• By
  • Don Clark

Cisco Systems did not get a lot of cheers when it began selling server systems, an often low-margin business where the company wound up competing with longtime partners. After two years, there is now evidence the effort is having an impact.

The research firm IDC late Tuesday for the first time included the networking company in its quarterly estimates of server sales. Cisco accounted for only 1.6% of total server revenue in the first period, but was a much bigger force in a hot sub-segment of the market.

That would be blade servers, which typically plug into a chassis in a compact vertical arrangement–like books on a shelf, rather than horizontally stacked in a rack, like pizza boxes. Cisco sold more than 17,000 blade servers in the first quarter, IDC estimates, accounting for 6.6% of worldwide shipments.

Derick E. Hingle/Bloomberg News
Cisco Systems Inc.’s Unified Computing Systems B250 Blade

Cisco grossed $171 million in revenue from blade servers in the period, IDC estimates, accounting for 9.4% of the market. That moved the company past Dell to place third in the category, behind No. 1 Hewlett-Packard and IBM, which placed second.

The company calls its blade server line the Unified Computing System, and says it comes with technology enhancements for what the industry calls “virtualized” environments–in which servers run multiple copies of operating systems and application programs, rather than being assigned one primary task.

“Today’s market share news demonstrates our approach is taking hold,” wrote Soni Jiandani, the Cisco vice president in charge of the product line, in a company blog post. She noted that Cisco disclosed in its recent earnings call that it has 5,400 customers for the product line and an annualized order run rate of $900 million.

The gains by Cisco–which can use some good news, after some self-confessed miscues–reflect a broader trend: customers are concluding that more costly, beefed-up servers can be more economical in some circumstances than buying a greater number of less-expensive machines, said Jed Scaramella, an IDC analyst. Cisco’s machines, for example, average around $9,000 each, more than double the norm, he estimates.

“It used to be very commodity, about low cost,” Scaramella said of the server market. “That sort of ran its course.”

The point was reinforced by another report on the market Thursday by Gartner, a competing research firm. Where it has often been common for unit server shipments to grow faster than revenue–reflecting falling pricing–the reverse was true in the first period. Gartner said shipments grew 8.5%, while revenue grew 17.3%.

Both firms say H-P retained the No. 1 position in total server revenue in the quarter, followed by IBM, Dell, Oracle and Fujitsu, in that order. IBM and Oracle were the biggest market-share gainers in the period, Gartner and IDC said.