Cisco Systems, Inc.(Public, NASDAQ:CSCO)

Mon Jan 19, 2009 8:40pm EST

NEW YORK (Reuters) - Cisco Systems Inc plans to start selling servers equipped with virtualization software as early as March, The New York Times reported on Monday, a move that could position it for tough competition with Hewlett-Packard Co and IBM.

The report, citing people with knowledge of the company's plans, said Cisco aims to sell a server combining hardware and virtualization software from Cisco and VMWare Inc, in which Cisco holds a small stake.

Cisco's move into the server market has long been a target of speculation, with technology websites over the past few months calling it by the code name "California."

Company officials were not immediately available for comment.

Analysts have said a new server product is likely to be aimed at data centers, which Cisco has identified as a key growth area as an explosion of consumer-generated content and a shift to Web-based software in business operations has meant increasing data traffic.

But analysts have also said it could be a difficult move, noting that it would turn IBM and HP, with whom Cisco partners in selling its other network equipment, into rivals.

Cisco, the world's biggest network equipment maker, has been expanding into a wider range of products and services, as growth slows in its traditional routers and switches business.

Its expansion into unified communications systems, which tie together e-mail, phones and other tools over Internet networks, has already led to greater competition with another partner, Microsoft Corp.

(Reporting by Ritsuko Ando; editing by Gary Crosse)