Thomas Weisel Reports Cisco Layoffs

Cisco has yet to respond, but research analysts at Thomas Weisel Partners report that the rumors of layoffs at the network behemoth are true.

If Thomas Weisel is correct, Cisco will slash as many as 2,000 jobs to reduce operating expenses during the continuing global recession, which has caused the company’s customers to reduce or defer expenditures.

Cisco’s layoffs would reduce operating expenses by $200 million to $250 million a year, part of the company’s broader goal to cut annual costs by $1 billion, according to Thomas Weisel.

This news, particularly as it suggests the worldwide economic downturn continues to eat into the revenue and profitability of technology bellwethers, could lead to a renewed chill on technology stocks as the second-quarter earnings season begins.

Rumors of Cisco Layoffs Redux

Cisco is rumored to be executing layoffs this month, and not just of janitors.

Substance Might Lurk Behind McAfee Takeover Rumors

Rumors that McAfee might be acquired have been on a low boil for some time, but they heated up markedly toward the end of June.

About then, McAfee’s stock hit a ten-year high while Pacific Crest analyst Rob Owens speculated that the computer-security mainstay might be an acquisition target.

These rumors might be nothing more than hot air, but there’s reason to believe a modicum of substance might lurk behind them.

For one thing, McAfee has done a good job of battling back from self-inflicted oblivion. Perennial second fiddle to Symantec in most consumer and enterprise security markets, McAfee fell way off the pace earlier this decade. It has regained its stride, though, especially in SMB and enterprise markets, where the company has bolstered its product portfolio through acquisitions and renewed focus.

Symantec still retains a sizable lead over McAfee and everybody else in security software for the consumer market, but that market is vulnerable to Microsoft Security Essentials, free anti-malware software whose beta run was quickly oversubscribed.

At least some early reviews of Microsoft Security Essentials have been favorable, and Symantec and McAfee are exposed to any market-share incursions Microsoft can make in the consumer space. That is particularly true in emerging markets, where consumers largely have not made a previous commitment to an antivirus vendor.

Getting back to the enterprise market, though, McAfee has done well claw back at Symantec and others. It also has established interesting strategic partnerships, including one with HP.

In addition, McAfee and HP have established alliances or partnerships in secure data-center networking (HP ProCurve), SMB markets, virtualized storage, compliance, and enterprise-wide security solutions.

As HP begins to get serious about taking market share from Cisco in enterprise networking — as well as in enterprise servers, storage networks, and the virtualization of the data center — it could be thinking there’s more than one reason to get closer to McAfee.

MatlinPatterson’s Nortel Squeeze Play

Nortel’s astonishingly dramatic disintegration, preceded by years of pathological dysfunction and executive-level incompetence — not to mention egregious neglect from a docile board of directors — is like a horrific, slow-motion car crash that draws the morbid fascination of rubber-necked onlookers.

In the form of leveraged buyout firm MatlinPatterson Global Advisors — described by some as a “vulture fund,” which doesn’t seem an approbatory sobriquet — we now have ambulance-chasing lawyers on the scene of the wreck, looking for a way to squeeze some money from the tragedy.

Ostensibly, MatlinPatterson is portraying itself as Nortel’s savior, a white-knight acquirer that will save the company from the fate of dismemberment and divestment of its faltering business units. Is that really what MatlinPatterson is trying to accomplish, though? Are they a noble defender of all that was great and good about Nortel?

Let’s get a few things straight.

Essentially, MatlinPatterson is a chop shop. It doesn’t build companies. Instead, it buys distressed assets, of which Nortel undoubtedly qualifies, dresses them up and tries to extract as much as possible from subsequent buyers.

What’s more, MatlinPatterson holds $400 million in Nortel bond debt, giving it a significant vested interest in Nortel’s ultimate disposition as a salable property or properties.

As a substantial Nortel debtholder, MatlinPatterson was dissatisfied with the $650-million bid that Nokia Siemens Networks made for Nortel’s wireless assets, which account for about 25 percent of the company’s sales and include its CDMA and LTE technologies and patents.

Nortel’s executive team and board are committed to selling not just its wireless business unit, but also its Metro Ethernet and enterprise assets. Once those are gone, that’s it, the show is over.

Clearly Matlin Patterson believes the market, as evidenced by the bid from Nortel Siemens Networks for Nortel’s wireless assets, is not adequately valuing what Nortel has to offer.

As a debtholder in a company that is moribund, MatlinPatterson is playing the grim hand it has been dealt. Pay no attention to MatlinPatterson’s hollow rhetoric about reviving Nortel and bringing it back to a semblance of glory. It’s too late for that, and MatlinPatterson, shrewd exploiters of distressed assets, know precisely what time it is.

“It’s very much a Humpty Dumpty story and we’re beyond the point at which anyone can hope to keep all of the various pieces together under Nortel’s banner,” said Carmi Levy, an independent technology analyst based in London, Ontario.

“I think what they (Matlin) are trying to do is they are trying to measure the market for what the potential value would be for wireless, for Metro Ethernet and for enterprise,” said Levy.

Indeed. That’s exactly what’s happening.

MatlinPatterson is trying to get more from Nortel Siemens Networks, and it’s also positioning to get more from the tire kickers that have been warily circling Nortel’s enterprise and Metro Ethernet assets.

MatlinPatterson isn’t serious about engineering a Nortel comeback, but it is serious about trying to salvage as much as it can from a fallen company in which it has significant exposure.

With Designs on Consumers, RIM Faces Tough Fight

For years, Research in Motion has made its reputation and its money with its line of BlackBerry smartphones, which overwhelmingly are used for business messaging, primarily email.

RIM, first to market with elegant “push” email to mobile devices, supported by the enterprise-grade encryption and corporate email integration of its BlackBerry Enterprise Server (BES), quickly established technology and market leadership over Microsoft and others in mobile business messaging.

Now, though, to drive further market growth and support the upward trajectory of its stock price, RIM has been determinedly seeking to expand beyond mobile business messaging. It has designs on the consumer space, where email is a secondary concern (if a concern at all), and where sleek product design, seamless support for video and audio, and — above all else — consumer-oriented applications and content drive adoption.

While RIM leads technologically and in the marketplace in the realm of mobile email for business users, it is not a dominant consumer brand. Apple — and even Nokia and Samsung, among others — have more strength as consumer brands.

There’s no question that the iPhone is coming on strong in the smartphone space, with the market surge predicated on the strength of Apple’s consumer-friendly AppStore — packed with more than 50,000 third-party applications, the vast majority of which are consumer-oriented, and its more than one billion downloads. RIM remains ahead of Apple in smartphone market share, but one could easily contend that RIM has less growth ahead of it than does Apple.

So, RIM is making its consumer push with the BlackBerry, introducing new BlackBerries, designed with consumers rather than business users in mind. The key to RIM’s consumer success, however, will be whether it can win the hearts and minds of developers and creators, which provide applications and content to consumers, respectively.

That’s why RIM’s BlackBerry App World is so crucial to its consumer success. RIM has approximately 2,000 applications on App World, a far cry from the comparatively astronomical number accrued on the App Store for the iPhone. What’s more, while RIM has attracted some consumer applications to the BlackBerry App World, the site still has more of a business skew, in tone and substance, than does Apple’s App Store.

RIM has considerable work to do if it is to match Apple and others in considerable appeal. It’s early for the BlackBerry App World, of course, but Apple isn’t standing still, and the iPhone and other devices likely will have more cache in developing markets.

Applications and content will drive consumer adoption of next-generation smart phones. RIM has a tough fight ahead.

Questions in Air at Allen and Co. Media Summit

I just wonder, after years of feting MySpace and Facebook and Twitter, whether the media industry’s largest companies and their investment bankers will realize that most Web 2.0 entities are muddled fringe players.

The next well-hyped social-networking site probably isn’t the prescription for all that ails the media industry, which admittedly needs to think carefully about the creative and not-so-creative destruction that technological innovation has wrought.

Such introspection and deliberation, however, are unlikely to lead to acquisitions of dodgy startup companies that have no idea how to generate revenue or profits.

The big media companies — most of them, anyway — still possess brands that have greater commercial value than anything a Web 2.0 startup could bring to the table. In most instances, the ideas and technologies behind those web startups are not patentable intellectual properties. Barriers to entry are minimal, and sustainable technological advantage usually isn’t a practical consideration.

The solutions to many of big media’s problems can’t be bought from boutique investment bank. Media’s titans need to think through their dilemmas, realistically look ahead at how demographics and technological evolution will continue to roil their once-peacebale waters, and then devise practical strategies that leverage their brands and partnerships to best effect.

They can remedy at least some of the problems they created for themselves. They don’t need to throw money at media neophytes who will bring a different set of problems along with them.

Viable Product or Service First, Then PR

The New York Times ran a feature article today in its business section ostensibly about how the nature of public relations has changed in an epoch no longer dominated by print and broadcast media.

In the era of Web 2.0 phenomena such as Facebook, Twitter, and blogging, public relations must adopt new strategies and tactics to remain relevant and effective, reporter Claire Cain Miller suggested.

It’s an interesting thought, and there’s some merit to the argument.

But to these jaded eyes, the story seemed a cleverly devised advertising vehicle for Brooke Hammerling and her company, Brew Media Relations. As the story unfolds, the writer grapples less with big questions about media and promotion and focuses more on how Hammerling seems to know everybody in Silicon Valley and beyond.

Still, at one point in the story, light shines through. Talking about a company called MobShop that she promoted in 2001, Hammerling notes that it got “more press than I’ve ever seen,” but that it still died.

Said Hammerling:

“It shows that P.R. can’t be the end-all and be-all,” she says. “Everyone knew who they were, but at the end of the day, they couldn’t make any money.”

Whatever one thinks of the remainder of the story, that’s a nugget to take away and remember.

One can attempt to polish and shine a ball of dust, but it will never be a diamond. Similarly, technology executives can mount an aggressive public-relations campaign, getting somebody such as Hammerling to attract the notice of various industry grandees and media potentates, but public relations – no matter how it’s executed –cannot and will not, in and of itself, make a technology business successful.

Public relations, whether aimed at new-media bloggers or old-media newspapers and magazines, can help spread the word about a new product or service; but it is incapable of creating a good product or service.

At the end of the day, a company must have a product or service that delivers value to customers, be they consumers or businesses. If it doesn’t have that, all the PR in the world won’t make a difference.

Yes, PR can draw attention to a company, and to its product or service, but that’s all it can do. Once customers investigate the company in question, they’ll make their own decisions as to whether the product or service on offer has value or utility. If they decide the offering is irrelevant to them or of poor quality, the PR payoff will have been negligible and fleeting.

Even Web 2.0 companies need to keep that in mind. Before launching the PR salvos, they should start with a well-defined product or service that delivers tangible value to a clearly identified target market, sometimes known as cusotmers. They should do the market research, submit to the discipline of rigorous product management, and come up with a well-qualified creation. Then, they ought to try to devise a sustainable business model, one that ensures ongoing revenue and profitability. This tends to be the hard part, especially for Web 2.0 companies, as evidenced by the chronic business-model struggles of putative success stories such as Facebook and Twitter.

When all that is sorted, these fledgling companies will be ready to take their messages to the world, or to that part of the world that will care about what they’ve created. Then, and only then, should they unleash the media-relations hounds. If they make that move too early, they might get some exposure, which tends to gratify egos, but they will not see meaningful business benefits.

After all, nobody wants to end up like MobShop.

Radware Changes Americas Leadership Again

Radware, a vendor of application switches, has announced that Ramesh Barasia will take over as its president of the Americas.

As noted at Morningstar, Radware tends to depose its Americas leadership every couple years, so Mr. Barasia might just be the latest in a long line of executives who fail to achieve market prominence for Radware products in those still-key markets.

That said, Morningstar takes a guardedly optimistic stance, noting that Radware has high hopes for the Alteon unit it acquired from the increasingly distressed, and nearly completely defunct, Nortel Networks. Radware optimists also cite the relative resilience and robustness of the application-switch marketplace, led by the likes of F5, Cisco, and Citrix.

Radware has been relatively strong in its technology, but comparatively weak in marketing and sales execution in the Americas. A pioneer in what was called the load-balancing marketplace, Radware has lost ground commercially and arguably technologically to F5 Networks over the years.

Radware is banking heavily on tapping the installed base of chronically neglected Alteon to break into Nortel enterprise and carrier accounts. The problem is, the Alteon installed base was defecting long before Radware took over, and the customer exodus appears nearly complete. Radware could be picking at bones rather than enjoying a succulent feast.

Yes, Radware has new leadership in the Americas, but we’ve seen that movie before. The challenge for Radware and Ramesh Barasia is to demonstrate that they can capitalize commercially on the Alteon acquisition.

Time will tell, starting with the company’s forthcoming quarterly results.

Apple’s Steve Jobs Problem

Apple has a problem with Steve Jobs.

The problem isn’t that investors, legal scholars, and company shareholders are charging that the company might have run afoul of securities regulations by not disclosing more about the severity of Steve Jobs’ medical condition, which climaxed in his having a liver transplant at a hospital in Memphis, Tennessee.

That, in and of itself, is a problem, but it’s not the big one.

Just to address the first issue, though — regarding how much Apple was legally required to divulge about Jobs’ imperiled health — opinions diverge. The upshot seems to be that public companies are not legally responsible to divulge private details of an executive’s health; but they are required to disclose “material” facts, which would comprise information and knowledge that investors would require before making a stock-related investment decision.

So, the argument can be reduced to the following question, as articulated by the AmLaw Daily blog:

Is Apple’s stature so dependent on Jobs that his health is, in effect, a material fact? Also at issue is whether the company knowingly played down the seriousness of Jobs’ health problems even though officials knew better, according to experts interviewed by the LAT (LA Times).

There is much dispute on this point, all of which leads to Apple’s primary Steve Jobs problem.

Simply put, the legend and mystique of Steve Jobs, once such an invaluable marketing asset to the company, now threatens at least a significant measure of its continued prosperity.

The business press often is guilty of what might be called “the great man syndrome.” Rather than focusing on complex factors — shifting market dynamics, technological advances and dislocations, functional or dysfunctional boards, and corporate cultures and processes — business journalists like to focus on the leader, the man or woman at the top of a company’s corporate hierarchy. In their coverage, reporters tend to give the CEO too much credit for a company’s successes and too much blame for its failures.

In Apple’s steady and seemingly inexorable ascent, Jobs seems to have gotten far too much credit for the company’s achievements, to the point where his legend has become practically impregnable and unassailable. To be fair, it wasn’t his doing. Apple’s public-relations and marketing mavens, shrewdly perceiving the business’ press weakness for the “great man” angle, played up Jobs for all he was worth in media adulation and effusive praise.

Now, though, the drawback of the “great man” strategy is coming back to haunt Apple.

To Apple’s credit, it is seeking, ever so gradually, to change the narrative. It is pointing out that others, including Chief Operating Officer Tim Cook, have picked up the slack in Jobs’ absence. Apple is emphasizing that Cook and others at the company are more than capable of keeping the company pointed in the right direction and moving forward, technologically and commercially. After years of putting Jobs front and centre as the guru at the core of its mythology, Apple is now emphasizing the company’s executive bench strength.

That’s absolutely necessary, and it’s something Apple’s must continue to do. At long last, Apple must portray itself as a successful, publicly listed technology company, not a cult of personality.

In companies, especially public ones, nobody is or should be irreplaceable. The show at Apple must go on, with or without Steve Jobs.

Motorola Appears Destined to Remain Also-Ran in Smartphone Derby

I cannot argue with TheStreet.com’s Scott Moritz’s grim prognosis for Motorola in the smartphone marketplace.

Apple and RIM are well entrenched as players at the high end of the market, with the Palm Pre making a quixotic bid for mindshare and market share. Meanwhile, the midrange of the market is crowded with largely undifferentiated players, many of which are adopting Google’s Android as their operating system.

Unfortunately for Motorola, that’s where it finds itself.

F5 Target of Recurring Acquisition Rumors

F5 Networks will announce financial results for its fiscal third quarter after market trading concludes Wednesday, July 22.

Having held its own against Cisco Systems in the load balancing and application-traffic management markets, F5 has established market leadership in what are now called application-delivery controllers (ADCs), in a space now classified as application-delivery networking (ADN).

Given F5’s market successes against the likes of Cisco and Citrix, it should come as no surprise that it is regularly the subject of takeover speculation. Such speculation has intensified of late, with IBM and Cisco frequently cited as potential acquirers.

IBM is probably the more likely of the two to make a bid for F5, but that doesn’t mean it will happen. F5 has been independent for a long time, defying many previous takeover rumors, and chances are it will continue to chart its own course.

Other companies might be interested in buying F5, but that doesn’t mean F5 is interested in being bought.

Questioning the 3Com Hype

Shares of 3Com have risen appreciably this year on the strength of aggressive product rollouts, a few prominent customer wins, and the opportunity for some other vendor to wrest some of Cisco’s prodigious market share in enterprise networking.

On January 2, as the interactive chart at Yahoo Finance illustrates, you could buy a 3Com share for $2.38. As of June 9, 3Com shares hit a 2009 high point of $5.16 before retreating somewhat to close yesterday at $4.72. No matter how you slice it, 3Com shares have had a very good year so far.

Market analysts have begun paying attention to the company again. Today, for instance, we can see divergent interpretations of 3Com’s business prospects from Bernstein Research analyst Jeff Evenson and Needham analyst Greg Mesniaeff.

Mesniaeff is the optimist. He says:

“Like the legendary Woody Hayes, 3Com is moving forward with an all-out assault on the global enterprise networking market from its base in China, and it appears its take-no-prisoners approach is working.”

Given his emphatic assessment, it probably will not come as a surprise to learn that Mesniaeff has initiated 3Com coverage with a “buy” recommendation. He sets a price target of $7.

Meanwhile, Bernstein’s Jeff Evenson is heading in the other direction, cutting his rating on the stock to “market perform” from “outperform.” He has increased his price target to $5 from $4, which seems prudent given that shares are trading much closer to the later than the former.

Evenson concludes that 3Com’s shares are fairly valued. However, he also warns that 3Com’s sales to Huawei — its former partner in China-based H3C and a would-be, minority-share acquirer of 3Com itself — could decrease 30%-50% over the next year. In support of that forecast, he reports that Huawei is moving away from selling 3Com-H3C switches to its Chinese customers.

As Evenson suggests, 3Com must devise an effective strategy to compensate for revenue losses related to Huawei’s gradual estrangement from H3C as a supplier.

I think it’s a foregone conclusion that 3Com, through its H3C unit, will steadily lose business to Huawei and others in China. Without Huawei, 3Com will lose access to many valuable Chinese accounts. At the same time, Huawei is looking to build its own product portfolio instead of relying on 3Com, to which it no longer has a meaningful, long-term commitment.

3Com is trying to grow elsewhere, getting back into the enterprise-networking space against Cisco in North America, EMEA, and other global markets. The challenge for 3Com is its past — it has abandoned the enterprise space before, and customers who were burned by the experience are not inclined to leap into the flames again — and the present.

With regard to the here and now, 3Com is not alone in having pretensions to enterprise-networking glory. Other contenders looking to take away market share from Cisco include HP (ProCurve), Juniper, and the bankrupt Nortel Networks, with smaller players also looking to get a piece of the action.

3Com, despite some effective PR in the past few months, has quite a hill to climb global enterprise networking, which is where it must continually gain ground if it is to meet the lofty expectations that Needham analyst Greg Mesniaeff has set for it.

With date-center virtualization taking hold — and Cisco and HP strongly positioning themselves as one-stop shops for servers, storage, and networking gear — 3Com might find itself at a competitive disadvantage in many large accounts. 3Com has a relatively extensive line of networking products, but it doesn’t have enterprise servers or storage.

I’m skeptical of 3Com’s ability to take on Cisco and HP. It might gain some share if it is determined and perseveres in restoring its tarnished image as an enterprise-networking purveyor in North America and Europe, but I think the gains will be limited by 3Com’s stature and sales channels.

The wild card in this picture is IBM, which sells servers and storage, but doesn’t have a horse in the networking race. 3Com tried to sell itself before, and it’s not unreasonable to think it could be on the block again. If IBM is shopping for a networking vendor with an extensive product portfolio, 3Com definitely could be an acquisition candidate.

Then again, IBM is getting closer to Juniper, which could leave 3Com with no place at the market-consolidation table when the music eventually stops.