Cisco, HP Clash over Networking Equipment Pricing

By Jeffrey Burt  |  Posted 2009-07-13

Cisco, HP Clash over Networking Equipment Pricing

The friction between Hewlett-Packard and Cisco Systems is continuing, this time in the area of networking equipment.

Specifically, the issue is the pricing of the networking equipment. HP officials are pointing to comments some Cisco officials made during the company's Partner Summit in June as an indication that Cisco is instituting a program urging partners to meet HP ProCurve prices.

Cisco officials are arguing that while they were vehement in the "refuse to lose" message they sent to attendees of the Partner Summit, they said that Cisco wasn't ready to get into any kind of price war with HP's ProCurve networking business.

"We talked about the need to work more effectively with our partners to ensure that we bring together all of the various elements that Cisco can bring to the table to win deals and solve customer problems," Wendy Bahr, senior vice president of U.S. and Canada channels for Cisco, said in a blog post that never mentions HP by name but talks about recent news reports around the issue. "We told our partners that together we should -refuse to lose,' but let me be clear: This does not mean that we will change our winning formula. We will be sensitive to price, but we will compete through value."

Cisco and HP always have had a relationship of both competition and cooperation, but that has been heightened in recent months, most notably with Cisco's introduction in March of its UCS (Unified Computing System), which marked Cisco's foray into the data center hardware business. Cisco's move reportedly strained relations with such vendors as HP and IBM, which combined spend billions of dollars a year on Cisco networking equipment.

Soon after, HP released its own all-in-one data center offering, called the BladeSystem Matrix, which like UCS combines server, storage, networking and management software in a single package. HP in June also took another swing at Cisco with its partnership with telecommunications equipment maker Alcatel-Lucent, a move that analysts said gives HP more ammunition in the areas of data centers and cloud computing.

In her blog, Bahr said Cisco's continued focus in dealing with partners and end users will be on value rather than price.

HP had a different take on the message. Karl Soderlund, vice president and general manager of sales and marketing for the Americas for HP ProCurve, said in an interview that Cisco is putting in place a program for partners to match HP ProCurve prices, and that it's an indication that HP ProCurve is making a dent in Cisco's market share.

"This is very much a positive," Soderlund said, adding that he expects it will encourage Cisco customers to take a look at HP ProCurve products. "We wish all Cisco customers out there know about it."

Soderlund's take was backed up by some reports in which Cisco resellers say a price-match program by Cisco is in the works. However, other partners said they haven't heard about such an initiative.

Either way, Dave Passmore, an analyst with the Burton Group, said he can understand why Cisco might be turning more of its attention to HP ProCurve, given that its rival is now No. 2 behind Cisco in the network market and is gaining ground.

SMBs Key Area of Competition


They key area of competition between the two vendors is among small and midsize businesses, which is the primary focus of HP ProCurve and an area where Cisco also sells into, Passmore said. HP ProCurve relies primarily on an indirect sales channel, while Cisco also sells directly to enterprises with its Nexus line of networking gear.

"They've not aggressively [courted] the enterprise space," he said of HP ProCurve, noting that to do so, HP would have to invest significant dollars to build up a sales force.

However, Passmore said that HP ProCurve officials have been working more closely with their counterparts in the HP server business, particularly in the industry-standard ProLiant unit, which would help give HP ProCurve an avenue into the enterprise.

Soderlund also said that HP ProCurve is looking to expand into the enterprise. HP ProCurve has a traditionally strong presence at the edge of the network, but HP is looking to move closer to the enterprise.

"We're growing and evolving rapidly," he said.

For example, last year HP bought Colubris Networks, which brought enterprise-level wireless networking capabilities to HP ProCurve.

Soderlund also said the economy is working in HP's favor.

"There is tremendous opportunity for ProCurve," he said. "Customers with limited IT spend are forced to look at alternatives. Cisco is no longer the de facto choice."

In her blog post, Bahr said Cisco's partner strategy since 2001 has been focused more on the value of the solution to user rather than price. She also said that will continue to be the case during the down economy.

"We recognize that in this challenging economic environment it's more important than ever that we help our customers realize the value from their IT investment," Bahr wrote. "And at Cisco Partner Summit, we candidly discussed our passion to work with our partners to meet the challenge of competition from price- and volume-driven vendors."

However, HP is looking to keep a focus on price. Earlier this year, HP ProCurve introduced a program that rewarded users with a 20 percent discount on HP equipment if they traded in Cisco gear, and 10 percent if they upgraded their networking using HP ProCurve technology.

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