Cisco, the network giant known for its switches and routers, is selling into the competitive market for computer chips,media reported. The company said Wednesday that it is selling web chips to several well-known companies, including Facebook, Microsoft and AT?amp;T. For Cisco, the move is a big gamble. After all, over the past few years, technology giants such as Facebook and Microsoft have been aggressively designing their own web hardware and outsourcing their products to overseas manufacturers.
Chunk Robbins (pictured: Cisco official website, via Fortune)
Facebook, for example, created the nonprofit Open Compute Foundation to allow other businesses to share hardware designs in their data centers, participate in improvements, and build new servers and network devices.
As a large technology company, it is clear that you can create custom network devices that meet their specific needs, rather than buying traditional routers and switches from network giants such as Cisco.
In response, Cisco hopes to attract this group of companies that want to be “self-reliant” by selling dedicated network chips.
“We’re going to open our doors to customers who haven’t worked together before,” Chuck Robbins, the company’s chief executive, told Fortune.
Interestingly, while Cisco embraces a more open chip sales strategy, Robbins points out that the company’s main competitors will be semiconductor makers such as Intel and Qualcomm.
Although Cisco has never been proactive in building its own large semiconductor business, it has chosen to open up a small number of new businesses out of customer demand.
“Cisco’s new chip business reflects a broad trend for cloud computing providers to build custom computer chips for data center devices,” said Patrick Moorhead, President of Research at Moor Insights and Strategy.
If Cisco wants to do business with these cloud giants, it must sell more targeted network ingress than the all-in-one network ingress of traditional business strategy. After all, the largest cloud providers don’t buy their devices.
Robbins notes that as A Microsoft chip supplier, Cisco must ensure that its chip and network ingress software can be used with Microsoft’s Azure cloud computing services.
Microsoft built its own devices, customized data center designs, and provided customers with on-demand computing resources for the cloud service. Over the past five years, Cisco has designed and manufactured network chips that cost more than $1 billion.
Robbins adds: “There’s some serious scientific knowledge involved, and we need to design chips that are compatible with the data center hardware of different businesses.”
Cisco’s new chips, however, are not easy to come. In November, the company’s revenue forecast for the second quarter was weak, possibly down 3 to 5% year-on-year.
Robins told analysts at the time that part of the reason for the decline in revenue was some of the challenges posed by some unspecified service providers, particularly in China and India.
The next day, Cisco’s share price plunged 8% to $44 and has been hovering around ever since. Robbins acknowledges that in recent years, it has been somewhat difficult for service providers such as electrical appliances.
Even though the hype of 5G technology is already on the air (and will provide a much faster experience than 4G LTE), operators are in no hurry to upgrade their existing infrastructure immediately.
But as the corporate strategy shifts, Cisco hopes that the transformational new chip sales business will provide a boost, after all, the industry needs to be motivated to upgrade and build the next generation of backbone networks.