Cisco’s Data Center Moves to Spark More M&A

Update: Last week Cisco (s CSCO) announced its move into the data center (something Om prophesied a year ago) with what it called a Unified Computing System that will compete with offerings primarily from HP (s HPQ) and IBM (s IBM). A few days later, rumors circulated that IBM might buy Sun Microsystems (s JAVA) for $6.5 billion (or that maybe Cisco should). And as these tech titans fight for supremacy of the data center, at least one analyst firm believes the end result will be even more M&A.
The way it’s likely to play out is Cisco will strive to look more like HP and IBM, while they in turn may seek to look more like Cisco, with its networking focus. A UBS report issued yesterday offers a rundown as to how this all may happen.
Networking: If IBM and HP want to take Cisco on its own turf, Juniper Networks (s JNPR) and Brocade (s BRCD) are listed as possible targets, with IBM likely to drift toward Juniper on the basis of an existing partnership with the Cisco rival.  HP could pick up Brocade and broaden its existing ProCurve local area networking switching business with Brocade’s strong storage area networking switching products.
Storage: Here’s where Cisco will try to mimic IBM and HP’s existing storage businesses. NetApp (s NTAP), a current Cisco partner, and the big fish in the storage pond, EMC (s EMC), are both potential buys (with EMC, Cisco might get its virtualization partner VMware (s vmw), too). UBS thinks a NetApp deal is more likely simply because it’s smaller. We think EMC is a bit too much for Cisco, too.
IT Services: If Cisco wants to run with the big boys it would be well advised to pick up a services business. In light of its partnership with Accenture (s ACN) thanks to its new server launch, that company seems like a decent bet, although it’s currently too rich for Cisco’s roughly $7 billion in domestic cash holdings ($4 billion of which is debt.)
Software: The UBS report names BMC Software (s BMC) as a plausible acquisition target for Cisco. BMC would round out Cisco’s data center strategy against HP’s OpenView and IBM’s Tivoli management platforms. But BMC is already a partner with Cisco, an arrangement from which it stands to gain a lot. So if you’re Cisco looking at paying a premium on BMC’s $6 billion market cap, why buy the cow when you can get the milk for free?
Update: Virtualization: With Cisco creating a tight partnership with VMware as part of its new data center push, Citrix (s CTXS) gets the nod because of its ownership of XenSource, the creator of the open-source Xen hypervisor — a VMware rival. The report assumes that Citrix’s tight relationship with Microsoft (s MSFT) means that HP, which also has good relations with Microsoft, would be a more likely buyer than IBM.