the move shouldn't impact the VAR channel relationships for either companies. Cisco partners will likely continue to lead with Cisco, and HP partners with HP, but those partners with feet in both camps could face some pressure from the two vendor.

"It's up to each of those vendors to take those partners and try to get them as the lead networking equipment provider," said Edwards. "It might get tricky."

The decision to drop HP was seen as largely inevitable by James Alexander, senior vice-president, Info-Tech Research Group, calling it a bit of a proverbial closing the barn door after the horse has left, given the increasingly fierce competition between the two companies.

"I think for both sides it signals a growing recognition in the IT community that data centres are being re-engineered and that the transport layer of the data centre is an integral part of how next-generation data centres will be designed," said Alexander. "Both companies clearly have a strategy to implement that, and HP is moving into the networking space as quickly as Cisco is moving into servers and storage."

It remains to be seen how it will play-out on the services side. Noting, however, that 10-years post-Y2K there is a massive infrastructure renewal opportunity looming, it is an opportunity for HP to gain market share for its own infrastructure offerings via its enlarged services business. However, he notes HP should also be leary, as it's an opportunity as well as for competitors such as IBM to fill that void with Cisco offerings.

"There is a tipping-point, and the data centre is up for grabs," said Alexander. "It's game on."

Partner reaction is mixed

The reaction from Canadian VAR partners of the two vendors to the news is mixed. Ottawa-based PureLogic IT Solutions is both an HP and a Cisco partner, and president Coreen Bouchard would like more information from both vendors on what this all means.

"PureLogic IT resold HP Blade Centre, which has many Cisco networking modules. We procured it from HP and it worked really well for us and our customers," said Bouchard. "This decision will have an effect on our customers. I would like to know what happens next in terms of an exit strategy and support strategy. I really need to know.

For David Chow, president Ottawa-based Stoneworks Technologies and also both an HP and Cisco partner, the parting of Cisco and HP comes at a bad time as his company moves into unified communications.

"While I understand this move because it creates competition, I also believe that it was creating brand loyalty in the channel. What they are doing is creating some bad feelings towards those who rep both sides," said Chow. "They're forcing us to choose one or the other and quietly putting pressure on the reseller to go with us or them. I do not think it's fair to ask those who make sales for these companies to do that."

It's seen as a good move though by Pierre Salbaing, owner of Montreal-based Services Avance Reseaux, a Cisco gold partner, who calls it a courageous decision for Cisco to drop a company that may be its largest worldwide UC reseller.

"What it means is that HP has real competitive solutions to Cisco and it may signal to partners that there's another networking and services player up against Cisco. It could be a good plan B," said Salbaing. "This is a rare decision for a company like Cisco who embraces partners like no other. To make a change to its partner base like this one it says that HP has maybe the best option against Cisco.

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