Monthly Archives: February 2008

Motorola’s Handsets, Prospects Panned at Mobile World Congress

The early reviews have been filed on the recently concluded Mobile World Congress, which took place in Barcelona this year.

The consensus view is that Motorola flopped at the world’s biggest showcase for mobile phones and wireless handheld devices. The company, formerly a leader and now a growing laggard in the cellular-phone business, didn’t spotlight innovative handsets at this year’s edition of the event, nor did it provide a compelling vision of how it planned to regain lost luster.

As Techsmart columnist Dan Burrows noted:

"Either way, Moto’s going to need a bunch of hit phones to have any hope of recovery in the core business, and it sure didn’t blow anyone away in Barcelona. The company unveiled a paltry lineup, consisting of an update to an existing model and a couple of low-end (read: low margin) phones."

Eric Zeman of InformationWeek was more scathing:

"Motorola is hurting. Bad. It debuted just three new phones this week at one of the largest mobile gatherings around the sphere. All three are re-worked versions of previous models … for emerging markets. Motorola’s tail is officially, and firmly, tucked between its legs."

Zeman also pointed out that Motorola apparently canceled a product announcement for a new phone that might have emphasized mobile IPTC capabilities. We’ll never know, evidently.

Meanwhile, Motorola leading handset competitors — market-leading Nokia, runner-up Samsung, and fast-closing fourth-place Sony Ericsson — used the event to introduce a raft of new products, for the both the high and low ends of the market and everything in between. Nokia’s focus on GPS-based handsets and location-based services seemed to win particular plaudits for the industry cognoscenti.

Is there a product group or business unit at Motorola that isn’t a basket case or on the road to becoming one? Perhaps the set-top box business could be maintained and prosper in the right hands, but the others appear too far gone for meaningful rehabilitation.

The mooted combination of the wireless-equipment businesses of Nortel and Motorola, for example, would be like combining two servings of utility-grade beef and hoping it magically transforms into one big cut of prime meat. While impressed by the ingenuity and blind optimism motivating such an endeavor, one recognizes the result will have to make a grim accommodation with reality.

Despite Great Reviews, Zimbra Probably Doomed Under Microsoft

If Microsoft acquires Yahoo, you can be sure Zimbra will be one of the Yahoo properties that Microsoft jettisons, neglects, or otherwise shutters.

There’s no way Microsoft, presuming it becomes the proud owner of Yahoo, will allow Zimbra to compete with its Outlook franchise, despite all the great reviews, including this one, that Zimbra has deservedly earned.

Platitudes from Balsillie

Senior executives in the technology industry can be as bad as politicians when it comes to speaking in vacuous cliches and foggy ambiguities. Statements can be so vague as to be meaningless, yet there will be obsequious toads who come away proclaiming that what they’ve just heard from a CEO somehow points the way to a bright, if decidedly nebulous, future.

RIM’s co-CEO Jim Balsillie was at it again at the GSMA World Congress in Barcelona earlier today. First, he spouted the hackneyed old saw about carriers having to be choose between being pipes and platforms. How long have I heard this one? For too many years, I’m afraid.

But wait a minute. Who said subscribers (you know, the common folk who pay the freight) want carriers to be anything more than a pipe? It’s clear to to me that carriers don’t have a clue how to build a platform, certainly don’t understand content or creativity, and can’t be depended upon to deliver consistent innovation. But they know how to turn the taps on and off and bill you accordingly at the end of the month. Let’s not push them into unknown territory where they can only injure themselves and others. 

So, given the self-evident limitations of carriers, why does Balsillie encourage their harmful delusions? Oh, yes, now I remember: They’re his customers. He’s got to get them to dream big, or they won’t buy the products he’s pushing alongside his latest industry narrative.

He’s good at more than cliches, though. Balsillie also speaks in sweeping generalities that are superficially plausible but lack any particulars or corroborating substance. Exhibit A: His prediction of a "business-to-business social-networking revolution." Look, I like revolutions as much as the next guy, but could we understand exactly why we’re revolting, and what we’re going to get once we’re done? Unfortunately, not many details were to had.

Said Balsillie:

"Once social networking becomes a B2B phenomenon–not unlike IM and texting–I believe every single social-networking user will want a data plan."

Some obvious question to which I don’t think we’ll find ready answers: How will social networking become a B2B phenomenon? Just what is B2B social networking, anyway? Why will people want it, and why will their employees feel compelled to pay for it? Or, will you be selling it, like consumer services, to single social-networking users?

I know, I know: I’m ruining the dream, complicating things with cavils and questions, sweating the small stuff.

At some point, though, we in the technology community have to demand clearer messages from the people who run the show.

Vonage Loses Less Money, Mildly Startles The Street

It’s been a while since Vonage’s annoying advertisements were ubiquitous. Those ads were seemingly unavoidable scourges of mere mortals who wished only to be left undisturbed while watching television, surfing the web, or even just walking the streets.

Vonage’s advertising cutback has been a relief for consumers throughout North America. It’s also been a benefit to the company itself, which reported a sharply narrowed fourth-quarter loss today as a result of significantly reduced expenditures, mostly pared from its previously incontinent marketing department.

Don’t get the wrong idea, though. Vonage is losing less money than it has lost historically, but it hasn’t rescued itself from a death of a thousand cuts.

On the positive side of the ledger, Vonage revenues rose 19 percent to $215.9 million from $181.5 million in the fourth quarter last year. That’s not blistering growth, and it’s a falloff from the company’s earlier revenue increases, but it’s better than what I fear awaits the company a year or two from now.

Moreover, with the reduced expenses, Vonage recorded a loss of just $11.1 million, or 7 cents per share — excluding charges for litigation and severance payments, the loss was 6 cents per share — whereas analysts polled by Thomson Financial were expecting a loss 10 cents per share. In last year’s fourth quarter, the company lost an eye-watering $117.1 million. Vonage could ill afford to continue that sort of profligacy.

Unfortunately, that’s probably as bright as the picture will get for Vonage. Expenses might be down, but customer churn is at an unacceptable three percent, up from a relatively high 2.3 percent last year. Word of mouth from disaffected customers is probably doing the company more harm than its ridiculous advertisements caused in days of yore.

Vonage thinks its flat-rate pricing for calls in North America will help it endure a recession, but I’m not so sure. I think consolidation reigns during such downturns, and Vonage isn’t in a position to fight off the encroachments of service-bundling telecommunications titans and cable MSOs.

Cisco Expands in India, Sheds Staff in USA

While reports and rumors circulate about Cisco Systems shedding staff in the USA, we draw your attention to an item from Thomson Financial regarding Cisco’s plans to invest US$1.2 billion in India within the next six years. Cisco also will double its headcount in India to 6,000 employees during that same period.

Wm Eilfrink, Cisco’s chief globalization officer, told Thomson that about 20 percent of the company’s top talent will be based in India. It would be interesting to learn whether Cisco is filling new personnel requisitions in India or whether it’s shifting jobs from the USA to India. What’s happening probably involves elements of both.

In addition to embarking on a hiring binge in India, Cisco has launched a $200-million venture fund to support investments in Asian technology companies. About $80 million of that fund has been deployed already. Again, it would be interesting to compare Cisco’s ongoing venture investments in North America with its heightened investor profile in Asia.

As Cisco experiences slower growth among its installed base of enterprise customers in North America and Europe, we can expect the company to aggressively pursue new markets in Asia and, to a lesser extent, the Middle East. That will entail at least a proportional shift in investments and resources from North America to growth-oriented markets elsewhere.

It’s all part of the global transfer of wealth from west to east. Technology markets and companies are not immune to the trend.

Yahoo Talent Drain Shouldn’t Surprise Anybody

There is no question that Yahoo’s best employees, its most creative and productive personnel, are fielding job offers and pondering well-timed defections to companies big and small.

Whether you want to blame the uncertainty surrounding the fate of the company or the potential certainty of a Microsoft acquisition, Yahoo stalwarts must be reviewing their alternatives carefully, if not bolting furiously for the exits. Really, whether the company twists slowly in the takeover winds or suffers the fate of being consumed and digested by the packaged-software monolith that is Microsoft, the prognosis is not bright for the deckhands on the good ship Yahoo.

There are several areas where Microsoft and Yahoo overlap. Even if we assume that Microsoft chooses to keep most of the Yahoo staff it inherits as part of any acquisition, these new employees of the Microsoft empire will quickly be disabused of any notion that their Internet endeavors outrank Windows, Office, and Exchange when it comes to priorities and resources.

Despite Microsoft’s best efforts, the company still revolves around its cash-cow packaged-product franchises. I don’t see that change any time soon.

Bain Offers Concessions on 3Com Deal While Huawei Fumes

The US government’s Committee on Foreign Investment in the United States (CFIUS) had been sending strong signals that it would reject Bain Capital’s proposed $2.2-billion acquisition of 3Com on grounds of national security.

The reason: A minority stake in 3Com that Huawei Technologies — a Chinese telecommunications-equipment vendor with longstanding ties to China’s military and government  — would acquire as part of the transaction. You see, 3Com and its TippingPoint intrusion-prevention business unit do extensive business with the Pentagon and other US government agencies. The thought of the Chinese government having access to such technologies, and perhaps also gaining back-door access to the sites where they are installed, was too much CFIUS to countenance.

As  result, Bain Capital, no stranger to the corridors of political power in Washington, had to think fast about how it might salvage the deal. Apparently Bain has come up with a few ideas. The upward trajectory to 3Com’s stock price today indicates that the market believes Bain’s ideas were good ones, good enough to warrant CFIUS’s blessing.

Bain’s key concession to CFIUS seems to be an offer to divest TippingPoint, perhaps spinning it off as a separate entity in a future IPO, as had been planned by 3Com before Bain and Huawei came calling. That might be enough to get the deal approved.

In a statement, Bain said:

"We have put on the table robust mitigation proposals that offer significant structural and security safeguards to American national security interests. . . . "

Perhaps so, but Huawei is enraged that any concessions or "mitigation proposals" were necessary. What’s more, Huawei has delivered its message not in the decorous and reserved language of PR platitudes or in the coded, subdued tones of legalese. Oh, no, Huawei is pissed, and it isn’t shy about saying so.

In an interview with the Financial Times, Xu Zhijun, chief marketing officer at Huawei Technologies, said the concerns expressed about the deal by some US lawmakers were “bullshit."

After that burst of pithy eloquence, he said the following:

“If the US government is concerned about Huawei, if some of the lawmakers are concerned about Huawei, Cisco is everywhere within China. Who should be more concerned?”

I am not sure what he’s trying to say here. Either he’s saying that Huawei is just like Cisco, another large corporate vendor of networking gear that is guiltlessly providing enterprise and carrier customers with the gear they need; or he’s saying that Cisco is up to no good in China. Either way, I’m not sure the comparison is entirely apt, unless John Chambers and his boys have closer ties to the White House and the US intelligence agencies than I realized.

Maybe the interviewer should have prodded Mr. Xu to elaborate.

Legg Mason Plays Diplomat in Negotiations Between Microsoft and Yahoo

Legg Mason Capital Management Inc. owns more than 80 million Yahoo shares, which represents more than six percent of overall equity in the company. As Yahoo’s second-largest shareholder, Legg Mason obviously is more than a disinterested observer of Microsoft’s unsolicited takeover bid.

As one watches Bill Miller, the portfolio manager of Legg Mason Capital Management Inc.’s Value Trust fund, play diplomat between the predator on one side and the prey on the other, one comes away with a respect for his ability to understand and empathize with the parties involved. One also realizes that the current standoff between Microsoft and Yahoo must be making Legg Mason and all other large shareholders in Yahoo extremely nervous.

Microsoft’s bid probably is the best shareholders can hope to receive for their stakes in Yahoo. At the same time, they’d like to get a bit more from Microsoft than what is being offered.

Miller knows that reason ought to prevail, that Yahoo and Microsoft should be able to come to agreement that would see the latter acquire the former for somewhere between the current offer, valued at about $28.97 per share ($41.7 billion) and approximately $40 per share, which apparently was the price that had bee broached in previous discussions between the two companies.

Subsequently, of course, Yahoo’s stock price took a precipitous nosedive, affording Microsoft the opportunity to make its current bid, which Yahoo contends severely undervalues the company, current travails notwithstanding.

Miller also realizes a deal is never done until the fat lawyers sing. Much can go wrong in negotiations between Microsoft and Yahoo. Sure, the consensus is that a deal will be done eventually, and the consensus, at least in this instance, probably will prove right. Even so, positions can become entrenched, tempers can flare, the emotions and wills of people (the most volatile elements in any deal) can assert themselves.

Miller is trying to prevent that from happening, and you have to give him full marks for doing it so expertly. Probably even he wonders whether his efforts, and those others, will successfully bring these two companies together. 

RIM’s Balsillie Dismissive of Latest Service Outage

The public-relations department at RIM can’t be pleased with the dismissive attitude the company’s CEO has taken toward the latest BlackBerry service outage.

After giving keynote speech and participated in a panel discussion at the Mobile World Congress in Barcelona earlier this morning, RIM’s co-chief executive office James Basillie had the following to say about the second major Blackberry service interruption in less than a year:

"It was an intermittent delay, a couple of hours. It’s old news. It happened days ago."

Take note, you BlackBerry neurotics who can’t be disconnected from your email inbox for any length of time. According to the CEO of the company that manufactures your precious devices, your lifelines to your round-the-clock professional lives, you’re making a mountain of a molehill.

Perhaps, in the larger scheme of things, Balsillie is right. What’s a few hours without email in life’s rich tapestry?

But those anxious people who stare intently at their BlackBerries during meetings and peck away with their thumbs distractedly and rudely even when they’re in the company of others are, for better or worse, RIM’s customers. They are RIM’s raison d’etre. For Balsillie to treat their complaints with barely concealed disdain is unacceptable.

Perhaps he’s thinking too much about how to snare an NHL team.

Cisco Layoffs Revisited

I was a bit ahead of the curve with my initial report regarding layoffs at Cisco. The axe did indeed appear to fall in at least one location after I made my post.

Now, though, Om Malik is reporting that potentially significant layoffs might be imminent at the world’s largest networking vendor. Stay turned, both here and there, for future details as they are made available.

Getting bad news from vendors is like getting the Bush Administration to admit the economy is in the crapper, so if you have any information you can share, anonymously or otherwise, please feel free to do so.

Nortel’s Destiny as Microsoft’s Unified-Communications Sidekick

If you read this article by Network World’s Jim Duffy closely, you cannot help but come to the conclusion that the unified-communications partnership between Microsoft and Nortel will result in one vendor benefiting enormously and the other left as nothing but a reseller sidekick.

If you guessed that Microsoft will emerge the winner and Nortel the impoverished second banana, congratulations! Your perspicacious powers of perception have not failed you.

I admit, Nortel was backed into a dark corner when it cut this Faustian pact with Microsoft. Really, Nortel didn’t have many options. It needed to expand sales channels for its IP PBX product line, as a means of keeping revenue flowing and of keeping itself relevant in enterprise voice communications. Microsoft was there, offering a shrewd deal that promised Nortel near-term sales opportunities and long-term irrelevance. It was an offer the beleaguered suits at Nortel couldn’t refuse.

For their part, the opportunistic business-development executives at Microsoft know a desperate mark when they see one. They realized that Nortel could be exploited, that Nortel needed a lifeline tossed its way, and that Nortel had the missing piece of SIP-based voice technology that would invest future versions of Microsoft’s Exchange Server with compelling unified-communications features and functionality.

It was a relationship of convenience, but one in which only one vendor had thought several steps ahead to the ultimate end game. Sure, Nortel has opportunities today to sell IP PBXes and related software that interoperate with Microsoft’s Exchange Server and Office Communications Server. When this relationship is consummated, though, when it all comes to fruition, the need for the Nortel products will evaporate and Microsoft exclusively will provide a fully integrated, software-based solution to enterprise customers.

Maybe Nortel was hoping Microsoft would buy it rather than just bleed it of its enterprise lifeblood. But there’s a lot of baggage at Nortel — like, say, its entire line of telecommunications-equipment gear — that Microsoft had no interest in owning. There also were corporate integration issues that weren’t worth the headache. Why buy the cow when you can get the milk at cut-rate prices?

Microsoft had time and strategy on its side. Nortel had neither.

The Wry Comedy of Wireless Operators

After the European Commission threatened regulation as a means of enforcing data-roaming price reductions in the Old World, the ironic humorists at the GSM Association (GSMA), the organization that represents the voracious appetites of wireless operators, retorted that such an interventionist government measure would stifle innovation and stunt the development of new data offerings for roaming.

The GSMA apparently issued the statement with a straight face, too.

Here’s a droll quote from the organization:

"This market is evolving rapidly, as operators develop new and innovative services and tariff packages, including flat-rate pricing packages and bundles," Tom Phillips, chief government and regulatory affairs officer of the GSMA, said in a statement. "In such a period of rapid growth and innovation, the GSMA believes that talk of regulation is premature."

I bet you had no idea the telecommunications industry was known for blinding innovation and consumer-friendly new offerings.

It must be a joke. After all, I tend to equate the telecommunications sector’s embrace of new technologies with a unforgiving death grip. Look what they’ve done to SIP, for example. Look what they’re doing to WiMAX. Before that it was ATM, ISDN, and a host of others.

Give them full marks for understated comedy, though. Where were these guys during the Hollywood writers strike?