When Cisco Systems (s csco) announced plans to enter the enterprise server market, no company stood up and took notice more than Hewlett-Packard (s hpq) — the HP ProLiant line of servers, after all, is a force in the enterprise market; Cisco’s entrance was essentially a declaration of war on its former partner. To paraphrase one of my favorite characters on “Lost,” “They changed the rules.” Now, HP must change the rules again, for in order to win this war they are going to have to first win numerous strategic battles, and for that they’ll need to start shopping.
HP needs to first realize that the focus of this war is the enterprise IT market. As far as the other markets Cisco serves, service providers are already being flank attacked by Huawei, Juniper (s jnpr), Alcatel-Lucent (s alu) and Ericsson (s ericy), to name just a few, while DLink, Netgear and dozens of others are busy in the Linksys consumer markets.
HP needs to think about the markets their enemy is headed toward, not where it has been or is today. They need to think about what the IT marketplace will look like in 2-3 years, when CIOs could actually have budgets again. Startups are where the innovating ideas of tomorrow are already being developed, and for many of these companies, their price tags may never be this low again.
So, which startups should HP acquire? If it’s looking to make gains at the expense of Cisco, the list is as follows:
Cavium Networks: This Mountain View, Calif.-based startup builds intelligent processors for networking functions such as compression, encryption and data acceleration. Notably, however, Cisco is a major customer of Cavium’s, so I imagine they’re contractually obligated to provide Cisco processors for many years to come.
Arista Networks, Blade Network Technologies or Force10/Turin Networks: While HP’s ProCurve line of switches has become a significant player in the enterprise data networking market, it needs to have a winning 10/100 gigabit Ethernet switching product line. Each of these startups have Ethernet switching technologies that could help HP aggressively attack Cisco at the core of the data center network.
DataDomain, StorWize or Ocarina Networks: Storage optimization is the emerging technology that CIOs need in order to cost-effectively deal with the mountains of data that enterprises store over long periods of time. With an $800 million market capitalization, DataDomain may be too large of an acquisition right now, but both StorWize and Ocarina Networks are just the right size.
BlueCoat, Zeus Technology and Strangeloop Networks: The application delivery market, focused on making applications run faster and optimally, is a battlefield strewn with many players. While HP recently inked a partnership with Riverbed (s rvbd), this is merely a shot across the bow. HP needs to acquire in this area, and although market leaders F5 (market capitalization of $2 billion) and Riverbed (market capitalization of $800 million) may be too expensive, BlueCoat, which has a $400 million market cap, may give them the firepower they need. Likewise, startups focused on the next generation of application delivery such as Zeus Technology and Strangeloop Networks would provide the necessary weaponry.
Nirvanix or Parascale; Rightscale or Elastra; SkyTap: Most of the companies in the enterprise cloud computing space are still privately held, so this may be the ideal time to make decisive acquisitions. HP should acquire companies focused on helping enterprises reach storage and compute power in the cloud in a scalable manner, those enabling what I call the Cloud Two-Step. In the storage battleground, HP should move to provide outsourced storage clouds, perhaps by acquiring Nirvanix, or allow enterprises to build internal storage clouds by buying Parascale. In the compute cloud market, HP needs to acquire a company such as Rightscale or Elastra. To help enterprises build and scale applications, SkyTap, which provides testing resources in the cloud, would make a compelling acquisition.
To win the upcoming war, HP needs to pick its battles carefully and strike quickly. For the past decade, Cisco and HP have had a cold war alliance –- Cisco claimed enterprise IT networking while HP focused on enterprise servers and compute. Both companies have been rewarded with exceptional market capitalizations. Now that Cisco has broken that alliance and declared war with their enterprise servers, HP must respond. I suspect bloodshed will soon ensue, so HP should move quickly — or risk losing the war before the first shot is fired.
