Monthly Archives: July 2009

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.

Vista’s Legacy? It Can’t Be Good

On the PC World website, freelance technology journalist Tood R. Weiss wonders about the legacy of Windows Vista.

Don’t be too hard on Weiss. He’s a professional, paid to wonder about such things. If a garden-variety consumer wondered about Vista’s legacy, one would be forgiven for thinking he or she desperately needed a hobby, like golf or voodoo.

In this case, though, Weiss’ purposeful musings are justified. It’s what he does.

So, what does he conclude? Despite giving a temporary soapbox to a Microsoft VP who claims, presumably with a straight face, that Windows Vista will be remembered fondly — by computer-oriented S&M aficionados perhaps? — Weiss draws a parallel between Windows Vista and a 1971 AMC Gremlin.

I always thought Windows Vista was more like the New Coke of operating systems.

Yes, it’s true, as Microsoft submits, that the forthcoming Windows 7 incorporates many advances that first reached market as features and functionality in Windows Vista. However, it’s just as true that the foibles and failings of Windows Vista have been sandblasted, for the most part, from Windows 7.

Really, all things considered, it’s difficult to envision how Windows Vista could be remembered fondly, no matter how many years forward one projects. Corporate flacks argue to the contrary, as they are inclined to do, but the die has been cast.

Anticipation for Apple Q3 Results

Apple will report financial results for its fiscal third quarter after the closing bell ends trading today at 4pm Eastern.

Expectations are relatively high.

The consensus view from market analysts who follow the company is for profit of $1.17 per share on revenue of $8.2 billion. As reported by the Associated Press, that would be two cents less than earnings in the same quarter last year, but about $700 million more in revenue.

With the relatively well-documented early commercial success of the new iPhone 3GS a known entity, and with Apple benefiting from sales of new models of MacBooks and MacBook Pros, the company’s revenue results should not disappoint, even on rough economic seas that have scuppered more than a few of Apple’s putative competitors.

If there is a nagging doubt, it would pertain to earnings. During the quarter, Apple reduced prices on many of its products — including on its older-model iPhones — and there is some question as to whether lower-margin Apple computers might have outperformed higher-end products, at least on a relative basis compared to Apple’s revenue mix in prior quarters.

Cisco Layoffs Reported by Wall Street Journal

Yesterday an anonymous commenter, remarking on my post regarding Cisco’s creativity in redefining the word “layoff,” said the following:

“We will know in about 14 hours.”

He or she was referring as to whether Cisco would show at least some of its employees the door. As it turned out, that commenter was right.

As reported by the Wall Street Journal, Cisco — trying to control costs amid declining sales — laid off several hundred employees today.

Quoting an unnamed source familiar with the situation, the WSJ reported that Cisco dismissed between 600 and 700 employees at the company’s San Jose headquarters. Cisco also reportedly slashed jobs in branch offices elsewhere in the U.S. The total number of jobs that Cisco eliminated wasn’t immediately clear.

Two other commenters to this site yesterday suggested that Cisco has been laying off from 1,500 to 2,000 US-based employees each quarter in instances of “limited restructuring.” Many of the positions, according to these commenters, are being relocated to China and, to a lesser extent, India.

Microsoft and Apple: Dueling Retail Neighbors?

Has a delusional bunker mentality afflicted the executive team at Microsoft?

Of all the actions and initiatives Microsoft could take, this one seems least likely to result in anything approaching success. Will Microsoft lead with the Zune and the Xbox 360?

Cisco Parses Meaning of “Layoff”

What constitutes a layoff? Cisco CEO John Chambers defines it, quite literally, as a decimation of a company’s workforce.

Said Chambers earlier this year, on a conference call with analysts:

“My own view is that if you have to do a layoff, and we try everything possible to avoid them, it needs to be of critical mass to justify the loss of business momentum, impact on employees and disruption in key projects. Being very transparent, the definition of a companywide layoff to me is at least 10 percent of your work force.”

Some might argue that’s more along the lines of a massacre than a layoff, especially in relation to a company of Cisco’s size, but point taken.

Anyway, a semantic debate over the definition of “layoff” has arisen within the context of conflicting reports over whether Cisco is, in fact, laying off employees.

Some reports, including one from a market analyst at Thomas Weisel Partners, suggest that Cisco is on the verge of making new personnel cuts. Conversely, Cisco says there’s nothing to report, that any reduction in force already had been announced in February and is part of an ongoing process.

The truth? As the television show said, it’s out there.

Cisco Refutes Report of Layoffs

Cisco is denying the veracity of a report by Thomas Weisel Partners earlier today suggesting that the networking giant was paring 1,5000 to 2,0000 jobs.

Not true, says Cisco. Well, sort of.

Says Cisco spokeswoman Kirsten Weeks:

“The report today gives the impression that Cisco is announcing new head count reductions. The head count reductions referenced in the report were announced in a conference call in February.”

Weeks said Cisco has asked Thomas Wiesel to issue a clarification, which is allegedly forthcoming.

Just to show these Cisco spokespeople are organized and tend to read from the same script, Cisco’s Terry Alberstein made a similar point, suggesting that Thomas Weisel analyst Hasan Imam must have been referring to plans for job cuts of between 1,500 and 2,000 that Cisco announced during its quarterly conference call in February. Those cuts are still being made, according to Alberstein.

Neither Weeks nor Albertstein sought to contradict commentary from the Thomas Weisel analyst that was more favorable to Cisco. For example, Imam wrote that Cisco’s current quarter is tracking well, that revenue is likely to surpass consensus estimates, and that Cisco is taking share from Juniper Networks in the router market.

So, just to summarize, Cisco has not announced new staff cuts, but it continues to get rid of employees associated with a previous layoff announcement.

If you’re one of the employees being shown the door, it’s a fine distinction. The subjectivity of perspective, as always, counts for a lot.

3Com in World of Hurt Without Huawei

For years, 3Com’s H3C business unit has ridden on the coattails of Huawei Technologies Co. Ltd., tapping the Chinese networking vendor’s contacts and customer relationships for all they were worth — which turned out to be a lot.

Almost three years ago, however, 3Com and Huawei officially went their separate ways, with 3Com assuming control of H3C when it bought Huawei’s stake in the erstwhile joint venture. After the formal split, H3C continued to benefit from its relationship with Huawei, which agreed to a non-compete clause that precluded it from selling its own products — or those obtained from a third-party vendor — in place of the H3C gear.

Now, however, the non-compete period has long expired. Huawei is aggressively moving away from selling H3C gear, looking to sell its own products whenever possible. 3Com revenue derived from Huawei is destined to fall precipitously, with the decline having begun already.

Reporting its latest quarterly results, 3Com said Huawei accounted for $230 million, or 17 percent, of revenue for the year ended May 29. Sales to Huawei will fall to $50 million to $100 million this year, according to 3Com. My guess is that the Huawei contribution will be even smaller than that.

Jay Zager, 3Com’s CFO, knows what’s coming:

“When the non-compete clause expired, the question was always when they would produce their own products. It didn’t happen in 2009, when we anticipated it would. We expect two years’ of reduction coming in the next two or three quarters.”

That obviously represents a problem for 3Com. What makes it worse is that 3Com will not be able to compensate for the loss of Huawei business in China, where it is attempting to build its own channels and customer base; nor in Europe or North America, especially the latter, where 3Com’s name has been tarnished severely by its historical cut-and-run lack of commitment to enterprise customers and markets.

3Com has done a masterful job with PR earlier this year, driving up its stock with a narrative about its comeback as an end-to-end purveyor of networking gear capable of taking share from an allegedly distracted and vulnerable Cisco Systems, longtime hegemonic power in enterprise networking.

Indeed, Cisco is heading off in many directions, and it might be exposed to other players, but HP, with its ProCurve gear, looks set to pick up whatever marbles slip from Cisco’s grasp. IBM, thanks to OEM deals with Juniper Networks and Brocade Communications, also is well placed to take some business — and don’t be surprised if IBM doesn’t acquire Juniper or Brocade at some point.

Both HP and Cisco see the opportunity of data-center consolidation — servers, storage, networks, the whole shooting match — aided and abetted by virtualization. IBM sees it, too, but it hasn’t yet committed to direct ownership of a networking business unit, perhaps still reeling from the field-sales hangover that resulted from its former addiction to Cisco as a networking partner.

Nevertheless, the 3Com marketing story was good. It had just enough plausibility to turn analysts’ and invesetors’ heads. Moreover, the story diverted attention from 3Com’s own problems with diminishing Huawei-derived revenue. During the marketing push, 3Com shares surged, hitting a 52-week high in early June. Some deluded souls even thought the company might be acquired at a juicy premium.

Those people should have followed the sage aphorism of Friedrich Nietzsche, presumably coined when he was not afflicted by syphilis:

Hope in reality is the worst of all evils because it prolongs the torment of man.

Torment for 3Com shareholders might last for a while, too. I do not see how 3Com can extricate itself from the conundrum of having to generate significantly higher revenue from its non-Huawei engagements. 3Com is in a difficult bind, one that it readily acknowledges.

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 networkingas 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.