Category Archives: Uncategorized

Leaving Private Comments

It has come to my notice that some of you would like to leave private comments instead of comments that are published on the blog.

That’s okay with me.

If you want to provide a private comment on any of the blog items relating to acquisition rumors, stock-option backdating scandals, or any other subject, please feel free to do so. Just let me know, in the body of the comment, that you don’t want it to be made public. I will respectfully honor your wishes.

You can trust me to maintain the strictest confidentiality and privacy. That’s what I’ve done throughout my career, and I’m not about to stop now.

We will now return to regularly scheduled blogging.

Plenty Happening Today, Reports to Come

Well, today is offering a cornucopia of activity and events worthy of commentary. I have consulting engagements to which I must attend this morning, however, so look for my posts later today. Thanks for your patience.

Wikipedia Draws Reuters’ Scrutiny in Wake of Kenneth Lay’s Death

Kenneth Lay, disgraced former CEO of the infamous Enron Corporation (but simply “Kenny Boy” to George W. Bush), apparently died today of a heart attack while vacationing near Aspen, Colorado. We might never know the exact details about how Lay perished, and conspiracy theories are rife as to whether he actually died today or, conversely, whether he was given some assistance in shuffling off this mortal coil. The fact is, we might never know the truth about what happened to Lay, and the official explanation, given his age and the stress he incurred in his recent trial and conviction for various instances of fraud and other fiduciary crimes against shareholders and Enron employees, seems more than plausible.

What I find interesting about Lay’s passing, however, is the reaction of Reuters to the initial reports of Lay’s death on Wikipedia. Evidently, as one might expect given the nature of Wikipedia, the story there changed, minute by minute, as more details surfaced publicly and as Wikipedia contributors raced to post the latest news or their own interpretations of what was transpiring. In the end, however, the self-editing mechanisms of Wikipedia restored factual order, and the official story, insofar as it is complete before an autopsy has been performed on the decedent’s body, is now clearly in evidence at the online encyclopedia.

What Reuters implicitly suggests is Wikipedia’s weakness — it’s dynamic authoring system and the lack of rigid editorial version control — is what I see as a strength. Reuters took issue with Wikipedia’s attempts to keep pace with confusing, sometimes conflicting, details as news broke of Lay’s sudden demise. But there’s nothing wrong with what Wikipedia’s contributors attempted to do. It happens all the time on CNN, and Reuters doesn’t seem to take offense at the factual fluidity inherent in live television news coverage. Breaking news often is a moving target, with important details and facts only coming to light hours, days, or months after a major event has taken place. Wikipedia allows for various perspectives and viewpoints to be presented, sure, sometimes in real time, but that provides more social benefit than harm. Debate and discourse on the forum eventually separate the wheat from the chaff, and matters usually are resolved, accurately and satisfactorily, in due course. It’s not perfect, but it’s not as bad as Reuters would have you believe.

SEC Investigating Redback’s Stock-Option Grants

Companies often try to sneak out bad news on a Friday night, hoping everybody has gone home, begun weekend partying, and generally stopped paying attention to the workaday technology world.

If you were scanning the news wires this evening, however, you would learn that Redback Networks has received a request from the Securities and Exchange Commission (SEC) for information relating to the company’s historical stock-option grant practices. What’s more, the company also has received a subpoena from the United States Attorney for the Northern District of California requesting documents relating to Redback’s stock-option practices, and the company’s board of directors has launched its own investigation into the matter.

Redback joins a growing number of Silicon Valley companies being investigated for so-called backdating of options, which involves retroactively setting option strike prices at the lowest-possible historical levels so that executives and other employees would reap the maximum rewards from their stock-option allocations.

Southern California Catching Up to Northern California in Tech Jobs

The Los Angeles area always had Hollywood glamor, and now it’s gaining in nerd appeal.

According to the California Cybercities 2006 report from AeA (formerly the American Electronics Association), a trade organization for the high-technology industry, Southern California’s technology industry is nearly as large as Northern California’s. The authors of the report say Northern California employs 439,000 technology workers, versus 418,000 high-technology workers in Southern California.

California’s high-technology employment totaled 904,900 in 2004, down 10,600, or about one percent, from the year before. Job losses in California’s technology industry slowed in 2004, compared to the 67,800 jobs lost in 2003 and the 134,400 lost in 2002. That still totals job losses approaching 215,000 over the last three years for which statistical data is available.

Deja Vu at SGI

In a bid to rise from the ashes of bankruptcy, SGI today announced that it would broaden its product line to provide lower-cost options, including the introduction of an x86-based server.

Said an SGI marketing manager: "Obviously, one of the things we need to [do] is expand our market reach." She added that the new products "are very much part of our path back to profitability."

But haven’t we seen this show before from SGI? If I remember correctly — and, surprisingly, in this particular instance, I do — SGI originally attempted to repel commoditization in the visual-computing marketplace back in the bad-old 90s by joining the league of hardware vendors designing and selling industry-standard workstations and servers based on Intel microprocessors and Microsoft’s Windows operating system.

It didn’t turn out all that well for SGI the first time, and there’s no reason to believe it will resolve itself any differently today, even though they’re using Linux instead of Windows this time around. Some companies, such as Dell, are built to make thin margins on huge volumes of box shipments. Others, such as SGI, were build to charge a premium and reap higher margins for exclusive, research-intensive features and functionality that cannot be obtained from run-of-the-mill workstations and servers.

However, as the industry-standard boxes got faster, better, and "good enough" for a wide range of applications in visual computing, SGI found that its value proposition, and its higher prices, retained appeal for a rapidly diminishing audience involved with increasingly esoteric applications. 

It tried, back in the 90s, to remake itself as a lean, mean operational machine, selling industry-standard machines with a subset of its previous functionality, but SGI wasn’t built to play that game. The result was the perception of competitive capitulation, a damaged brand, and increasing irrelevance. It’s difficult to envisage how it will turn out any differently this time.

If the definition of insanity, according to Ben Franklin, "is doing the same thing over and over and expecting different results," then it’s time to summon the doctors in the lab coats to a former star of the technology firmament based in Mountain View.

New Boss, Same Fuzzy Strategy at Novell

As we suspected in our earlier post on the executive-suite overhaul at Novell, not much will change strategically under new CEO, previously COO and president, Ronald Hovsepian.

The company’s strategic direction, which essentially is an accommodation with a dog’s breakfast of products and services accrued through mergers and acquisitions, won’t change markedly. Hovsepian apparently believes there’s nothing scattershot about the current strategy, saying a "narrow focus and energetic push" are all Novell needs to get back on track.

Even if Hovsepian and his team, which will undoubtedly go through some personnel changes, improves the operational and field execution of Novell, it won’t end happily for him or for his company if Novell plots a nebulous strategic course.

Comcast Fires Drowsy Service Technician

Comcast Corporation fired a service technician on Monday who fell asleep on a customer’s couch after spending an hour on the phone waiting in vain for his own company’s customer service.

Videotape of the sleeping technician, who had visited the customer’s residence to replace a faulty cable modem, had been posted on YouTube.com, costing Comcast great embarrassment and the technician his job.

There’s no word on whether Comcast fired any of its tardy customer-service representatives, who appear to have given the customer nothing but grief before the narcoleptic technician finally made an appearance.

Mel, Are You Sirius?

Speaking at an industry conference on media convergence at the Museum of Television and Radio in New York, Sirius Satellite Radio Inc. CEO Mel Karmazin mused publicly that his firm might be interested in acquiring its only competitor,  XM Satellite Radio Holdings Inc.

Karmazin allowed that the price would have to be right, and he acknowledged that regulatory issues might prevent a deal from being consummated.

Well, one would hope so. As much as I realize the Bush Administration has ushered in a period of elitist corporate cronyism in which government regulation appears to favor the rule of established behemoths over the principle of open competition, it’s difficult even for me to imagine that the Bush Administration would allow the merger of the only two companies in an industry.

Seriously, how would a merger of the only two satellite-radio firms in existence serve the interests of consumers or the principle of competitive market dynamics? The US government should not be in the business of blessing monopolies.

Homestore Founder Faces Jail

Stuart Wolff, the founder and former CEO of online real-estate listings company Homestore Inc., was found guilty Thursday of insider trading, lying to company accountants and federal regulators, and conspiracy in a scheme to defraud investors by inflating revenues.

The information-technology industry attracted a lot of disreputable characters during the delirious, hype-fueled 90s, and we’re still paying the price — one way or another — for  the amorality, excesses, greed, and hubris that characterized the worst of that period.

It appears that Mr. Wolff will pay a price, one that might entail as many as 35 years in prison, for his sins. He is appealing the verdict, but his chances of avoiding the slammer are not good.

I have no sympathy for people who defraud shareholders, including their own employees, or who deceive and lie in a bid to boost their already spectacular personal fortunes at the expense of others.

I also wonder about the board members and VC investors in Homestore. What was their fiduciary responsibility, ethically and legally, and did they do all in their power to check and prevent abuses perpetrated by the company’s executives?

Let’s hope some lessons were learned.

SGI’s CEO: Bankruptcy “Positive Event”

Those of you who have been in the industry for a while will know that Silicon Graphics (SGI) was once a darling of Silicon Valley, the vendor of choice for graphics-intensive technical workstations and servers. It was the Rolls-Royce of computer hardware for visual simulations.

Like Rolls-Royce, however, SGI has seen better days. It’s current chairman and CEO, Dennis McKenna, is now on record saying that the company’s filing of Chapter 11 bankruptcy protection in early May was a "positive event."

I suppose when one is handed lemons, one makes lemonade, and Silicon Graphics, if it can renegotiate its debilitating debt load and creatively milk revenues from its legacy technologies, might survive or subsist for a for more years.

Surely, though, Mr. McKenna must know that SGI will never return to its place in the pantheon of technology titans, just as Silicon Valley itself will never again dominate the world of information technology the way it did during the delirious 90s. Those days are gone forever, and there’s no point denying reality, which has an uncanny knack of impinging on our delusions.

No matter what Mr. McKenna says, the best of SGI’s employees already have bolted for the exit doors and the majority of its formerly loyal customers heard the death rattle and sought solutions elsewhere. Enormous damage has been done to SGI’s brand and its credibility, and ambitious plans to dig out of the rubble of bankruptcy won’t reclaim SGI’s sprawling campus headquarters in Mountain View, Calif., or its status as a market leader.

SGI’s former campus is now part of the Googleplex, sold recently to Google for $319 million, which will be used to defray SGI’s prodigious debts. What’s more, in what is perhaps a climactic admission of strategic bankruptcy, SGI’s plan to generate new revenue seems to revolve around lawyers rather than engineers. Yes, it’s following the dubious lead of SCO Group and preparing to unleash the well-educated dogs of litigation on any and all parties who might be infringing on the intellectual-property rights associated with SGI’s software visualization, collaborative decision-making tools, and even flat-panel display technology.

It’s a reach, but apparently that’s all SGI has left in its arsenal.

How did it get to this point? While McKenna points to a series of clearly poorly conceived and dreadfully executed acquisitions during the 90s, I believe SGI ultimately was victimized by its inability to see the impending commoditization of visual computing as represented by industry-standard Intel-based microprocessors and the Windows operating system. It was the Innovator’s Dilemma, before it was called that.

In that sense, perhaps SGI’s decline and fall, while unquestionably sad, was also inevitable. Forces were at play — economic and technological — that were impossible to resist. Then again, resistance probably wasn’t the best course. By the time SGI adjusted its strategy to go with the inexorable flow, it was too late. 

Boardroom Revolt Topples Novell CEO, CFO

In a move that had been presaged last autumn, Novell’s board of directors ousted CEO Jack Messman and CFO Joseph Tibbetts this morning. Ron Hovsepian, the company’s president and chief operating officer (COO), has been named CEO, while Dana Rusell, the current vice president of finance and corporate controller, will serve as the interim CFO while Novell hunts for permanent replacement for Tibbetts.

Early last year, the 66-year-old Messman indicated that he would not leave voluntarily, so it was no surprise that the board had to show him the door. Nor was it startling to see Hovsepian take over as CEO. He had been touted for the job for some time, and his experience and talent at operational execution helped position him for the promotion, which was undertaken by the Novell board to "accelerate the execution of our growth strategy and build value for shareholders."

Both elements have been sadly missing, as Novell, which acquired the SuSE Linux franchise in 2003, has fallen behind other Linux competitors and distributions, including current fan favorite Ubuntu, while suffering a protracted slump in its stock price.

Although execution might be the order of the, it appears Novell’s board acted belatedly and perhaps not as comprehensively as some shareholders might prefer. There are concerns that, aside from execution issues that have seen Novell drop the marketing and sales balls on the Linux front, Novell lacks a coherent strategic vision.

If the following statement from Thomas G. Plaskett, a director who’s been elected non-executive chairman, is any indication of current big-picture thinking at Novell, I’m inclined to agree with those who harbor concerns about the company’s strategic vision:

"The board concluded that a management change would be the best way to accelerate the execution of our growth strategy and build value for shareholders. Ron is the ideal choice to lead the company as we continue with our transition to Linux-based products and identity and resource management and leverage our unique support of mixed source environments."

That’s some transition, encompassing not only Linux-based products, but also identity and resource management, plus the supposed mastery "mixed-source environments," which presumably denotes any enterprise that runs proprietary and open-source software. What that statement really seems to be saying is that Novell’s board wants Mr. Hovsepian to get out there and sell all the stuff that Novell has agglomerated through its various mergers, acquisitions, and strategic contortions during the past few years.

Good luck with that, Ron, though I’m sure you’ll get a good severance package when you eventually fail to deliver the desired results from mixed product portfolio and a overall strategy that hasn’t come together.