(Fortune Magazine) -- It is the buzz of the tech world: Cisco Systems may soon try selling servers, those heavy-duty computers that companies use to run critical back-office applications. The prospect of router giant Cisco's entering the already crowded $55-billion-a-year server market is intriguing (imagine if LeBron James decided to try his hand at football) but also has the potential to disappoint. (Remember Michael Jordan's ill-fated effort to play professional baseball?)With his server gambit, Cisco (CSCO, Fortune 500) CEO John Chambers appears to be targeting a very specific niche: the trendy "virtualization" segment of the server business, which is expected to grow 43% this year to $2.7 billion worldwide, according to research from Gartner. Virtualization basically is a way to make servers more efficient. Using specialized software, one computer with a hard drive and a network connection can act like several smaller computers and hard drives on different networks. When everything goes right, more work gets done with less hardware and electricity. Multiply that effect in a data center with thousands of servers, and you can see why corporate customers like it, especially in times of cutting costs. Computer maker Dell (DELL, Fortune 500), for example, believes it can cut its information technology budget 10% this year without sacrificing productivity.
Of course, Cisco isn't the only company angling for a piece of the virtualization action. Dell is trumpeting its own cost savings as a way of selling its servers - bundled with virtualization software - to customers. Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500) also offer servers bundled with technology from VMware, the leading maker of virtualization software. Microsoft (MSFT, Fortune 500), meanwhile, has launched a product to compete with VMware (VMW).
Chambers' move into servers and virtualization means Cisco, for years a nonthreatening provider of "plumbing" for corporate and telecom networks, will find itself competing with companies it once considered partners. HP and IBM sometimes sell or install Cisco equipment as part of their services operations. "These megacompanies are spreading out into each other's territories in very real ways," says Bob Beauchamp, CEO of BMC Software, which makes products that help companies manage their information technology.
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