March 16, 2009

It's been a long time since servers were a sexy topic in tech circles. These powerful computers that run corporate data networks make up a market that was red-hot in the 1990s and has since settled into a plodding shoving match amid IBM (IBM), Hewlett-Packard (HPQ), Dell (DELL), and Sun Microsystems (JAVA). But the computing industry is once again buzzing over servers—this time from a new entrant, Cisco Systems (CSCO).

Cisco's device, dubbed Project California, takes servers into new territory by cramming computer power into the very box that contains storage capacity and the networking tools that are Cisco's specialty. Demands on data centers are rising as jobs move from PC software to the Internet and customers are looking for more efficient ways to build those data centers. Today companies must cobble together thousands of discrete servers, storage banks, and networking products—a time-consuming, complex arrangement that often leaves a lot of capacity unused and sends power consumption through the roof.

Cisco's approach could help companies use fewer machines—saving money not only on hardware, but also on power and IT staffing. Cutting costs is paramount as the demand slump compels companies to slice budgets. San Jose (Calif.)-based Cisco is due to unveil details of the new devices on Mar. 16.

If it works, Project California could also disrupt the very structure of a corporate computing market in which Cisco has traditionally acted as a partner rather than competitor to the big server makers. For decades there was more than enough room for growth within separate gargantuan niches, letting Cisco focus on the switches and routers that direct network traffic while other manufacturers concentrated on the computers that process and store users' requests. But with the economy in shambles and growth not likely to return for years, tech titans have increasingly been eyeing each other's territory. Project California is a clear sign that Cisco is invading in a big way. "They are clearly crossing the Rubicon, and they are now in direct competition with these other large tech companies," says Kevin Johnson, CEO of networking rival Juniper Networks (JNPR).

Cisco is well-girded to take this step. It has more than $30 billion in cash, more than any other tech company. CEO John Chambers prides himself on taking advantage of tech slumps to widen share and expand. The company is moving into no fewer than 28 different markets, including digital music in the home and public surveillance systems.