Cisco ends distribution deal with Dell

Later this month, Cisco will drop the company as a distributor for its networking equipment, Dell representatives said Monday. It's the second time this year Dell has been axed by a supplier after entering or making plans to enter that company's market.

Dell representatives said Cisco didn't give a reason for ending the relationship. Cisco representatives confirmed the split, but declined to comment further when contacted by CNET News.com.

But Dell's entry into new markets has ruffled feathers in the past. In July, Hewlett-Packard dropped the company as a printer distributor, citing Dell's plans to enter the printer business.

During the past two years, Dell has developed its own products and entered several new markets, including storage, information technology services and digital projectors. At least some of its models in the PowerConnect line of switches pit the company against partners, whose equipment it still resells, analysts said recently.

Since introducing its own line of network equipment, which includes the PowerConnect switches, Dell has introduced three switches that serve Ethernet Layer 2. Analysts said this market segment--the largest in the switch market--is dominated by Cisco, which enjoys about a 70 percent share.

During a recent conference call to discuss Cisco's quarterly financial results, Chief Executive John Chambers said he saw more competition coming from low-end equipment makers in the future, mentioning Dell as one example of such a company.

Cisco's move "could be evidence that Dell is making some significant inroads into the lower end of the market, and that Cisco is feeling threatened at the higher level of the market by Dell's newer products," said Brooks Gray, analyst with Technology Business Research.

Dell's PowerConnect line will likely be expanded to appeal to larger, corporate customers. Company spokeswoman Mary Fad refused to comment on specifics regarding the future of the line, however.

Dell's expansion strategy isn't making the company many friends, Technology Business Research's Gray said. Suppliers, such as Cisco, could be growing wary of being partners one day and competitors the next.

Dell's "got an aggressive strategy, and partners need to be wary," Gray said. Would-be competitors, he said, have to adjust the way their businesses are structured in order to cut costs and lower prices on their products. It's a risky move that could significantly lower profitability, but the alternative is losing market share.

"Dell has proven that even (its competitors') better features and performance aren't substantial enough to offset its lower prices," Gray said.

For its part, Dell says it will make up the networking business elsewhere, with its own equipment and gear from several other manufacturers, including Extreme Networks and Nortel.

"We're pretty confident there are other vendors out there that can meet our customers' needs," said Dell's Fad.

Fad said Dell must stop selling Cisco equipment by Sept. 27. Certain authorized transactions, designed for existing customers, must finish by Oct. 31, she said.