Infonetics Research: Data Center equipment takes hit in 1Q13! Cisco Insieme: "application-centric infrastructure"

“Following 2 strong years of investment, growth in the data center equipment market is starting to slow,” notes Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics Research. “While the near term outlook remains positive, ultimately we think the market is headed for a peak, as data center operators improve infrastructure utilization, and adoption of cloud services moves hardware consumption from enterprises to large-scale data center operators.” 

Infonetics Research reported that Worldwide revenue for data center network equipment (data center Ethernet switches, ADCs and WAN optimization appliances) declined 11% sequentially in 1Q13, to $2.3B.

So all this hype about SDN, Network Virtualization, Disaggregated Network OS, bare metal/commodity switches, etc for the “new Data Center” will likely be a smaller total market than the new stakeholders thought!  That means many start-ups will go belly-up, similar to what happened after the Dot Com/fiber optic boom went bust!

Insieme is Cisco’s response to the SDN competitive threat to it’s switch/router business. It’s reported to be a network-based system that will orchestrate security and network services out of the gate, as well as storage and compute down the road.  Insieme Senior Vice President of Marketing Soni Jiandani said the company is building an “application-centric infrastructure” that will make the network reactive to applications. The technology will “orchestrate and integrate networks, security and network services that need to be delivered to applications,” she said.

This will be extended to accommodate storage and compute eventually. The technology will use a common policy operational model that is exposed via a unified API and supports standard interfaces like JavaScript Object Notation and XML, Jiandani explained.

Light Reading on Cisco’s Insieme:

Cisco’s Insieme Doesn’t Like Your SDN Model Neither fish nor fowl, Cisco’s Application-Centric Infrastructure seems built to address so-called shortcomings of two main software-defined networking (SDN) camps. 

There are two widely discussed architectures in software-defined networking (SDN) — controllers and overlays — and Cisco Systems Inc. spin-in Insieme Networks Inc. doesn’t want to go with either of them.
  • The overlay model involves virtual networks being created and destroyed at will on top of the physical network. That’s what Nicira Networks Inc. (owned by VMware Inc.) and startup Plumgrid Inc. are doing.
  • The controller model uses a centralized element or elements to make packet-forwarding decisions; this is how OpenFlow works, and it’s what Big Switch Networks and many of the incumbent equipment vendors have been pursuing.
What makes these models so 2010 is the issue of running everything in software, Insieme and Cisco claim. Some visibility is lost; you can’t always tell what overlay networks are being created, for instance. And Cisco claims both approaches hit performance limitations at scale, although plenty of SDN startups and non-startups have been working through that issue.   The big problem, Cisco claims, is that these models create new operational problems. For example, virtual structures like firewalls and load balancers don’t always get taken down when their jobs are over. The network gets speckled with virtual elements “that everybody’s afraid to touch because no one knows which parts are no longer needed, Limkakeng says.  Read more at:

Here is what FBR’s Scott Thompson wrote about Cisco’s new Data Center Strategy:

Cisco Live! provided a view into the next wave of network innovation, particularly in the datacenter. The overwhelming takeaway is that the company appears to be transitioning to new architectures that place applications and their performance as the primary driver of networking while simultaneously lowering TCO and ease of use. The company released another round of new products that continue to consolidate multiple product families into one platform, but the most significant announcements focused on the datacenter.

Two products that seemed to dominate the spotlight were Cisco’s new datacenter switch, the Nexus 7700, accompanied by the new F3 switching blade, as well as an introduction to application-centric infrastructure, which Insieme appears poised to deliver. Both products are expected to be available by 4Q13 and should help to provide a bridge as management works to transition to a more software-based business model.

■Dynamic Fabric Automation delivers virtual-less automated provisioning to the datacenter edge. Cisco announced a new datacenter fabric that delivers automated provisioning across a leaf and spine (two-tier) architecture. The
fabric also delivers Layer 2/3 hybrid functionality to the network’s edge. The technology stops short of the automation achieved from ALU’s Nuage and Juniper’s Contrail solution but also helps to automate network provisioning. These features are likely to further blur the lines between routing and switching but provide enough near-term differentiation to offset a portion of the pricing pressure in the datacenter and service provider sectors.

■ Insieme has potential; more details in coming months. Cisco dedicated a significant amount of time on June 26th to the introduction of Insieme. The new platform was positioned as a game-changing technology that will usher in the age of the Internet of Everything with very little help from SDN or traditional virtualization technologies. While short on details, Insemie (=Italian for together) laid out a plan to combine several different functions of today’s IT datacenter and networking platforms into one application-centric architecture.

In a nutshell, the product is moving the company toward service-oriented rackscale architectures. Cisco indicated it would release additional Insieme details in coming months and have product available end-of-year 2013.

■ Focus begins to shift from product to sales. For nearly two years, Cisco appears to have been focused on striking a balance between driving margin out of legacy platforms and launching new, more efficient products without affecting
margins. The focus now shifts to Cisco’s formidable sales and marketing machine to convert the product into additional revenue growth. We expect the product portfolio it has announced is nearly certain to ignite a significant
near-term upgrade cycle within the enterprise customer base, which accounts for approximately 45% of Cisco’s revenue. To us, it remains unclear as to what extent the hyperscale and service provider businesses, which represent the
largest source of revenue growth and more than 45% total revenue, may adopt Cisco’s new platforms.

Q: When will Asia based competition affect Cisco’s performance?
A: While Huawei Technologies Co., Ltd. has been unable to gain a foothold in North America (due to the impact of the attached stigma from the stance of the U.S. House Subcommittee on Cyber Security), without the EU taking a firm stand with the U.S., we expect Cisco has more revenue at risk in China than Huawei has in the US.

Q: Will new and unexpected entrants into the data networking space take share from Cisco?
A:  There are significant technical and strategic shifts affecting the IT landscape. We expect Cisco to be threatened, and we expect these to become threats to an increasingly large number of IT players as technology shifts drive the industry toward consolidation. It will likely take 2 Years+ to have a significant impact on Cisco.