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Wednesday, September 19, 2012

Cisco Plans Exit From Market Dominated by Smaller Players

By Drew FitzGerald

Cisco Systems Inc. (CSCO) confirmed Tuesday it will stop making new versions of its load-balancing products for data centers, ceding a small part of its business to competitors that specialize in the technology.

"Cisco routinely reviews its business to determine where it needs to align investment based on growth opportunities," a spokeswoman said in an emailed statement. The San Jose, Calif., company said it based its decision on its assessment of "the data center market, which is undergoing a fundamental transformation within virtualization, cloud, and new service delivery models."

Cisco's decision to stop developing new generations of its Application Control Engine load balancers will only touch a slice of its massive top line--which reached $46.06 billion during its latest fiscal year--though the move affects a much larger market for companies like F5 Networks Inc. (FFIV), which specializes in load balancers and other performance-enhancing technology.

F5 shares jumped 4.2% on the news to $108.80, while Cisco shares were recently off 5 cents at $19.11 Tuesday.

Load balancers help make data centers more efficient by directing and compressing information to keep bandwidth bottlenecks from slowing down servers' performance. The technology, delivered through physical appliances or as software, ultimately helps data-center operators control costs.

Topeka Capital Markets analyst Brian White said Cisco's decision benefits companies like F5 and Citrix Systems Inc. (CTXS) which could gain more share from Cisco's exit and potentially partner with the network-gear maker. Cisco's share of the market was already declining before it decided to exit the business, he said.

"It should be no surprise that Cisco has now decided to stop investing in future load-balancing products and focus on partnering with best of breed companies in the space," Mr. White wrote in a note to clients

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