Monthly Archives: July 2009

Looking Back at Liberate Technologies

One of the most popular posts on this site is “The Strange Story of Liberate Technologies.” It was written on September 28, 2006, and it attracted two cryptic comments. Lots of people have read it.

I am mystified as to why it has enjoyed such enduring appeal. I don’t think the only readers are former employees of the company, though some undoubtedly were, as those enigmatic comments attest.

Perhaps the story of Liberate, though strange, is the story of many technology companies in the post-2000 era of diminished expectations.

Once high-flying startups pumped up on seemingly limitless venture-capital funding eventually met hard times, investor demands for revenue and profit, and an IPO market that melted faster than an ice cube in a hot tub. Carnage resulted. Hopes were dashed, dreams died, jobs were lost, companies were liquidated or sold for a song.

Liberate wasn’t the only technology concern to meet an untimely and ignominious end, though it almost certainly was practically alone in attempting to reanimate itself as a trucking company.

Catching Up: F5 Beats the Street — Again

I suspect that F5 Networks continues to take away market share from its rivals in application-traffic management, so it’s probably not advisable to assume that the company’s encouraging third-quarter results, announced last week, are harbingers of better and brighter days for enterprise-related IT spending.

Still, it is a positive development, especially for F5 and its shareholders.

I’ve always admired the way the company operates. It’s one of the few networking firms that took on Cisco in a significant market segment and more than held its own in the battle.

All through the load-balancing wars of the Internet era, and then again into the current period where the market identifiers and nomenclature have changed (application-traffic management begat application networking, which begat application-delivery networking) — reflecting both the evolution of marketing buzzwords and new technological developments — F5 has demonstrated unswerving focus and uncommon resilience.

It’s still a strong company, with a deep management team, solid products, and an effective sales channel. Not surprisingly, the company is looking forward to posting robust fourth-quarter results.

IBM’s Acquisitions: Big One Makes News, Small One Points to Further Moves

IBM today announced two acquisitions. The larger one, IBM’s all-cash offer to buy predictive-analytics mainstay SPPS for $1.2 billion ($50 per share), drew the bulk of media attention, as it should.

The offer price represented a 42-percent premium to SPSS’s Monday closing price, and the company’s shares rallied today to close the gap.

However, the smaller acquisition might signal another big IBM move in a different market sector. In tandem with its SPSS acquisition announcement, IBM said it has purchased privately held Ounce Labs for an undisclosed amount.

Ounce Labs provides security and compliance software that scans source code of applications, hunting for security holes and compliance failures. In doing so, the software helps companies identify and solve code-related compliance and security problems early, resulting in lower costs, less risk, and fewer worries.

As CNET’s Lance Whitney reports, IBM will integrate Waltham, Mass.-based Ounce Labs into its Rational software business, which offers security and compliance testing. When the integration is complete, IBM believes the combination of the two companies will enable its customers to enjoy security analysis from source code to deployment.

Both organically and through acquisitions, IBM is constructing an increasingly credible security portfolio. It would not be a surprise to see IBM make a bigger security buy in the near future.

The History and Mystery of RIM’s Nortel Cage Rattling

As the Ottawa Citizen’s James Bagnall recounts in an article today, RIM has seemed more a provocateur than an earnest prospective buyer of Nortel’s wireless business unit.

For the reasons Bagnall adduces, I don’t think there’s any way RIM can persuade the Canadian government to reverse or otherwise challenge Ericsson’s more than $1.1-billion acquisition of Nortel’s wireless assets. Odds overwhelmingly favor that deal going through, notwithstanding RIM’s belated and obstreperous objections.

However, as I mentioned in my previous post, RIM’s real objective isn’t to have that decision overturned. RIM is applying pressure to the Canadian government to get what it really wants: Nortel’s LTE patents.

The ruse just might work, too. This drama will play itself out soon enough, and it will be interesting to observe.

What About Nortel’s Metro-Ethernet BU?

As Nortel gradually divests itself of its business units, one we haven’t heard much about is Metro Ethernet Networks (MEN) operation.

The early line had the MEN business unit going for as much as $750 million. That still might happen, but I’m skeptical, even doubtful.

As time ticks ever forward — it doesn’t go backward, as far as we know — Nortel’s MEN unit is a depreciating asset, one that doesn’t benefit from being awash in uncertainty. When a company has signaled its intent to sell off its operational business units, customers tend to be wary about making further investments in its products and services, understandably concerned about the ultimate disposition of the company and the future plans of its new ownership.

That’s why I think there’s an inverse relationship between the time it takes to arrange a sale of the MEN business unit and the amount of compensation Nortel eventually will get for it. The longer it takes to line somebody up, the lower the price Nortel will receive.

Compounding the problem for Nortel is that a couple potential bidders seem to have eliminated themselves from contention.

Ericsson, now that it seemingly has bagged Nortel’s wireless business unit — barring a belated intervention or reversal by the Canadian federal government — has signaled, at least for now, that it has no interest in other Nortel assets. Ericsson was considered a favorite to claim Nortel’s MEN unit.

Tellabs also has pulled out of the running. It was considered a potential acquirer of the MEN business.

The companies still seemingly in the MEN bidding derby, in descending order of probable serious intent, are Ciena, Sycamore, Juniper, and Alcatel-Lucent,

I can’t envision Cisco or Huawei getting involved, for very different reasons. Cisco probably has little or no interest, whereas Huawei, even if it had interest, would probably never get through the approvals process.

At this point, though, nothing much seems to be happening. That can’t be a good omen for Nortel’s creditors.

Picking the Bones of the Nortel Wireless Auction

Now that Nortel has auctioned off its wireless business unit, comprising CDMA and LTE network infrastructure and related assets, we should consult our programs to determine how successful each major player was at getting what it wanted from the process.

Let’s start with Nortel, since the insolvent company — once a major purveyor of telecommunications equipment worldwide, but now a rapidly unwinding ball of products, technologies, and patents — is positioned in the center of the three-ring circus.

What did Nortel want and get from this auction of its wireless business unit? Well, it got significant compensation from which to pay its creditors. Although the stalking-horse bid from Nokia Siemens Networks was set at $650 million, the winning bid from L.M. Ericsson Telephone Co. (Ericsson) came in at $1.13 billion in cash, after countless hours and a series of tit-for-tat offers.

That’s a good haul, and most creditors will be pleased with the result.

Ericsson, of course, got Nortel’s Code Division Multiple Access (CDMA) and Long Term Evolution (LTE) wireless networking business. As a result of the deal, Ericsson bolsters its CDMA account presence throughout North America — strengthening its grip on the continent’s largest CDMA wireless operators — and puts itself in the favorite’s role to lead those carriers’ network-technology transitions to LTE infrastructure. What’s more — and not an immaterial concern — it locks out Nokia Siemens Networks, which had designs on climbing back into the CDMA ring in North America.

Not as flush with cash as its Swedish rival, Nokia Siemens Networks, though genuinely interested in coming away with Nortel’s wireless assets, ultimately couldn’t match bids with Ericsson. In the end, it folded its cards after looking across the table at a rival that was resolutely determined to emerge the winner. Nokia Siemens will go back to the drawing board now, forced to devise displacement strategies if it intends to capture major CDMA-to-LTE carrier accounts in North America.

MatlinPatterson Global Advisers LLC, a prominent Nortel bondholder and a private-equity firm that specializes in distressed assets, also was at the table bidding for Nortel’s networking assets.

Ostensibly, MatlinPatterson talked a big game about running the Nortel business unit as standalone operation. In reality, however, MatlinPatterson’s offer of cash and debt, easily overtaken by the competing all-cash bids of the real networking companies, was designed to stoke the auction fires. MatlinPatterson reminded me of those characters in countless situational comedies, cheekily bidding on their own antiques at stately auctions to coax others to bid even higher.

But I must give credit where it is due. MatlinPatterson came to the table as a Nortel debtor looking to squeeze full value from a prized Nortel asset. It largely met its objective.

A company not at the table, but hovering over proceedings like a vengeful spirit, was Research In Motion, Canada’s successor to Nortel as the country’s leading technology standard bearer.

RIM and Nortel have traded unsavory accusations, with the former accusing the latter of shutting it out of the auction process by precluding RIM from bidding on additional Nortel assets for at least one year. For its part, Nortel accused RIM of refusing to sign a standard non-disclosure agreement, thereby apparently disqualifying itself from participating in the auction.

RIM now is asking the Canadian federal government to intervene, arguing in a statement Sunday that “the government has the authority and responsibility to get involved to protect vital Canadian interests.”

Canada’s Industry Minister Tony Clement is sitting on the fence. He says he hasn’t decided whether to intercede on RIM’s behalf. Still, it’s apparent the government doesn’t enjoy being in this position, and it’s looking for a way out that will mollify RIM, will allow Nortel and its creditors to move on with their lives, and will it to avoid having to block and attempt to reverse a high-profile technology acquisition by a foreign company.

So, what to do? That’s where we come to what RIM wants.

RIM never wanted Nortel’s CDMA and LTE network-equipment assets. That’s not RIM’s business, and it doesn’t have a belated interest in getting into that game.

What RIM does want — and what it alluded to in those cryptic references to “other Nortel assets” on which it wished to bid — is Nortel’s treasure trove of LTE patents. As a Wall Street Journal blog post explained, Ericsson’s successful bid for Nortel’s network assets wins it a business unit comprising CDMA and LTE products and technologies as well as licenses to LTE patents — but it does not include the patents themselves.

RIM likes patents, especially those covering an important emerging wireless technology such as LTE, which will enable all sorts of new high-bandwidth mobile applications involving video communication. Access to and ownership of such patents would give RIM a revenue stream and a competitive margin advantage over its smartphone rivals.

Of course, Nortel had designs on keeping those LTE patents. That might be difficult now, with RIM playing the aggrieved party, waving the Canadian flag, and pushing the federal government into entering the fray on its behalf.

I’d say RIM has a good chance at acquiring some patents, which is what it wanted all along.

New Cisco Sales Structure Imminent

Cisco Systems will be introducing a new sales structure to coincide with the onset of its new fiscal year on August 1.

There is speculation as to whether the sales reorganization is connected, directly or indirectly, to the recent purging of Cisco employees at the company’s headquarters in San Jose and elsewhere.

As part of the change to the sales structure, Cisco will be introducing a Strategic Partner Organization. Details remain sketchy as to what that denotes and entails, but Cisco suggests that the overall restructuring will result in glad tidings for all involved.

“Cisco has announced a reorganization of it field sales structure as of the beginning of our fiscal year, starting on August 1, 2009. The reorganization is intended to create a next-generation sales experience that is seamless, global and brings the full collective power of Cisco to our customers, partners and worldwide field teams. Ultimately, the reorganization will simplify, prioritize and make it easier to do business with Cisco for our customers and partners.”

I like that — “next-geneation sales experience.” It’s presumably like Star Trek with quotas.