Category Archives: Consumer Electronics

For Huawei and ZTE, Suspicions Persist

About two weeks ago, the U.S. House Permanent Select Committee on Intelligence held a hearing on “the national-security threats posed by Chinese telecom companies doing business in the United States.” The Chinese telecom companies called to account were Huawei and ZTE, each of which is keen to expand its market reach into the United States.

It is difficult to know what to believe when it comes to the charges leveled against Huawei and ZTE. The accusations against the companies, which involve their alleged capacity to conduct electronic espionage for China and their relationships with China’s government, are serious and plausible but also largely unproven.

Frustrated Ambitions

One would hope these questions could be settled definitively and expeditiously, but this inquiry looks be a marathon rather than a sprint. Huawei and ZTE want to expand in the U.S. market, but their ambitions are thwarted by government concerns about national security.  As long as the concerns remain — and they show no signs of dissipating soon — the two Chinese technology companies face limited horizons in America.

Elsewhere, too, questions have been raised. Although Huawei recently announced a significant expansion in Britain, which received the endorsement of the government there, it was excluded from participating in Australia’s National Broadband Network (NBN). The company also is facing increased suspicion in India and in Canada, countries in which it already has made inroads.

Vehement Denials 

Huawei and ZTE say they’re facing discrimination and protectionism in the U.S.  Both seek to become bigger players globally in smartphones, and Huawei has its sights set on becoming a major force in enterprise networking and telepresence.

Obviously, Huawei and ZTE deny the allegations. Huawei has said it would be self-destructive for the company to function as an agent or proxy of Chinese-government espionage. Huawei SVP Charles Ding, as quoted in a post published on the Forbes website, had this to say:

 As a global company that earns a large part of its revenue from markets outside of China, we know that any improper behaviour would blemish our reputation, would have an adverse effect in the global market, and ultimately would strike a fatal blow to the company’s business operations. Our customers throughout the world trust Huawei. We will never do anything that undermines that trust. It would be immensely foolish for Huawei to risk involvement in national security or economic espionage.

Let me be clear – Huawei has not and will not jeopardise our global commercial success nor the integrity of our customers’ networks for any third party, government or otherwise. Ever.

A Telco Legacy 

Still, questions persist, perhaps because Western countries know, from their own experience, that telecommunications equipment and networks can be invaluable vectors for surveillance and intelligence-gathering activities. As Jim Armitage wrote in The Independent, telcos in Europe and the United States have been tapped repeatedly for skullduggery and eavesdropping.

In one instance, involving the tapping  of 100 mobile phones belonging to Greek politicians and senior civil servants in 2004 and 2005, a Vodafone executive was found dead of an apparent suicide. In another case, a former head of security at Telecom Italia fell off a Naples motorway bridge to his death in 2006 after discovering the illegal wiretapping of 5,000 Italian journalists, politicians, magistrates, and — yes — soccer players.

No question, there’s a long history of telco networks and the gear that runs them being exploited for “spookery” (my neologism of the day) gone wild. That historical context might explain at least some of the acute and ongoing suspicion directed at Chinese telco-gear vendors by U.S. authorities and politicians.

Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

Lessons for Cisco in Cius Failure

When news broke late last week that Cisco would discontinue development of its Android-based Cius, I remarked on Twitter that it didn’t take a genius to predict the demise of  Cisco’s enterprise-oriented tablet. My corroborating evidence was an earlier post from yours truly — definitely not a genius, alas — predicting the Cius’s doom.

The point of this post, though, will be to look forward. Perhaps Cisco can learn an important lesson from its Cius misadventure. If Cisco is fortunate, it will come away from its tablet failure with valuable insights into itself as well as into the markets it serves.

Negative Origins

While I would not advise any company to navel-gaze obsessively, introspection doesn’t hurt occasionally. In this particular case, Cisco needs to understand what it did wrong with the Cius so that it will not make the same mistakes again.

If Cisco looks back in order to look forward, it will find that it pursued the Cius for the wrong reasons and in the wrong ways.  Essentially, Cisco launched the Cius as a defensive move, a bid to arrest the erosion of its lucrative desktop IP-phone franchise, which was being undermined by unified-communications competition from Microsoft as well as from the proliferation of mobile devices and the rise of the BYOD phenomenon. The IP phone’s claim to desktop real estate was becoming tenuous, and Cisco sought an answer that would provide a new claim.

In that respect, then, the Cius was a reactionary product, driven by Cisco’s own fears of desktop-phone cannibalization rather than by the allure of a real market opportunity. The Cius reeked of desperation, not confidence.

Hardware as Default

While the Cius’ genetic pathology condemned it at birth, its form also hastened its demise. Cisco now is turning exclusively to software (Jabber and WebEx) as answers to enterprise-collaboration conundrum, but it could have done so far earlier, before the Cius was conceived. By the time Cisco gave the green light to Cius, Apple’s iPhone and iPad already had become tremendously popular with consumers, a growing number of whom were bringing those devices to their workplaces.

Perhaps Cisco’s hubris led it to believe that it had the brand, design, and marketing chops to win the affections of consumers. It has learned otherwise, the hard way.

But let’s come back to the hardware-versus-software issue, because Cisco’s Cius setback and how the company responds to it will be instructive, and not just within the context of its collaboration products.

Early Warning from a Software World

As noted previously, Cisco could have gone with a software-based strategy before it launched the Cius. It knew where the market was heading, and yet it still chose to lead with hardware. As I’ve argued before, Cisco develops a lot of software, but it doesn’t act (or sell) like software company. It can sell software, but typically only if the software is contained inside, and sold as, a piece of hardware. That’s why, I believe, Cisco answered the existential threat to its IP-phone business with the Cius rather than with a genuine software-based strategy. Cisco thinks like a hardware company, and it invariably proposes hardware products as reflexive answers to all the challenges it faces.

At least with its collaboration products, Cisco might have broken free of its hard-wired hardware mindset. It remains to be seen, however, whether the deprogramming will succeed in other parts of the business.

In a world where software is increasingly dominant — through virtualization, the cloud, and, yes, in networks — Cisco eventually will have to break its addiction to the hardware-based business model. That won’t be easy, not for a company that has made its fortune and its name selling switches and routers.

Questioning Cisco’s CES Presence

In a recent piece at Forbes, Roger Kay complained that parasitic vendors are killing the annual Consumer Electronics Show (CES) in Las Vegas, the 2012 edition of which kicks off next week. When Kay refers to parasites, he means vendors that avail themselves of nearby hotel suites, where they host and entertain a select audience of invitation-only customers and partners, while evading the time-sucking clutches of the hoi polloi that pack the show floor.

As a vendor strategy, Kay allows, the hotel-suite gambit might make sense, but he’s concerned about the effect of the big-vendor exodus from the show floor. Among the industry players Kay calls on the carpet are Microsoft (exhibiting for the last time at CES this year), Dell, Acer, and Cisco.

Avoiding the Floor, Not the Show

Cisco? Yes, that Cisco. The networking titan that was supposed to be refocusing away from consumerist distractions has decided to hole up in a Las Vegas hotel suite next week on the periphery of a consumer-oriented electronics trade show. Unlike Kay, my problem with Cisco at CES is not that it prefers a sumptuous hotel suite to the lesser glories of the show floor, but that it will be there at all.

In the long-ago spring of 2011, when Cisco announced that it was immolating its Flip video camcorder business, the company stated that it was refocusing around five key technology areas: routing, switching, and services; collaboration; data center virtualization and the cloud; architectures; and video. Despite the apparent contradiction that Cisco was killing the Flip video camcorder while strategically prioritizing video, it seemed pretty clear Cisco’s denotation of “video” encompassed enterprise-related video, such as telepresence and videoconferencing, rather than the consumer-oriented video represented by the defunct Flip.

Belated Acknowledgment

Or did it? After all, Cisco kept its consumer-oriented umi telepresence systems even as it binned Flip. Then again, Cisco belatedly acknowledged that particular error of omission, recently shuttering the umi business, such as it was.

That means Cisco finally is getting itself aligned with its strategic mandate — except, of course, when it isn’t. You see, Cisco still has its home-networking offerings, represented by the Linksys product portfolio, and, unless the company is exceptionally free with its definitions and interpretations, it would encounter great difficulty reconciling that business with its self-proclaimed strategic priorities.

Last year, Cisco said it would attempt to align the Linksys business with its core network-infrastructure business, though that would appear more a theoretical than a practical exercise. Meanwhile, some analysts expected Cisco to divest its low-growth, low-margin consumer businesses, but Cisco’s home-networking group, which definitely checks those divestiture-qualifying boxes, remains in the corporate fold.

Still, speculation persists about a potential sale of the Linksys unit, even as representatives of that unit attempt to portray it as a “key part” of Cisco’s strategy.  According to that defiant narrative, Linksys’ solutions are supposed to be the centerpiece of a master plan that would put Cisco at the forefront of home-entertainment networks that distribute Internet-based video throughout the home to devices such as television sets and BluRay players. But with Cisco’s recent retreat from its umi videoconferencing, the company has decided that it will refrain from handling at least one type of video content in the home.

More Strategic Rigor Required

Look, I understand why Cisco likes video. It consumes a lot of bandwidth, and that means Cisco’s customers, including telcos and cable MSOs as well as enterprises, will need to spend more on network infrastructure to accommodate the rising tide of video traffic. I get the synergies with its core businesses, I really do.

But is Cisco truly equipped as a vendor and a brand that can win the hearts and minds of consumers and cross the threshold into the home? The company’s track record would suggest that the answer to that question is an emphatic and resounding no. Furthermore, does Cisco really need to be in the home to capture its “fair share” of video-based revenue? Again, the answer would seem to be negative.

When I read that Cisco was ramping up for CES, even though it doesn’t have a booth on the show floor, I was reminded that the company still needs to apply more rigor to its refocusing efforts. In the big picture, perhaps the resources expended to stage a consumer-oriented promotional blitz in Las Vegas next week do not distract significantly from Cisco’s professed strategic priorities. Nonetheless, I would argue that its CES excursion doesn’t help, and that an opportunity cost is still being incurred.

Can Dell Think Outside the Box?

Michael Dell has derived great pleasure from HP’s apparent decision to spin off its PC business. As he has been telling the Financial Times and others recently, Dell (the company) believes having a PC business will be a critical differentiator as it pulls together and offers complete IT solutions to enterprise, service-provider, and SMB customers.

Hardware Edge?

Here’s what Dell had to say to the Financial Times about his company’s hardware-based differentiation:

 “We are very distinct from some of our competitors. We believe the devices and the hardware still matter as part of the complete, end-to-end solution . . . . Think about the scale economies in our business. As a company spins off its PC business, it goes from one of the top buyers in the world of disk drives and processors and memory chips to not being one of the top five. And that raises the cost of making servers and storage products. Ultimately we believe that presents an enormous opportunity for us and you can be sure we are going to seize it.”

Well, perhaps. I don’t know the intimate details of Dell’s PC economies of scale or its server-business costs, nor do I know what HP’s server-business costs will be when (and if) it eventually spins off its PC business. What I do know, however, is that IBM doesn’t seem to have difficulty competing and selling servers as integral parts of its solutions portfolio; nor does Cisco seem severely handicapped as it grows its server business without a PC product line.

Consequences of Infatuation

I suspect there’s more to Dell’s attachment to PCs than pragmatic dollars-and-cents business logic. I think Michael Dell likes PCs, that he understands them and their business more than he understands the software or services market. If I am right in those assumptions, they don’t suggest that Dell necessarily is wrong to stay in the PC business or that it will fail in selling software and services.

Still, it’s a company mindset that could inhibit Dell’s transition to a world driven increasingly by the growing commercial influence of cloud-service providers, the consumerizaton of IT, the proliferation of mobile devices, and the value inherent in software that provides automation and intelligent management of “dumb” industry-standard hardware boxes.

To be clear, I am not arguing that the “PC is dead.” Obviously, the PC is not dead, nor is it on life support.

In citing market research suggesting that two billion of them will be sold in 2014, Michael Dell is right to argue that there’s still strong demand for PCs worldwide.  While tablets are great devices for the consumption of content and media, they are not ideal devices for creating content — such as writing anything longer than a brief email message, crafting a presentation, or working on a spreadsheet, among other things.  Although it’s possible many buyers of tablets don’t create or supply content, and therefore have no need for a keyboard-equipped PC, I tend to think there still is and will be a substantial market for devices that do more than facilitate the passive consumption of information and entertainment.

End . . . or Means to an End?

Notwithstanding the PC market’s relative health, the salient question here is whether HP or Dell can make any money from the business of purveying them. HP decided it wanted the PC’s wafer-thin margins off its books as it drives a faster transition to software and services, whereas Dell has decided that it can live with the low margins and the revenue infusion that accompanies them. In rationalizing that decision, Michael Dell has said that “software is great, but you have to run it on something.”

There’s no disputing that fact, obviously, but I do wonder whether Dell is philosophically disposed to think outside the box, figuratively and literally. Put another way, does Dell see hardware as a container or receptacle of primary value, or does it see it as a necessary, relatively low-value conduit through which higher-value software-based services will increasingly flow?

I could be wrong, but Michael Dell still seems to see the world through the prism of the box, whether it be a server or a PC.

For me, Dell’s decision to maintain his company’s presence in PCs is beside the point. What’s important is whether he understands where the greatest business value will reside in the years to come, and whether he and his company can remain focused enough to conceive and execute a strategy that will enable them to satisfy evolving customer requirements.

Intel-Microsoft Mobile Split All Business

In an announcement today, Google and Intel said they would work together to optimize future versions of the  Android operating system for smartphones and other mobile devices powered by Intel chips.

It makes good business sense.

Pursuit of Mobile Growth

Much has been made of alleged strains in the relationship between the progenitors of Wintel — Microsoft’s Windows operating system and Intel’s microprocessors — but business partnerships are not affairs of the heart; they’re always pragmatic and results oriented. In this case, each company is seeking growth and pursuing its respective interests.

I don’t believe there’s any malice between Intel and Microsoft. The two companies will combine on the desktop again in early 2012, when Microsoft’s Windows 8 reaches market on PCs powered by Intel’s chips as well as on systems running the ARM architecture.

Put simply, Intel must pursue growth in mobile markets and data centers. Microsoft must similarly find partners that advance its interests.  Where their interests converge, they’ll work together; where their interests diverge, they’ll go in other directions.

Just Business

In PCs, the Wintel tandem was and remains a powerful industry standard. In mobile devices, Intel is well behind ARM in processors, while Microsoft is well behind Google and Apple in mobile operating systems. It makes sense that Intel would want to align with a mobile industry leader in Google, and that Microsoft would want to do likewise with ARM. A combination of Microsoft and Intel in mobile computing would amount to two also-rans combining to form . . . well, two also-rans in mobile computing.

So, with Intel and Microsoft, as with all alliances in the technology industry, it’s always helpful to remember the words of Don Lucchesi in The Godfather: Part III: “It’s not personal, it’s just business.”

Limits to Consumerization of IT

At GigaOm, Derrick Harris is wondering about the limits of consumerization of IT for enterprise applications. It’s a subject that warrants consideration.

My take on consumerization of IT is that it makes sense, and probably is an unstoppable force, when it comes to the utilization of mobile hardware such as smartphones and tablets (the latter composed primarily and almost exclusively of iPads these days).

This is a mutually beneficial arrangement. Employees are happier, not to mention more productive and engaged, when using their own computing and communications devices. Employers benefit because they don’t have to buy and support mobile devices for their staff.  Both groups win.

Everybody Wins

Moreover, mobile device management (MDM) and mobile-security suites, together with various approaches to securing applications and data, mean that the security risks of allowing employees to bring their devices to work have been sharply mitigated. In relation to mobile devices, the organizational rewards of IT consumerization — greater employee productivity, engaged and involved employees, lower capital and operating expenditures — outweigh the security risks, which are being addressed by a growing number of management and security vendors who see a market opportunity in making the practice safer.

In other areas, though, the case in favor of IT consumerization is not as clear. In his piece, Harris questions whether VMware will be successful with a Dropbox-like application codenamed Project Octopus. He concludes that those already using Dropbox will be reluctant to swap it for a an enterprise-sanctioned service that provides similar features, functionality, and benefits. He posits that consumers will want to control the applications and services they use, much as they determine which devices they bring to work.

Data and Applications: Different Proposition

However, the circumstances and the situations are different. As noted above, there’s diminishing risk for enterprise IT in allowing employees to bring their devices to work.  Dropbox, and consumer-oriented data-storage services in general, is an entirely different proposition.

Enterprises increasingly have found ways to protect sensitive corporate data residing on and being sent to and from mobile devices, but consumer-oriented products like Dropbox do an end run around secure information-management practices in the enterprises and can leave sensitive corporate information unduly exposed. The enterprise cost-benefit analysis for a third-party service like Dropbox shows risks outweighing potential rewards, and that sets up a dynamic where many corporate IT departments will mandate and insist upon company-wide adoption of enterprise-class alternatives.

Just as I understand why corporate minders acceded to consumerization of IT in relation to mobile devices, I also fully appreciate why corporate IT will draw the line at certain types of consumer-oriented applications and information services.

Consumerization of IT is a real phenomenon, but it has its limits.