Daily Archives: July 12, 2011

Chambers’ Disconcerting Cius Pitch

In his keynote presentation to Cisco Live in Las Vegas earlier today, Cisco CEO John Chambers repented for his earlier sins against stakeholder value and vowed to make amends.

Devalued Credibility

A few short years ago, Chambers’ word would have been his bond, and his bonds would have traded at high value on any market. These days, Chambers’ words are met with skepticism.

If John Chambers has lost some luster, so has his company.  Cisco had been the worst-performing Dow stock this year until it staged a mild rally and edged past Bank of America earlier today. Even Ralph Nader, who is a Cisco shareholder as well a consumer activist, is unhappy with the company’s stock and the stewardship of its CEO.

Cisco customers, partners, suppliers, and investors now know that the networking giant and its braintrust aren’t infallible. That’s okay, of course. We all make mistakes. What’s important is that we learn from the mistakes we make, avoid repeating the same ones, and work diligently to be right more often than we are wrong. When we slip up, we want the miscues to be minor, the successes to be big.

Lessons Learned?

That’s what Cisco and Chambers will try to do now, but one wonders whether they’ve learned the lessons administered during the company’s humbling time in market purgatory.

It wasn’t long ago, just two years back to be exact, that John Chambers was lavishing praise upon the Flip video camera. Chambers proclaimed that the Flip, which came to Cisco through the acquisition of Pure Digital, was — along the video in general — the future of both consumer and enterprise communication.

We all know now that the Flip won’t play a part in Cisco’s future or the in the future of video communication. Cisco killed the Flip, realizing that it was destined to fail against smartphones that increasingly came equipped with video capabilities approximating those of the video-only Flip.

Chambers Says Cius is Hot, but it’s Not

If Chambers had learned from the Flip debacle, one could let him take the mulligan and move on. But I’m so sure the Flip was an aberration. Today, Chambers said the following about an overpriced Android tablet that appears to have much dimmer prospects than the Flip had back in 2009:

 “You’re beginning to see it (the Cius) launch in volume. I believe this product is going to be really hot.” 

I realize that the success or failure of the Cius will not seal Cisco’s fate. The Cius could go the way of the dinosaur, or the Flip, and Cisco would still endure. Cisco’s destiny will turn on how well it defends its core markets while finding and sustaining growth in, yes, those much-maligned market adjacencies. All the while, Cisco will have to outmaneuver competitors in adjusting to ongoing virtualization, cloud computing, increased mobility, and the growing cost-consciousness of enterprise and service-provider technology buyers in developed markets. It’s a daunting challenge.

Unnecessary Distraction

Cisco doesn’t need doomed distractions like the Cius. What’s more, what Cisco is trying to do with Cius — selling tablets to corporate IT departments to foist on their employees — goes against everything that we’re seeing today in the marketplace. The Cius lacks consumer appeal, does not run the latest tablet-optimized version of Android, is overpriced, has a less-than-optimal seven-inch display, and isn’t really designed to be anything more than a mobile access point, or adjunct, for Cisco’s proprietary collaboration and Telepresence technologies. It goes completely against the grain of the seemingly inexorable wave of IT consumerization.

It feels, well, outdated, like something an out-of-touch legacy vendor would try to force down the throats of its customers, failing to recognize that the rules and the game have changed.

Maybe Chambers was just switched to autopilot cheerleader mode and he was giving everything, including the Cius, the pitchman’s hard sell. In this case, one hopes he isn’t buying his own bluster.

Handicapping Dell Networking Acquisition Candidates

There’s a strong possibility that Dell will make a networking acquisition in the near future. In the spirit of fun, I thought it would be mildly entertaining, and perhaps edifying — though I don’t want to push it — to handicap the field of potential candidates, providing morning-line odds for each vendor.

Brocade 5-2

I addressed the Dell-Brocade scenario in a previous post.

Even though there are reasons Dell might not pursue Brocade, the company is a logical candidate and should be considered the favorite. As any gambler can tell you, however, favorites don’t always win, and there’s a chance Dell will look elsewhere in the field for its networking play.

Juniper Networks 7-1

Dell resells Juniper’s enterprise switches and security boxes under its own PowerConnect brand, but a lot of what Juniper offers, particularly routers to carriers and service providers, isn’t a Dell priority.  What’s more, Juniper would prefer to remain independent, has other major partnerships (especially with IBM), and believes it is well placed to take share from Cisco at carriers and service providers as virtualization proliferates and cloud computing takes hold.

Last, but probably not least, Juniper’s market capitalization, at more than $16 billion, makes it prohibitively expensive. Dell’s cash hoard amounts to more than $14 billion, but I doubt it wants to break the bank  on a single transaction.

Aruba Networks 10-1

Dell sells Aruba’s wireless networking solutions under the Dell PowerConnect W-Series. Aruba is seen to benefit from continued growth in enterprise wireless networking. Still, Dell is probably happy to leave the relationship as it stands.

Enterasys 12-1

The two companies were active partners several years back, but not much is happening today. Not likely.

 Arista Networks 7-1

Michael Dell is enthusiastic about the prospects for 10GbE and cloud computing. Arista probably isn’t willing to sell, but my guess is that Dell — seeing Arista’s gains against Cisco in financial services, with more possibly to come in other verticals — would be interested.

That said, Arista seems destined for an IPO. The company’s CEO Jayshree Ullal has said she is asked often by customers about Arista’s exit strategy, and she replies that the company’s plan is to remain independent.

Extreme Networks 6-1

Extreme and Dell have an existing partnerships, with the former’s switches supporting Dell’s EqualLogic iSCSI SAN arrays. Extreme also has the 10GbE  switching of which Michael Dell is so enamored.

Extreme isn’t an industry leader, and it’s still struggling for traction in a competitive marketplace, but it’s active in many verticals where Dell is strong — including healthcare — and Dell might feel it could do relatively well with such a cost-effective purchase. (Extreme’s market capitalization is $314 million.) It could be a good way Dell to make a modest entry into networking, though it would create complications with existing partners.

 Force10 Networks  7-2

Dell partners with Force10 for Layer 3 backbone switches and for Layer 2 aggregation switches. Customers that have deployed Dell/Force10 networks include eHarmony, Salesforce.com, Yahoo, and F5 Networks.

Again, Michael Dell has expressed an interest in 10GbE and Force10 fits the bill. The company has struggled to break out of its relatively narrow HPC niche, placing increasing emphasis on its horizontal enterprise and data-center capabilities. Dell and Force10 have a history together and have deployed networks in real-word accounts. That could set the stage for a deepening of the relationship, presuming Force10 is realistic about its market valuation.

 F5 Networks 8-1

Dell is the largest reseller of F5 products, and the relationship clearly is working for both companies. Dell resells not only F5’s flagship BIG-IP application-traffic controller, but also the company’s ARX file-virtualization appliance.

Dell and F5 have a great partnership, but I think Dell believes F5 isn’t going anywhere — it will likely remain independent, despite the perennial rumors that it could be acquired — and will agree to leave well enough alone.

Riverbed Technology 8-1

Riverbed and Dell are partners, with Riverbed’s Steelhead WAN-optimization appliances and Dell EqualLogic PS Series iSCSI SAN arrays deployed together in disaster-recovery and centralized data-backup applications.

The relationship works, Dell has other near-term priorities, and an acquisition of Riverbed would be relatively pricy and still leave Dell with networking gaps.

Any Others? 

It’s possible Dell will look elsewhere, perhaps at an emerging niche player, so I’ll leave the field open for late entrants. If you think any should be included, let me know.

How Cisco Arrived at the Crossroads

As reports of Cisco’s impending layoffs intensify and spread, I started thinking about how the networking giant got into its current predicament and whether it can escape from it.

One major problem for the company is that the challenges it faces aren’t entirely attributable to its own mistakes. If Cisco’s own bumbling was wholly responsible for the company’s middle-life crisis, one might think it could stop engaging in self-harm, right the ship, and chart a course to renewed prosperity.

Internal Missteps Exacerbated by External Factors

But, even though Cisco has contributed significantly to its own decline — with a byzantine bureaucratic management structure replete with a multitude of executive councils, half-baked forays into consumer markets about which it knew next to nothing, imperial overstretch into too many markets with too many diluted products, and the loss of far too many talented leaders — external factors also played a meaningful role in bringing the company to this crossroads.

Those external factors comprise market dynamics and increasingly effective incursions by competitors into Cisco’s core business of switching and routing, not just in the telco space but increasingly — and more significantly — in enterprise markets, where Cisco heretofore has maintained hegemonic dominance.

If we look into the recent past, we can see that Cisco saw one threat coming well before it actually arrived. Before cloud computing crashed the networking party and threatened to rearrange data-center infrastructure worldwide, Cisco faced the threat of network-gear commoditization from a number of vendors, including the “China-out” 3Com, which had completely remade itself into a Chinese company with an American name through its now-defunct H3C joint venture with Huawei.

Now, of course, 3Com is part of HP Networking, and a big draw for HP when it acquired 3Com was represented by the cost-effective products and low-priced engineering talent that H3C offered. HP reasoned that if Cisco wanted to come after its server market with Unified Computing System (UCS), HP would fight back by attacking the relatively robust margins in Cisco’s bread-and-butter business with aggressively priced networking gear.

Cisco Prescience

HP’s strategy, especially in a baleful macroeconomic world where cost-cutting in enterprises and governments is now an imperative rather than a prerogative, is beginning to bear fruit, as recent market-share gains attest.

Meanwhile, Cisco knew that Huawei, gradually eating into its telecommunications market share in markets outside North America, would eventually seek future growth in the enterprise. It was inevitable, and Cisco had to prepare for the same low-priced, value-based onslaught that Huawei waged so successfully against it in overseas carrier accounts. In the enterprise, Huawei would follow the same telco script, focusing first on overseas markets — in its home market, China, as well as in Asia, the Middle East, Europe, and South America — before making its push into a less-receptive North American market.

That is happening now, as I write this post, but Cisco had the prescience to see it on the horizon years before it actually occurred.

Explaining Drive for Diversification

What do you think that hit-and-miss diversification strategy — into consumer markets, into home networking, into enterprise collaboration with WebEx, into telepresence, into smart grids, into so much else besides — was all about? Cisco was looking to escape getting hit by the bullet train of network commoditization, aimed straight at its core business.

That Cisco has not excelled in its diversification strategy into new markets and technologies shouldn’t come as a surprise. Well before it make those moves, it had failed in diversification efforts much closer to home, in areas such as WAN optimization, where it had been largely unsuccessful against Riverbed, and in load balancing/application traffic management, where F5 had throughly beaten back the giant. The truth is, Cisco has a spotty record in truly adjacent or contiguous markets, so it’s no wonder that it has struggled to dominate markets that are further afield.

Game Gets More Complicated

Still, the salient point is that Cisco went into all those markets because it felt it needed to do so, for revenue growth, for margin support, for account control, for stakeholder benefit.

Now, cloud computing, with all its many implications for networking, is roiling the telco, service provider, and enterprise markets. It’s not certain that Cisco can respond successfully to cloud-centric threats posed by data-center networking vendors such Juniper Networks as Arista Networks or by technologies such as software-defined networking (as represented by the OpenFlow protocol).

Cisco was already fighting one battle, against the commoditizing Huaweis and 3Coms of the world, and now another front has opened.