Category Archives: Brocade

Embrane Emerges from Stealth, Brings Heleos to Light

I had planned to write about something else today — and I still might get around to it — but then Embrane came out of stealth mode. I feel compelled to comment, partly because I have written about the company previously, but also because what Embrane is doing deserves notice.

Embrane’s Heleos

With regard to aforementioned previous post, which dealt with Dell acquisition candidates in Layer 4-7 network services, I am now persuaded that Dell is more likely to pull the trigger on a deal for an A10 Networks, let’s say, than it is to take a more forward-looking leap at venture-funded Embrane. That’s because I now know about Embrane’s technology, product positioning, and strategic direction, and also because I strongly suspect that Dell is looking for a purchase that will provide more immediate payback within its installed base and current strategic orientation.

Still, let’s put Dell aside for now and focus exclusively on Embrane.

The company’s founders, former Andiamo-Cisco lads Dante Malagrinò and Marco Di Benedetto, have taken their company out of the shadows and into the light with their announcement of Heleos, which Embrane calls “the industry’s first distributed software platform for virtualizing layer 4-7 network services.” What that means, according to Embrane, is that cloud service providers (CSPs) and enterprises can use Heleos to build more agile networks to deliver cloud-based infrastructure as a service (IaaS). I can perhaps see the qualified utility of Heleos for the former, but I think the applicability and value for the latter constituency is more tenuous.

Three Wise Men

But I am getting ahead of myself, putting the proverbial cart before the horse. So let’s take a step back and consult some learned minds (including  an”ethereal” one) on what Heleos is, how it works, what it does, and where and how it might confer value.

Since the Embrane announcement hit the newswires, I have read expositions on the company and its new product from The 451 Group’s Eric Hanselman, from rock-climbing Ivan Pepelnjak (technical director at NIL Data Communications), and from EtherealMind’s Greg Ferro.  Each has provided valuable insight and analysis. If you’re interested in learning about Embrane and Heleos, I encourage you to read what they’ve written on the subject. (Only one of Hanselman’s two The 451 Group pieces is available publicly online at no charge).

Pepelnjak provides an exemplary technical description and overview of Heleos. He sets out the problem it’s trying to solve, considers the pros and cons of the alternative solutions (hardware appliances and virtual appliances), expertly explores Embrane’s architecture, examines use cases, and concludes with a tidy summary. He ultimately takes a positive view of Heleos, depicting Embrane’s architecture as “one of the best proposed solutions” he’s seen hitherto for scalable virtual appliances in public and private cloud environments.

Limited Upside

Ferro reaches a different conclusion, but not before setting the context and providing a compelling description of what Embrane does. After considering Heleos, Ferro ascertains that its management of IP flows equates to “flow balancing as a form of load balancing.” From all that I’ve read and heard, it seems an apt classification. He also notes that Embrane, while using flow management, is not an “OpenFlow/SDN business. Although I see conceptual similarities between what Embrane is doing and what OpenFlow does, I agree with Ferro, if only because, as I understand it, OpenFlow reaches no higher than the network layer. I suppose the same is true for SDN, but this is where ambiguity enters the frame.

Even as I wrote this piece, there was a kerfuffle on Twitter as to whether or to what extent Embrane’s Heleos can be categorized as the latest manifestation of SDN. (Hours later, at post time, this vigorous exchange of views continues.)

That’s an interesting debate — and I’m sure it will continue — but I’m most intrigued by the business and market implications of what Embrane has delivered. On that score, Ferro sees Embrane’s platform play as having limited upside, restricted to large cloud-service providers with commensurately large data centers. He concludes there’s not much here for enterprises, a view with which I concur.

Competitive Considerations

Hanselman covers some of the same ground that Ferro and Pepelnjak traverse, but he also expends some effort examining the competitive landscape that Embrane is entering. In that Embrane is delivering a virtualization platform for network services, that it will be up against Layer 4-7 stalwarts such as F5 Networks, A10 Networks, Riverbed/Zeus, Radware, Brocade, Citrix, Cisco, among others. F5, the market leader, already recognizes and is acting upon some of the market and technology drivers that doubtless inspired the team that brought Heleos to fruition.

With that in mind, I wish to consider Embrane’s business prospects.

Embrane closed a Series B round of $18 million in August. It was lead by New Enterprise Associates and included the involvement of Lightspeed Venture Partners and North Bridge Venture Partners, both of whom participated in a $9-million series A round in March 2010.

To determine whether Embrane is a good horse to back (hmm, what’s with the horse metaphors today?), one has to consider the applicability of its technology to its addressable market — very large cloud-service providers — and then also project its likelihood of providing a solution that is preferable and superior to alternative approaches and competitors.

Counting the Caveats

While I tend to agree with those who believe Embrane will find favor with at least some large cloud-service providers, I wonder how much favor there is to find. There are three compelling caveats to Embrane’s commercial success:

  1. L4-7 network services, while vitally important cloud service providers and large enterprises, represent a much smaller market than L2-L3 networking, virtualized or otherwise. Just as a benchmark, Dell’Oro reported earlier this year that the L2-3 Ethernet Switch market would be worth approximately $25 billion in 2015, with the L4-7 application delivery controller (ADC) market expected to reach more than $1.5 billion, though the virtual-appliance segment is expected show most growth in that space. Some will say, accurately, that L4-7 network services are growing faster than L2-3 networking. Even so, the gap is size remains notable, which is why SDN and OpenFlow have been drawing so much attention in an increasingly virtualized and “cloudified” world.
  2. Embrane’s focus on large-scale cloud service providers, and not on enterprises (despite what’s stated in the press release), while rational and perfectly understandable, further circumscribes its addressable market.
  3. F5 Networks is a tough competitor, more agile and focused than a Cisco Systems, and will not easily concede customers or market share to a newcomer. Embrane might have to pick up scraps that fall to the floor rather than feasting at the head table. At this point, I don’t think F5 is concerned about Embrane, though that could change if Embrane can use NaviSite — its first customer, now owned by TimeWarner Cable — as a reference account and validator for further business among cloud service providers.

Notwithstanding those reservations, I look forward to seeing more of Embrane as we head into 2012. The company has brought a creative approach and innovation platform architecture to market, a higher-layer counterpart and analog to what’s happening further down the stack with SDN and OpenFlow.

Brocade Engages Qatalyst Again, Hopes for Different Result

The networking industry’s version of Groundhog Day resurfaced late last week when the Wall Street Journal published an article in which “people familiar with the matter” indicated that Brocade Communications Systems was up for sale — again.

Just like last time, investment-banking firm Qatalyst Partners, headed by the indefatigable Frank Quattrone, appears to have been retained as Brocade’s agent. Quattrone and company failed to find a buyer for Brocade last time, and many suspect the same fate will befall the principals this time around.

Changed Circumstances

A few things, however, are different from the last time Brocade was put on the block and Qatalyst beat Silicon Valley’s bushes seeking prospective buyers. For one thing, Brocade is worth less now than it was back then. The company’s shares are worth roughly half as much as they were worth during fevered speculation about its possible acquisition back in the early fall of 2009. With a current market capitalization of about $2.15 billion, Brocade would be easier for a buyer to digest these days.

That said, the business case for Brocade acquisition doesn’t seem as compelling now as it was then. The core of its commercial existence, still its Fibre Channel product portfolio, is well on its way to becoming a slow-growth legacy business. What’s worse, it has not become a major player in Ethernet switching subsequent to its $3 billion purchase of Foundry Networks in 2008. Running the numbers, prospective buyers would be disinclined to pay much of a premium for Brocade today unless they held considerable faith in the company’s cloud-networking vision and strategy, which isn’t at all bad but isn’t assured to succeed.

Unfortunately, another change is that fewer prospective buyers would seem to be in the market for Brocade these days. Back in 2009, Dell, HP, Oracle, IBM all were mentioned as possible acquirers of the company. One would be hard pressed to devise a plausible argument for any of those vendors to make a play for Brocade now.

Dell is busily and happily assimilating and integrating Force10 Networks; HP is still trying to get its networking house in order and doesn’t need the headaches and overlaps an acquisition of Brocade would entail; IBM is content to stand pat for now with its BLADE Network Technologies acquisition; and, as for Oracle, Larry Ellison was adamant that he wanted no part of Brocade. Admittedly, Ellison is known for his shrewdness and occasional reverses, but he sured seemed convincing regarding Oracle’s position on Brocade.

Sorting Out the Remaining Candidates

So, that leaves, well, who exactly? Some believe Cisco might buy up Brocade as a consolidation play, but that seems only a remote possibility. Others see Juniper Networks similarly making a consolidation play for Brocade. It could happen, I suppose, but I don’t think Juniper needs a distraction of that scale just as it is reaching several strategic crossroads (delivery of product roadmap, changing industry dynamics, technological shifts in its telco and service-provider markets). No, that just wouldn’t seem a prudent move, with the risks significantly outweighing the potential rewards.

Some say that private-equity players, some still flush with copious cash in their coffers, might buy Brocade. They have the means and the opportunity, but is the motive sufficient? It all comes back to believing that Brocade is on a strategic path that will make it more valuable in the future than it is today. In that regard, the company’s recent past performance, from a valuation standpoint, is not encouraging.

A far-out possibility, one that I would classify as remotely unlikely, envisions EMC buying Brocade. That would signal an abrupt end to the Cisco-EMC partnership, and I don’t see a divorce, were it to transpire, occurring quite so suddenly or irrevocably.

I do, however, see one dark-horse vendor that could make a play for Brocade, and might already have done so.

Could it Be . . . Hitachi?

That vendor? It’s Hitachi Data Systems. Yes, you’re probably wondering whether I’ve partaken of some pre-Halloween magic mushrooms, but I’ve made at least a half-way credible case for a Hitachi acquisition of Brocade previously. With its well-hidden Unified Compute Platform (UCP), Hitachi has aspirations to compete against Cisco, HP, Dell and others in converged data-center infrastructure. Hitachi owns 60 percent of a networking joint venture, with NEC as the junior partner, called Alaxala. If you go to the Alaxala website, you’ll see the joint venture’s current networking portfolio, which is bereft of Fibre Channel switches.

The question is, does Hitachi want them? Today, as indicated on the Hitachi website, the company partners with Brocade, Cisco, Emulex (adapters), and QLogic (adapters) for Fibre Channel networking and with Brocade and QLogic (adapters) for iSCSI networking.

The last time Brocade was said to the market, the anticlimactic outcome left figurative egg on the faces of Brocade directors and on those of the investment bankers at Qatalyst, which has achieved a relatively good batting average as a sales agent. Let’s assume — and, believe me, it’s a safe assumption — that media leaks about potential acquisitions typically are carefully contrived occurrences, done either to make a market or to expand a market in which there’s a single bidder that has declared intent and made an offer. In the latter case, the leak is made to solicit a competitive bid and drive up value.

Hold the Egg this Time

I’m not sure what transpired the first time Qatalyst was contracted to find a buyer for Brocade. The only sure inference is that the result (or lack thereof) was not part of the plan. Giving both parties the benefit of the doubt, one would think lessons were learned and they would not want to perform a reprise of the previous script. So, while perhaps last time there wasn’t a bidder or the bidder withdrew its offer after the media leak was made, I think there’s a prospective buyer firmly at the table this time. I also think Brocade wants to see whether a better offer can be had.

My educated guess, with the usual riders and qualifications in effect,* is that perhaps Hitachi or a private-equity concern (Silver Lake, maybe) is at the table. With the leak, Brocade and Qatalyst are playing for time and leverage.

We’ll see, perhaps sooner rather than later.

* I could, alas, be wrong.

Wondering About Huawei Symantec and Force10

I’m catching up on a few fronts today, one of which involves the ever-changing machinations of Huawei in its various forms and incarnations.

Huawei’s joint venture with Symantec, aptly named Huawei Symantec, made news a few weeks ago when it signaled that it might target converged data-center infrastructure.  Although it was apparent for a while that Huawei had the potential to assemble and integrate most of the pieces of the data-center puzzle, the announcement was further evidence of Huawei’s far-reaching aspirations, which now extend into enterprises and the cloud and well beyond its original remit covering telecommunications gear.

Puzzling Partnership

I’ve written about where I think Huawei is going with its Symantec joint venture, so that’s not the point of this post. Instead, I’d like to point to a relationship that Huawei Symantec established earlier this year, one that seems never to have gotten off the ground and probably never will. In retrospect, given what’s happened in the interim, I’m not sure why the partnership was pursued in the first place.  We can speculate, of course — and we will.

The alliance in question was actually a “strategic partnership” between Huawei Symantec and Force10 Networks. It involved the combination of “Huawei Symantec’s expertise in storage hardware and software with Force10 Networks’ best-in-class Ethernet switches to create high performance solutions aimed at strategic vertical markets.”

In the press release announcing the partnership, Jane Li, general manager for Huawei Symantec Technologies Co. Ltd. (Huawei Symantec), said she was “confident and excited about the winning combination of our respective capabilities and look forward to a long-lasting partnership.”

Well, unless Jane’s definition of “long-lasting” is a few months, I don’t think Huawei Symantec’s dalliance with Force10 will qualify.

Questions and Speculation

As we know, Dell has since announced that it will acquire Force10 Networks and Huawei Symantec has signaled that it will incorporate Huawei’s high-end Ethernet switches and servers into its converged data-center infrastructure. In just a few months, the “strategic partnership” between Huawei Symantec and Force10 seems to have been rendered null and void. (If somebody has information to the contrary, I am more than willing to admit it into evidence.)

So, we’re left with the obvious question: Why? What was it all about? Did circumstances change that fast for both companies, or did each of them have short-term motives, perhaps ulterior, for announcing a tie-up?

Perhaps Force10 saw Huawei as a potential acquirer, or maybe Force10 wanted to give the appearance that Huawei (or Huawei Symantec) might be a potential acquirer. Huawei clearly had the ability to design and build switches of its own, but it might have wanted some intellectual property that Force10 owned. There are various scenarios one could imagine.

From Strategic to Abandoned

Now that Dell owns Force10, I can’t see the Round Rock crowd wanting to provide converged-infrastructure succor to Huawei, nor can I envision Huawei needing Dell. I just don’t see an alliance forming there.

It’s hard to say what was behind the partnership between Huawei Symantec and Force10, but I suspect strongly that it has gone from “strategic” to abandoned in near-record time.

ONF Board Members Call OpenFlow Tune

The concept of software-defined networking (SDN) has generated considerable interest during the last several months.  Although SDNs can be realized in more than one way, the OpenFlow protocol seems to have drawn a critical mass of prospective customers (mainly cloud-service providers with vast data centers) and solicitous vendors.

If you aren’t up to speed with the basics of software-defined networking and OpenFlow, I suggest you visit the Open Networking Foundation (ONF) and OpenFlow websites to familiarize yourself the underlying ideas.  Others have written some excellent articles on the technology, its perceived value, and its potential implications.

In a recent piece he wrote originally for GigaOm, Kyle Forster of Big Switch Networks offers this concise definition:

Concisely Defined

“At its most basic level, OpenFlow is a protocol for server software (a “controller”) to send instructions to OpenFlow-enabled switches, where these instructions give direct control over how those switches forward traffic through the network.

I think of OpenFlow like an x86 instruction set for the network – it’s low-level, but it’s very powerful. Continuing that analogy, if you read the x86 instruction set for the first time, you might walk away thinking it could be useful if you need to build a fancy calculator, but using it to build Linux, Apache, Microsoft Word or World of Warcraft wouldn’t exactly be obvious. Ditto for OpenFlow. It isn’t the protocol that is interesting by itself, but rather all of the layers of software that are starting to emerge on top of it, similar to the emergence of operating systems, development environments, middleware and applications on top of x86.”

Increased Network Functionality, Lower Network Operating Costs

The Open Networking Foundation’s charter summarizes its objectives and the value proposition that advocates of SDN and OpenFlow believe they can deliver:

 “The Open Networking Foundation is a nonprofit organization dedicated to promoting a new approach to networking called Software-Defined Networking (SDN). SDN allows owners and operators of networks to control and manage their networks to best serve their users’ needs. ONF’s first priority is to develop and use the OpenFlow protocol. Through simplified hardware and network management, OpenFlow seeks to increase network functionality while lowering the cost associated with operating networks.”

That last part is the key to understanding the composition of ONF’s board of directors, which includes Deutsche Telecom, Facebook, Google, Microsoft, Verizon, and Yahoo. All of these companies are major cloud-service providers with multiple, sizable data centers. (Yes, Microsoft also is a cloud-technology purveyor, but what it has in common with the other board members is its status as a cloud-service provider that owns and runs data centers.)

Underneath the board of directors are member companies. Most of these are vendors seeking to serve the needs of the ONF board members and similar cloud-service providers that share their business objective: boosting network functionality while reducing the costs associated with network operations.

Who’s Who of Networking

Among the vendor members are a veritable who’s who of the networking industry: Cisco, HP, Juniper, Brocade, Dell/Force10, IBM, Huawei, Nokia Siemens Networks, Riverbed, Extreme, and others. Also members, not surprisingly, are virtualization vendors such as VMware and Citrix, as well as the aforementioned Microsoft. There’s a smattering of SDN/OpenFlow startups, too, such as Big Switch Networks and Nicira Networks.

Of course, membership does not necessarily entail avid participation. Some vendors, including Cisco, likley would not be thrilled at any near-term prospect of OpenFlow’s widespread market adoption. Cisco would be pleased to see the networking status quo persist for as long as possible, and its involvement in ONF probably is more that of vigilant observer than of fervent proponent. In fact, many vendors are taking a wait-and-see approach to OpenFlow. Some members, including Force10, are bearish and have suggested that the protocol is a long way from delivering the maturity and scalability that would satisfy enterprise customers.

Vendors Not In Charge

Still, the board members are steering the ONF ship, not the vendors. Regardless of when OpenFlow or something like it comes of age, the rise of software-defined networking seems inevitable. Servers and storage gear have been virtualized and have become more application-driven, but networks haven’t changed much in the last several years. They’re faster, yes, but they’re still provisioned in the traditional manner, configured rather than programmed. That takes time, consumes resources, and costs money.

Major cloud-service providers, such as those on the ONF board, want network infrastructure to become more elastic, flexible, and dynamic. Vendors will have to respond accordingly, whether with OpenFlow or with some other approach that delivers similar operational outcomes and business benefits.

I’ll be following these developments closely, watching to see how the business concerns of the cloud providers and the business interests of the networking-vendor community ultimately reconcile.

Reviewing Dell’s Acquisition of Force10

Now seems a good time to review Dell’s announcement last week regarding its acquisition of Force10 Networks. We knew a deal was coming, and now that the move finally has been made, we can can consider the implications.

It was big news on a couple fronts. First, it showcased Dell’s continued metamorphosis from being a PC vendor and box pusher into becoming a comprehensive provider of enterprise and cloud solutions. At the same time, and in a related vein, it gave Dell the sort of converged infrastructure that allows it to compete more effectively against Cisco, HP, and IBM.

The transaction price of Dell’s Force10 acquisition was not disclosed, but “people familiar with the matter” allege that Dell paid about $700 million to seal the deal. Another person apparently privy to what happened behind the scenes says that Dell considered buying Brocade before opting for Force10. That seems about right.

Rationale for Acquisition

As you’ll recall (or perhaps not), I listed Force10 as the second favorite, at 7-2, in my Dell Networking Derby, my attempt to forecast which networking company Dell would buy. Here’s what I said about the rationale for a Dell acquisition of Force10:

 “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.”

While not a cheap buy, Force10 went for a lot less than an acquisition of Brocade, at a market capitalization of $2.83 billion, would have entailed. Of course, bigger acquisitions always are harder to integrate and assimilate than smaller ones. Dell has found a targeted acquisition model that seems to work, and a buy the size of Brocade would have been difficult for the company to digest culturally and operationally. In hindsight, which usually gives one a chance to be 100% correct, Dell made a safer play in opting for Force10.

IPO Plans Shelved

Although Force10 operates nominally in 60 countries worldwide, it derived 80 percent of its $200 million in revenue last year from US customers, primarily data-center implementations. Initially, at least, Dell will focus its sales efforts on cross-pollination between its and Force10’s customers in North America. It will expand from there.

Force10 has about 750 employees, most of whom work at its company headquarters in San Jose, California, and at a research facility in Chennai, India. Force10 doesn’t turn Dell into an overnight networking giant; the acquired vendor had just two percent market share in data-center networking during the first half of 2011, according to IDC. Numbers from Dell’Oro suggest that Force10 owned less than one percent of the overall Ethernet switch market.

Once upon a time, Force10 had wanted to fulfill its exit strategy via an IPO. Those plans obviously were not realized. The scuttlebutt on the street is that, prior to being acquired by Dell, Force10 had been slashing prices aggressively to maintain market share against bigger players.

Channel Considerations

Force10 has about 1,400 customers, getting half its revenue and the other half from channel sales. Dell doesn’t see an immediate change in the sales mix.

Dell will work to avoid channel conflict, but I foresee an increasing shift toward direct sales, not only with the Force10’s data-center networking gear, but also with any converged data-center-in-a-box offerings Dell might assemble.

Converged Infrastructure (AKA Integrated Solution Stack) 

Strategically, Dell and its major rivals are increasingly concerned with provision of converged infrastructure, otherwise known as as an integrated technology stack (servers, storage, networking, associated management and services) for data centers. The ultimate goal is to offer comprehensive automation of tightly integrated data-center infrastructure. These things probably will never run themselves — though one never knows — but there’s customer value (and vendor revenue) in pushing them as far along that continuum as possible.

For some time,  Dell has been on a targeted acquisition trail, assembling all the requisite pieces of the converged-infrastructure puzzle. Key acquisitions included Perot Systems for services, EqualLogic and Compellent for storage, Kace for systems management, and SecureWorks for security capabilities. At the same time, Dell has been constructing data centers worldwide to host cloud applications.

Dell’s converged-infrastructure strategy is called Virtual Network Services Architecture (VNSI), and the company claims Force10’s Open Cloud Networking (OCN) strategy, which stresses automation and virtualization based on open standards, is perfectly aligned with its plans. Dario Zamarian, VP and GM of Dell Networking, said last week that VNSI is predicated on three pillars: “managing from the edge,” where servers and storage are attached to the network; “flattening the network,” which is all the rage these days; and “scaling virtualization.”

For its part, Force10 has been promoting the concept of flatter and more scalable networks comprising its interconnected Z9000 switches in distributed data-center cores.

 The Network OS Question

I don’t really see Dell worrying unduly about gaining greater direct involvement in wiring-closet switches. It has its own PowerConnect switches already, and it could probably equip those to run Force10’s FTOS on those boxes. It seems FTOS, which Dell is positioning as an open networking OS, could play a prominent role in Dell’s competitive positioning against Cisco, HP, Juniper, IBM, and perhaps even Huawei Symantec.

Then again, Dell’s customers might have a say in the matter. At least two big Dell customers, Facebook and Yahoo, are on the board of directors of the Open Networking Foundation (ONF), a nonprofit organization dedicated to promoting software-defined networking (SDN) using the OpenFlow protocol. Dell and Force10 are members of ONF.

It’s possible that Dell and Force10 might look to keep those big customers, and pursue others within the ONF’s orbit, by fully embracing OpenFlow. The ONF’s current customer membership is skewed toward high-performance computing and massive cloud environments, both of which seem destined to be aggressive early adopters of SDN and, by extension, the OpenFlow protocol.  (I won’t go into my thoughts on OpenFlow here — I’ve already written a veritable tome in this missive — but I will cover it in a forthcoming post.)

Notwithstanding its membership in the Open Networking Foundation, Force10 is perceived as relatively bearish on OpenFlow. Earlier this year, Arpit Joshipura, Force10’s chief marketing officer, indicated his company would wait for OpenFlow to mature and become more scalable before offering it on its switches. He said “big network users” — presumably including major cloud providers — are more interested in OpenFlow today than are enterprise customers. Then again, the cloud ultimately is one of the destinations where Dell wants to go.

Still, Dell and Force10 might see whether FTOS can fit the bill, at least for now. As Cindy Borovick, research vice president for IDC’s enterprise communications and data center networks, has suggested, Dell could see Force10‘s FTOS as something that can be easily customized for a wide range of deployment environments. Dell could adapt FTOS to deliver prepackaged products to customers, which then could further customize the network OS depending on their particular requirements.

It’ll be interesting to see how Dell proceeds with FTOS and with OpenFlow.

 Implications for Others

You can be sure that Dell’s acquisition of Force10 will have significant implications for its OEM partners, namely Juniper Networks and Brocade Communications. From what I have heard, not much has developed commercially from Dell’s rebranding of Juniper switches, so any damage to Juniper figures to be relatively modest.

It’s Brocade that appears destined to suffer a more meaningful hit. Sure, Dell will continue to carry and sell its Fiber Channel SAN switches, but it won’t be offering Brocade’s Foundry-derived Ethernet switches, and one would have to think that the relationship, even on the Fiber Channel front, has seen its best days.

As for whether Dell will pursue other networking acquisitions in the near team, I seriously doubt it. Zeus Kerravala advises Dell to buy Extreme Networks, but I don’t see the point. As mentioned earlier, Dell already has its PowerConnect line, and the margins are in the data-center, not out in the wiring closets. Besides, as Dario Zamarian has noted, data-center networking is expected to grow at a compound annual growth rate of 21 percent through 2015, much faster than the three-percent growth forecast for the rest of the industry.

The old Dell would have single-mindedly chased the network box volumes, but the new Dell aspires to something grander.

Cisco: The Merchant-Silicon Question

As reported by MarketWatch yesterday, Lazard Capital analyst Daniel Amir has written a note suggesting that Cisco Systems, “long a proponent of in-house solutions, has begun the shift to off-the-shelf Broadcom parts.”

Amir added that he expects Broadcom and, to a lesser extent, Marvell to benefit from Cisco’s move to merchant silicon, as well as from an intensification of an industrywide trend toward off-the-shelf parts.

Staying the ASIC Course

Many of Cisco’s networking rivals already have made the switch to merchant silicon. Cisco, along with Brocade Communications, has stayed the course with custom ASICs, believing that the in-house chip designs confer meaningful proprietary differentiation and attendant competitive advantage.

It’s getting harder for Cisco to make that case, though, as the company suffers market-share losses and margin erosion at the low end of the switching market, which is being inexorably commoditized, and as it also meets increasingly strong competitive headwinds from vendors such as Juniper Networks and Arista Networks in the some of the largest and most demanding data-center environments.

As Cisco’s recently announced layoffs attest, the company is under unprecedented pressure from shareholders to reduce costs. It’s also under the gun to raise its top line, but that’s a tougher problem that could take a while to remedy.

Need to Cut Costs

On the cost front, though, Cisco clearly cannot jettison employees indefinitely. It needs to look at other ways to reduce capital and operating expenditures without compromising its ability to get back on a sustainable growth trajectory.

Given the success of its competitors with off-the-shelf networking chips, one would think Cisco would stop swimming against the merchant-silicon tide. It’s likely that merchant silicon would help reduce Cisco’s development costs, allowing it to at least mitigate the margin carnage it’s suffering at the hands of HP and others in an increasingly price-sensitive networking world.

But even though Amir suggests that Cisco’s apparent dalliance with merchant silicon might not be a “one-time experiment,” it’s not a given that Cisco will ardently transition from home-brewed ASICs to off-the-shelf chips.

Mixed Signals

Just last month, Rob Soderbery, senior vice president and general manager of Cisco’s Unified Access business unit, contended that Cisco’s profits and market share in switching revenue might be taking a hit, but that it was holding its own it port-based market share. What’s more, Soderbery made the following statement regarding whether Cisco was considering adoption of merchant silicon over its custom ASICs:

 “There’s tremendous scale in our portfolio. We have competitive ASIC development. We always evaluate a make/buy decision. ASIC development is a core part of our strategy.”

Maybe Cisco, upon further review, has decided to change course, or perhaps Amir has misread the situation.

Next Setting Sun?

Nonetheless, EtherealMind.com’s Greg Ferro argued persuasively earlier this year that merchant silicon will dominate the networking-hardware market. If you haven’t read it, I advise you to read the whole piece, but here’s a money-shot excerpt:

 “I have the view that Merchant Silicon will dominate eventually, and physical networking products will become commodities that differentiate by software features and accessories – not unlike the “Intel server” industry (you should get the irony in that statement). As a result, any argument between “which is better – merchant or custom” is just matter of when you ask the question.

One interesting feature is that John Chambers continue to publicly state that custom silicon is their future. The are parallels with Sun Microsystems who continued to make their own processors in the face of an entire market shift, and that doesn’t appear to have worked out very well. In this another wrong footed innovation from Cisco? Time will tell.”

Besieged now by its shareholders as well as by its competitors, Cisco CEO John Chambers and his executive team are finding that time does not appear to be on their side.

Dell Might Announce Networking Acquisition Next Week

As those of you who regularly visit this dusty outpost of the blogosphere will know, I recently took a shot at handicapping which networking company Dell might acquire. I assembled a field of nine entries, considered the likelihood that Dell would pursue a transaction with each of them, and assigned odds to each scenario.

Before writing that post, I had read and heard mounting speculation about the increasing likelihood of Dell buying its way into networking to consummate and round out integrated data-center solutions (servers, storage, networking) and to compete more effectively against competitors HP and Cisco.

The drumbeat for a networking acquisition by Dell has only gotten louder and more insistent since then. Now the word on the street — and in the pubs, in the cafes, on the patios, at the gyms, and on the fairways — is that Dell might announce its networking buy as early as next week.

Furthermore, multiple sources, spanning the gamut of reliability, tell me that the company Dell will buy is the one I listed as the 5-2 favorite in my mildly diverting handicapping exercise.  (The candidate I listed at 7-2 was alleged to have been in the running, too.)

Nothing is a given, of course, until the announcement goes out over the wires, but the word is that Dell has made its choice, going with the favorite, and will tell the world all about it imminently.

Maybe I should shorten the odds accordingly.