Monthly Archives: December 2007

Avaya Layoffs this Month?

First there were rumors of Cisco layoffs, and now we’re hearing that Avaya, purveyor of VoIP systems for enterprise customers, might be shedding staff, or about to announce cuts, just before the festive season. Ho, bloody ho!If true, these reports would indicate that enterprise buyers, particularly in the financial-services and retail markets, are slashing IT budgets and sharing their pain with vendors of IT products and services. These reports, if confirmed, also could be portents of revenue and earnings shortfalls this quarter and next for a number of technology bellwethers.

Microsoft and SAP Aren’t Talking M&A

It’s astounding that a rumor, predicated on discussions that took place three years ago, was able to drive up shares of SAP this week.

About three years ago, Microsoft explored the possibility of acquiring SAP. The discussions eventually wound down, with the companies deciding to pursue separate paths. It was the right choice for both companies and their shareholders then, and it would be the right choice today. Culturally, the SAP and Microsoft corporately milieus are starkly different. It would have been a difficult combination, ugly to integrate and on a scale for beyond any merger Microsoft has done.

So, how the rumor of a rumor resurface and move the markets this week? I suppose the power of a well-placed rumor, even one completely divorced from reality, is not to be underestimated.

Facebook’s Problems Congenital, Not Just Bad PR

In his Techland blog, Josh Quittner writes eloquently about Facebook’s increasingly dire troubles. Still, I take issue with his core assertion:

"What’s harming Facebook  — perhaps to a terminal degree  — is enormously bad PR."

It would be insane and irredeemably wrong to argue that Facebook isn’t suffering from terrible public relations. Without a doubt, and certainly with no argument from this quarter, injurious PR is a major problem for the company. The bad PR, however, is a symptom of a bigger disease at Facebook, a fatal malady that derives from defects in its core DNA.

Facebook was congenitally doomed to failure. It’s CEO and much of its callow executive team lacked humility and perspective, though they had no shortage of arrogance and hubris. Vaulting ambition gets a company off the ground, hubris brings its crashing back to earth; there’s a thin line separating the two, but young entrepreneurs, intoxicated with heady success, often fail to draw the distinction.

We not only learn from our failures, we also gain humility from them. Mark Zuckerberg, Facebook’s CEO, hasn’t had many setbacks in his ascent to the Web 2.0 firmament. He’s about to be suffer a big one, though. The question now is whether he will still be the CEO of Facebook when he gets the opportunity to learn from his mistakes and develop the wisdom that comes from experience.

Layoffs at Cisco?

We’re trying to confirm rumors that there have been, or soon will be, layoffs at Cisco Systems.

Uncorroborated and perhaps spurious reports suggest that Cisco is paring some staff in the United States, apparently in response to slowing sales to enterprise customers, especially those in the financial-services industry.

The last time Cisco made news with layoffs was during the dark days after the bursting of the telecommunications bubble. Could the current credit squeeze and subprime debacle be hitting the technology industry in the USA?

JMP Securities Sees Oracle Sailing on Choppy Enterprise Seas

In news that is troubling for Oracle but worse for lesser players, JMP Securities analyst Patrick Walravens says a slowdown in enterprise-software spending is upon us, and that it figures to crimp Oracle’s earnings.

Said Walravens:

While we still believe Oracle will outperform the software industry, our due diligence suggests Oracle’s business is slowing along with enterprise software spending.

Walravens’ opinion isn’t based on a crystal ball or gut feelings. JMP recently conducted a survey of 38 businesses spanning a broad cross section of the economy. Approximately 61 percent of respondents said their enterprise software spending would stay at the same level or decrease in 2008.

Commented Walravens:

This survey result is the worst we have had since 2001 and is similar to the result in May 2003, which marked the beginning of a two- to three-year choppy period for Oracle’s business.

If Oracle is about to sail on stormy seas, so will its rivals and smaller players. Their ships, for the most part, aren’t as big or as sturdy as Oracle’s. If JMP is right, Oracle’s share price might suffer a bit, but the company will be well positioned to pick the scraps of the shipwrecks left behind.

Yahoo’s Changes Seem to Make Sense

At first blush, I’d have to say Yahoo’s personnel shuffling and organizational changes, implemented after a 100-day strategic review commissioned by CEO Jerry Yang, make good sense. The proof, as the New York Times points out, is in the pudding, otherwise known as financial results, so let’s not crown Mr. Yang the Steve Jobs of web-content sites quite yet.

Still, Yahoo seems to be on the right track, intent of putting its worst excesses and craziest ideas behind it.

Sourcefire Precedent Suggests Bain’s 3Com Acquisition Doomed

Yes, I misread the situation. I admit it.

When Bain Capital first made public its move to acquire 3Com, I didn’t realize that Huawei Technologies’ minority stake in the deal might cause the transaction to be denied by the US government.

Yes, Huawei was and is China’s leading network-equipment vendor, with significant ties to the Chinese military. Yes, Huawei was a company charged with alleged acts of corporate espionage and intellectual-property theft against Cisco Systems and others. But Huawei was a minor player in the player in the 3Com acquisition, at arm’s length to the transaction, along for the ride at Bain’s insistence so that 3Com would continue to have market leverage and political clout in the fast-growing Chinese marketplace.

Besides, what did spent old 3Com possess that could possibly be considered of strategic national security to the United States of America? Commodity switches and routers? No, that’s not it. Maybe 3Com’s intrusion-prevention subsidiary, Austin, Texas-based TippingPoint, which was to be spun off in an IPO until the Bain acquisition was announced?

Yes, that was a possibility, if only because TippingPoint’s customers include the Pentagon and other US government departments, and because it is plausible that Huawei, as a minority owner of 3Com, could somehow discern how TippingPoint’s security technology works and use that knowledge as means of eavesdropping on or hacking into customers’ networks.

That scenario seemed a longshot to me. After all, Huawei and 3Com already had a joint venture that might have allowed the former to learn everything it needed to know about 3Com’s and TippingPoint’s products previously. What’s more, couldn’t preventive measures be put in place, either technologically or legislatively, to preclude Huawei from taking nefarious advantage of its presumptive link to TippingPoint? Probably so.

If you cast your mind back, however, you realize there’s a precedent for the US government dissuading, if not formally rejecting, a takeover by a foreign company of a US-based intrusion-prevention vendor.

It involved Israel-based Check Point Software Technologies and its ultimately unsuccessful $225-million bid for Sourcefire, Inc. in 2006. Many of Check Point’s senior executives and technologists served in the Israeli Defense Forces and retained close ties to the Israeli government. Sourcefire, like TippingPoint, had customers in the US federal government.

About a week before the Committee on Foreign Investment in the United States (CFIUS) was to hand down its decision on whether the Check Point acquisition of Sourcefire would be formally approved, Check Point withdrew its offer, evidently after learning that the takeover was about to be blocked on national-security grounds.

There are differences between the Sourcefire situation and the 3Com case. Check Point would have been the sole acquirer of Sourcefire, for instance. In addition, Sourcefire was an open-source provider of intrusion-prevention software, and its acquisition could have had far-reaching consequences if Check Point were to subsequently decide to take the security code proprietary.

Another distinction is that Israel is an ally of the USA whereas China isn’t, at least not in the same sense. Given the precedent of Sourcefire — the apparent decision of CFIUS to discourage an Israeli company from buying a US-based intrusion-prevention firm — can you imagine the uproar on Capitol Hill and elsewhere if the US government were to look the other way and permit a Chinese company to buy and own, if only in a minority sense, the very same technology? Nobody wants to step into that sort of political maelstrom.

Just as with Sourcefire, early indications have been sent that the 3Com acquisition will be strongly discouraged by CFIUS. 3Com shareholders, who welcomed the Bain offer as if it were a godsend, should heed the warning and brace for bad news.