Monthly Archives: July 2007

F5 Networks Continues to Repel Rivals

As two market analysts quoted in an Associated Press wire story attested last week, F5 Networks continues to frustrate its competitors and dominate the application-traffic-management marketplace.

The company, which competes against Cisco Systems and Citrix Systems, demonstrates that it is possible for a smaller, focused player to continually beat back industry titans in a well-defined market segment.

How does F5 do it, holding off repeated attacks by Cisco and a concerted incursions by Citrix more recently?

Jefferies and Co. analyst Bill Choi pretty much nails the answer:

F5’s fundamentals remain compelling, with continued market dominance, superior execution, strong end-market demand and solid product roadmap.

That about covers it. What’s implicit in all that, but what isn’t explicitly stated, is that F5 remains resolutely focused on serving its customers, giving them what they want today while also looking ahead to provide them with what they’ll need in the future.

F5 usually rips the cover off the ball when it makes its quarterly earnings statements, and — like others — I expect this past quarter’s results, to be announced after trading ends this Wednesday, to be typically stellar.


Will Microsoft Get Into the PC Hardware Business?

In his commentary last Friday, John C. Dvorak wondered whether Microsoft might be about to enter the PC hardware market in the United States.

Dvorak builds a superficially plausible case, citing a Microsoft-branded PC available in India and the Redmond company’s growing range of hardware products, now extending from PC peripherals, such as mice and keyboards, to Xbox 360 consoles and the Zune media player.

He also argues that Microsoft might be getting frustrated with its existing hardware OEM partners, including Dell and HP. Those vendors sell Linux-based systems as well as Windows Vista offerings. Moreover, Dvorak contends that the hardware vendors have been primarily to blame for many of mechanical glitches that have prevented Vista from being an unalloyed success in the marketplace.

Dvorak isn’t complete adrift. I’m sure some of the big brains on the Microsoft campus have carefully pondered the pros and cons of following Apple’s lead and getting into the business of selling the entire PC experience.

Still, from a Microsoft perspective, the costs of such a strategy would seem to outweigh the benefits. First, selling PC hardware isn’t exactly a high-margin business. In fact it’s getting harder to make money at it all the time, as this piece in this weekend’s Wall Street Journal attests.

What’s more, Microsoft doesn’t have the hardware brand that Apple possesses. Apple is renowned for its elegant, stylish hardware. Microsoft is known for serviceable mice and keyboards, a box-office bomb in the ungainly form of Zune, and Xbox and Xbox 360 consoles that have been riddled with design and manufacturing faults. If, as Dvorak suggests, the Xbox has been a trial run toward a Microsoft-branded PC, the experience has provided at least as much reason for prudent pause as for an enthusiastic leap into a new frontier.

There’s also the inherent risk of Microsoft, in choosing to produce its own PCs, pushing its existing business partners firmly into the arms of Linux distributors. Despite Apple’s recent market-share gains, Microsoft still owns the vast majority of the client operating-system marketplace. In choosing to make its own PCs, Microsoft would likely lose more market share than it would gain, making low-cost Linux PCs more attractive to entry buyers while failing to gain market share from Apple’s elegant products.

Besides, at the end of the day, Microsoft should know it must focus on where it can deliver the best returns for its shareholders. Is that really in the consumer market, selling low-margin PCs into an operating-system space it already dominates? Isn’t it obvious to nearly everybody by now that Microsoft is better at serving businesses and enterprises than at serving capricious consumers?

Microsoft’s focus ought to be in expanding its footprint in enterprise software rather than in trying to beat Apple and its own current hardware partners in the PC market. The risks of such an endeavor clearly outweigh any likely rewards.

Blodget Stirs Pot with Microsoft-Facebook Rumor

Henry Blodget stirred the virtual pot (I could use another phrase here, but it’s not suitable for polite company) yesterday by posting a "rumor of the day" regarding a $6-billion Microsoft takeover bid for Facebook.

I think this is an acquisition scenario Blodget dreamed up on his own. He admits that he can’t confirm it.

When reading the text of his commentary, I got the feeling his aim was to tweak Microsoft CEO Steve Ballmer rather than to impart a char-broiled rumor enveloped in smoke and fire. 

Anything can happen in a bizarre world where George W. Bush is president of the United States of America and Madonna is headlining concerts to raise awareness about global warming, but I believe Blodget’s missive was at least four parts mischief to one part plausible outcome.

Battle of JP Morgan Analysts over Apple’s iPhone Plans

Apple shares soared skyward yesterday after JP analyst Kevin Chang reported that Apple was preparing to release a subsequent iteration of the iPhone based on the design of the iPod Nano.

Other analysts have challenged the accuracy of Chang’s report. That, in itself, isn’t surprising. Analysts rarely agree completely, and it is common for them to hold a wide range of differing opinions, predicated on a similarly diverse range of personal and professional sources.

What is surprising, however, is that the analysts taking issue with Chang are his colleagues at JP Morgan. Moreover, the disagreement does not relate to subtle nuances of interpretation. JP Morgan would have us believe otherwise, suggesting that it is "not unusual for analysts to have slightly different views."

Slightly different views?

In fact, there’s a yawning chasm between the views that have been expressed by the dueling analysts at JP Morgan. Whereas Chang asserted that Apple was readying an IPod Nano-ish device as its next iPhone, his colleagues Bill Shope, Elizabeth Borbolla, and Vlad Rom content that Apple is more likely to release a 3G version of the iPhone next. They also challenge Chang’s claim that a patent filing by Apple relates to a Nano-type iPhone.

In other words, Chang’s colleagues are saying that he got it absolutely and utterly wrong.

JP Morgan’s protestations to the contrary, this is not a case of slightly different views espoused by its analysts. One group of JP Morgan analysts has chosen to directly and publicly rebut another analyst at the company, presumably because they don’t want to be seen as sharing a market-moving opinion on Apple’s product roadmap that they deem wholly inaccurate. 

Google’s Postini Acquisition Confirms Enterprise Intentions

Google can equivocate and prevaricate all it wants, but there’s no question that it has territorial designs on Microsoft Office/Exchange enterprise dominance.

In announcing today that it intends to acquire messaging security-services specialist Postini for $625 million in cash — just a mere pittance drawn from Google’s enormous cash mountain — Google signaled undeniably that it is serious about turning its evolving suite of online business-productivity applications into an increasingly credible rival to Microsoft’s ubiquitous Office.

So far, the GoogleApps hosted suite of business applications — which includes email, instant messaging, calendaring, and word processing — has been adopted by a growing number of small businesses but made relatively minor headway with larger companies, which look askance at web-based software services that typically lack enterprise-class security, compliance, and archiving.

Hence, Google’s acquisition of Postini, which runs data centers that process and protect email traffic and instant messages. Postini counts more than 11 million users at 35,000 firms, and it was estimated to be on track for approximately $110 million in revenue this year.

The acquisition makes sense on multiple levels.

Google is a purveyor of service-based Internet software; Postini provides security services over the Internet. Both companies are in the business of providing cost-effective, easy-to-use enterprise solutions that enable customers to get up and running quickly. It’s conceivable that Google’s customers could become Postini’s customers and vice versa. Finally, since both companies are based in the Bay Area, it should be relatively easy for Google to assimilate Postini’s personnel and integrate its operations and infrastructure into the Google way.

Judge Could Dismiss Criminal Backdating Case Against Reyes

The first criminal stock-options backdating trial, being held in San Francisco, could end ignominiously for the prosecution.

As of this afternoon, the Wall Street Journal reported (sorry, but they charge for content, at least until Rupert Murdoch acquires them) that U.S. District Judge Charles Breyer has taken a defense motion under advisement to dismiss the case against Gregory L. Reyes, Brocade Communication Inc’s former CEO, for lack of evidence.

Reyes, once a high-flier in Silicon Valley, is accused of defrauding shareholders between 2000 and 2004 by regularly altering (otherwise known as backdating) the grant dates of stock options awarded to employees. He also has been accused of falsifying documents to cover up the scheme.

The defense argues the prosecution hasn’t made a convincing argument to support its case, which explains the motion to have the judge dismiss it. What follows is a brief excerpt from the Wall Street Journal article:

Defense attorneys last week filed a motion arguing that the government had failed to prove that Mr. Reyes understood the accounting implications of backdating or that he had tried to deceive or cheat Brocade’s shareholders, and that the case therefore shouldn’t go to the jury. The prosecution’s "evidence has uniformly shown that the principal goal in administering the stock option program was to recruit and retain talented employees for the good of Brocade and its shareholders," the defense said.

I am no legal expert, not even close, but I toiled professionally in the information-technology industry during the period in question. As such, I can tell you that what the defense is saying has more than a ring of truth to it. There was intense competition to sign and retain executive, managerial, and engineering talent during the frothiest years of the boom, and it was not unusual for the egos and remuneration packages of existing and prospective employees to expand dizzily during the height of the frenzy. For the best and the brightest talent on the market, it was as close to being a cosseted professional athlete as geeks would get. Ahh, those were the halcyon days.

Of course, for the vendors, such as Brocade in the storage-networking market, that meant having to make increasingly aggressive compensation offers to keep and attract top personnel. At the time, vendors really did believe that making such aggressive offers, which might include the practice now commonly understood as stock-option backdating, was in the competitive interest of the company and in the long-term interest of shareholders. It was endemic behavior. There was madness in the air, and nearly everybody contracted the contagion.

Yes, I would not be surprised in the least to see the case dismissed and Mr. Reyes go free.