Cisco released its 1st quarter financial statement last week, and the numbers weren’t pretty. But this shouldn’t surprise too many, since the company warned the financial community that the revenue growth was going to be below their expectations. Unlike most, I see this as more of an inflection point in an undulation that swings back into a growth mode that comes with a change in strategy than a parabolic upside-down curve. While there are multiple transformations starting to occur in the networking domain, the Cisco Doomsday-ers seem to solely focus on software-defined networking and the creation of cloud infrastructures; they assume the data center of the future will look like Google’s data centers, even though no one truly, outside of Google, knows how it really runs or what the components are.
For argument’s sake, let’s assume every data center (private or XaaS platforms) will be a Google data center full of white-box components and Cisco’s high margin/feature switches will disappear. Does this mean Cisco becomes irrelevant or loses its position as the 800 lb. gorilla in the networking industry? Heck no. What clearly is being missed by most of the world is the incredible transformation starting to materialize outside the data center. And no, it isn’t the presence of mobile devices. That is today’s transformation that changed the consumer. The business will catch up. Tomorrow’s emergence of Internet of Things (IoT) will enable the business to meet its consumers’ desirers, and Cisco sees it already. Cisco could lose every port in the data centers and still be ahead if you look at where the amount of port growth and network revenue will come over the next 10 years.
To make this an easy and relevant concept, let’s examine the typical North American or European home, which has one Internet connection with a consumer router and built-in access point that provides on average 8 or so connections (wired and virtual wireless ports) for printers, TVs, mobile devices, etc. Over the next 10 years, we will see the amount of devices needing network connections mushroom to over 400 ports servicing air duct register actuators, security cameras, light bulbs, door locks, and window tint, soil moisture, and mineral sensors, to name few. Even though a lot of it will occur over wireless, a single consumer’s AP won’t suffice. That network or network devices will need a sophisticated set of security, resilience, and acceleration services, and those are inherent characteristics of those devices.
While 40X more connections may not seem like a lot, the home is a microenvironment compared to a typical enterprise; businesses could see two or three magnitude higher order in the amount of ports serving the company. Plants are being built with tens of thousands of flow, heat, pressure, and other sensors and with Ethernet connections feeding information to process engineers located on the side of the world. With this in mind, the relevance of data center ports will become irrelevant if they account for less than a quarter of the total ports in a typical enterprise infrastructure. With virtualization and other technologies, this percentage will only decrease for enterprises, as highlighted in JP Morgan’s infrastructure report.
Taking this into account, if Cisco lost all the data center network business to white-box switches, Cisco will still remain the networking juggernaut vendor responding to the tsunami of IoT; white-box switches won’t be the answer. Unlike data centers, where there is a perfectly controlled environment with a standard set of factors, the edge of the network at a manufacturing site, hospital, retail store, or power substation is a complex, harsh, and dynamic environment where virtualized network functions sitting on server or Linux software on a Broadcom switch won’t cut it. If you don’t believe me and you work for a pharmaceutical company, for example, I would ask your next white-box vendor how they are going to support PROFINET IO, ISO 14644-1, or Code of Federal Regulations Title 21.