Daily Archives: March 17, 2010

Juniper Won’t Race Cisco in M&A Derby

Juniper and Cisco have a few things in common.

One is that that they’re both data-networking companies that have grown bigger with the expansion of the Internet. Something else they have in common is their understandable emphasis on ensuring that network infrastructure remains more than “dumb pipes” in a potentially deflationary period marked by the rise of cloud computing and an increasing reliance on service-provider patronage.

Something they don’t have in common in size. Cisco is a far bigger company than Juniper, and it has financial resources, namely oodles of cash, that its smaller rival lacks. A story in today’s Wall Street Journal drives the point home, noting that Cisco is among a small number of technology titans that have generated the vast majority of the technology industry’s cash flow during the past two years.

The disparity in wealth between Cisco and Juniper has given the larger company a decided edge in the pursuit of acquisitions. In the last few months, Juniper has indicated that it will focus on organic growth rather than on M&A swashbuckling. Juniper cannot outbid Cisco for the affections of venture-funded startup companies, but it can allocate its internal resources to areas where it might get the measure of its bigger, broader-focused rival.

Nothing is likely to change on that front for the next while, with Juniper CEO Kevin Johnson indicating to the WSJ that his company will continue to grow organically. Regarding the M&A game, Johnson said: “For midsize companies, it’s always difficult to break through with M&A because large companies will always outbid them.”

Companies Pursuing M&A in China Frequently Hacker Targets

In doing some additional background reading on Operation Aurora, I came across an article at Dark Reading that contained an intriguing quote.

Published online on February 10, the article reported that the hack attacks that hit Google, Adobe, and other U.S. organizations were continuing and had affected far more companies than the original 20 or 30 victims reported by Google and others.

The provocative comment comes later in the article, however. It is provided by Kevin Mandia, CEO of forensics firm Mandiant. In discussing the origins of the Operation Aurora malware and the advanced persistent threats (APTs) it unleashed, Mandia said he noticed that many of the firms that were victimized had something in common.

“We see patterns that just make us curious. If you’re doing merger and acquisition work in China, you’re targeted, We’ve seen when we respond to client sites [that were attacked] a lot of legal counsel, external counsel, and C-level executives [targeted] in M&A with China.”

In a Wired article, Mandia said: “If you’re a law firm and you’re doing business in places like China, it’s so probable you’re compromised and it’s very probable there’s not much you can do about it.”

In this case, it seems, being forewarned does not equate to being forearmed.

As HP waits to learn whether its acquisition of 3Com — an ostensibly American company with most of its operations and employees in China — will be approved by China’s Ministry of Commerce (MOFCOM), it might want to batten down the security hatches, just in case.

Google-China Conflict Must Be Viewed in Context of Bigger Story

As the old saw goes, we sometimes can’t see the forest for the trees. What’s happening is hidden in plain sight, but we don’t see it, either because we’re focusing too closely on an incidental element or because we don’t want to confront an unpalatable reality.

I feel that way as I watch the Google-China conflict play out. In truth, the dispute between Google and China is a symptom of a larger problem, one that has far-reaching implications for Western economies and entire industries, including the technology sector.

No, censorship is not the core issue. Censorship is a MacGuffin, a plot device that keeps the story moving in the media but doesn’t get to the heart of what’s really happening. As much as we like to think our companies value human rights above all else, it’s simply not true. Companies are businesses, and they behave like businesses. They’re guided by the profit motive, and they seek to grow revenue and earnings. It’s what they do.

Occasionally, ethical and moral considerations play a role in corporate strategies. There are companies that practice enlightened self-interest, and Google is one of them.

Google knows, for instance, that its search engine is more popular and valuable if it is seen to be objective, delivering the best possible results, not beholden to the solicitations of commercial interests or the fiats of oppressive governments. Paradoxically, by refusing to capitulate to those who would have Google skew its search results, Google actually makes its search engine more valuable to everybody, including Google. That’s enlightened self-interest.

So, what’s really happening? What’s the big picture? Google is one of dozens of Western multinational companies finding that China, though the fastest-growing major economy in the world, will not provide them with the riches they had anticipated. That’s because of China’s nationalist mercantilism, as reflected in its “indigenous innovation” industrial policies.

A story in today’s Wall Street Journal is instructive. Titled “Business Sours on China,” the article explores the growing disillusionment of foreign businesses in China. These businesses are discovering that Chinese authorities are increasingly favoring homegrown state-owned companies across a range of industries, including almost all involving technology-related growth sectors.

What follows is a salient excerpt from the WSJ story:

“The Google issue has had a crystallizing effect,” says Lester Ross, managing partner in Beijing for U.S. law firm Wilmer Cutler Pickering Hale and Dorr. “It raised the consciousness of government and of the boardrooms and other stakeholders” about the difficulties of doing business in China, he says.

Foreign investors have long complained about China’s haphazard legal system and regulation.

These were mere annoyances when China was an emerging market. Today, the huge Chinese market is increasingly fundamental to the health of large Western multinationals. Lose here, say Western executives, and multinationals are weakened globally.

So, as you can see, the stakes are huge. Companies that have built robust Chinese growth into their business models and revenue projections are increasingly anxious — and for good reason.

It doesn’t help that China’s systematic efforts to create state-backed, homegrown, market-leading behemoths doesn’t stop at “indigenous innovation.”

Remember that these issues are being raised by foreign transnationals in the immediate aftermath of what McAfee calls Operation Aurora, an outbreak of corporate espionage that allegedly saw China-based hackers attempt to purloin the source code, product formulas, and other intellectual property in “software configuration management systems” of at least 20 (and perhaps as many as 100) US-based companies. (Yes, Google was one of them, and that’s how and when his latest conflagration with China began.)

We don’t know what intellectual property was stolen from which companies. That information is not being volunteered. What’s not at issue is that somebody was trying to get what McAfee’s calls the corporate “crown jewels.”

I’m not saying censorship and human-rights abuses are not important issues. I wish they were more important than they are. But the fact is, this story is even bigger, with ramifications that could affect the health of Western economies as well as the profitability of the corporations they host.