Monthly Archives: May 2008

Avaya Cuts Another 400 Employees

When Avaya was spun off from Lucent in 2000, it had approximately 34,000 employees. With reports today that another 400 jobs will be eliminated, Avaya will be down to a headcount of about 18,000.

Acquired last year by private-equity firms Silver Lake Partners and TPG for $8.2 billion, Avaya is in aggressive cost-cutting mode. According to an Avaya spokesperson, the latest cuts are additional to a cull of 600 positions that resulted from attrition, layoffs, and retirements since the beginning of 2008.

Second Acts in Enterprise Networking

Am I the only one who finds it funny that Enterasys is rumored to be taking an acquisitive run at Extreme Networks?

Way back when, in the prehistoric 1990s, Cabletron Systems was an enterprise-networking competitor to Cisco Systems and 3Com. Cabletron was a combative east-coast player, led by truculent executives who liked to engage in bodybuilding, employee intimidation, and competitive hardball. They held business meetings standing up, not sitting down, and they hosted militaristic sales meetings at which tanks and swords were not out of place.

Eventually, Cabletron self-destructed, breaking apart into corporate fragments.

Why I am talking about Cabletron? Well, network-industry historians will recall that Enterasys was one of four Cabletron units spun off in 2000. Enterasys was the enterprise-networking piece, and it found sustenance, if not outright success, as a purveyor of network-security gear.

Now, if rumors are to believed, the erstwhile-Cabletron business unit is looking to Extreme Networks, a vendor of high-speed Ethernet enterprise switches. Just like 3Com, Enterasys has chosen to go back to the future. Let’s hope it has better results.

Would Facebook Take Microsoft’s Money and Run?

A few market observers seem to think Facebook’s Mark Zuckerberg and his growing executive coterie have their hearts set on an IPO rather than an exit by acquisition. Maybe that’s true, but I think Zuckerberg and company would not look a gift horse in the mouth, especially if Microsoft came calling with a takeover offer of $10 billion or more.

Why? Well, look not further than this paragraph from a post today at the Silicon Alley Insider:

For the record, we think a Microsoft (MSFT) deal wouldn’t be a terrible idea. But we really don’t think that Zuck has any interest in selling out, yet. He seems gung ho on an IPO, and is beefing up his management team in advance of one. Still has to work on a business model, though.

Still has to work on a business model, eh? I’d say that’s a major omission, one that we shouldn’t be cavalierly disregarding after the bubble carnage of earlier this decade. Have some of us forgotten the inherent investment risks associated with having Internet-based enterprises that lack solid business fundamentals? It would seem so.

You can bet that Zuckerberg and his advisers would think twice before turning down Microsoft’s filthy lucre.

Microsoft + Yahoo Search + Facebook = MS Midlife Crisis

There’s too much blather and ferment about how a Microsoft acquisition of Yahoo’s search business combined with a subsequent Microsoft acquisition of Facebook would result in the “end of the open web.”

In actuality, such a scenario would only involve the transfer of considerable wealth from Microsoft’s shareholders to Yahoo’s shareholders, followed by a similar exchange of wealth from Microsoft’s shareholders to Facebook’s backers.

It wouldn’t result in the “end of the open web.” Instead, I suspect it would represent the beginning of the end for Facebook as a social phenomenon and the absolute end of its prospects as a commercial entity.

As for Microsoft, the company would incur an enormous opportunity cost. Resources that Microsoft could have spent on software-as-service for the enterprise, where it actually has a fighting chance of consolidating gains and making money, would be squandered on web-search and social-networking pipe dreams. It would emerge a relative loser in both markets.

It’s as if Microsoft doesn’t know itself anymore. The company can’t seem to distinguish its strengths from its weaknesses. Surely somebody as savvy as Bill Gates must know the adage about throwing good money after bad, something he has seldom done previously.

Microsoft just seems delusional these days. It’s as if the entire executive team is undergoing a collective midlife crisis. The only difference is, in Microsoft’s misguided bid to remain relevant and vital, it’s neurotically buying companies rather than sports cars.

Tibco Rumors Likely Just Talk

On the Barron’s website today, Eric Savitz writes in Tech Trader Daily that Jefferies analyst Katherine Egbert doesn’t believe the rumors regarding a potential acquisition of Tibco Software. For what it’s worth, neither do I.

Tibco has had many opportunities to be acquired, some of which would have offered greater returns than what the company would fetch in today’s market conditions. Assuming that overtures are being made, Tibco is apt to resist them.

Mind you, as Egbert notes, “management does have incentive to keep the perception of an acquisition alive, as such rumors have steadily boosted the stock price.”

Bogus Cisco Gear: Espionage or Profit?

A story that appeared in today’s edition of the New York Times addresses Operation Cisco Raider, which has led to 15 criminal cases involving counterfeit Cisco gear bought in part by military agencies, military contractors, and electric power companies in the United States.

During the two-year law-enforcement operation, 36 search warrants have been executed, resulting in the discovery of 3,500 counterfeit Cisco network components with an estimated retail value of more than $3.5 million, according to the Federal Bureau of Investigation (FBI).

Cisco, which has investigated the counterfeit networking equipment, claims that the bogus gear contained no electronic back doors or evidence of computer espionage. Cisco’s working assumption is that the counterfeiters were in business solely to make money, not to surreptitiously gather intelligence.

“We did not find any evidence of re-engineering in the manner that was described in the F.B.I. presentation,” said John Noh, a Cisco spokesman. He added that the company believed the counterfeiters were interested in copying high volume products to make a quick profit. “We know what these counterfeiters are about.”

Not everybody is so sanguine.

Several security technologists and intelligence experts contend that proven techniques exist to covertly embed information-gathering and -transmitting circuitry into computer and network hardware. What’s more, a few specialized espionage-related circuits buried within billions of components would be exceptionally difficult to detect.

Cisco is understandably anxious to have this issue recede from the headlines. If counterfeit Cisco gear were found to contain electronic back doors that transmitted confidential information to foreign governments or illicit third parties, major government and private-sector customers might show increased reluctance to buy gear that carries the reputed Cisco brand, if for no other reason than concern about receiving malicious non-Cisco knockoffs in place of the genuine articles.

In all probability, Cisco is right about the bogus routers and switches. They’re probably nothing more than replicas made by for-profit counterfeiters. Nonetheless, it will be intriguing to see whether or how this story evolves.

Does Gates Mean What He Says About Yahoo?

It’s entirely logical to react cynically and skeptically to Microsoft Chairman Bill Gates’ repeated statements that his company no longer retains an interest in pursuing Yahoo.

According to Mr. Gates, on every occasion this week when he has come into contact with the business press, Microsoft will pursue an independent Internet strategy, building and improving its own web-search and online-advertising properties as opposed to purchasing external assets. Gates says Microsoft has great engineers and can achieve market dominance over Google on its own, notwithstanding the historical record and current market realities.

Said Chairman Bill:

“We have always felt we could do very well on our own and now that’s the path we are focused on,” Gates said in an interview with The Associated Press in Jakarta on Friday.

“The standard strategy for us is to just hire great engineers and surprise people at how well we can compete, even with a company that’s got a strong lead.”

Perhaps so, but if Microsoft had been committed strategically to build its own Internet offerings, it would not have pursued the acquisition of Yahoo. So, given this apparent contradiction between Gates’ words and Ballmer’s actions, a few possible explanations present themselves.

First, we can posit that Gates and Ballmer are at cross purposes on Microsoft’s Internet strategy, with the former favoring the go-it-alone build option and the latter preferring to buy the company’s way into greater market prominence. I don’t see it happening. Gates and Ballmer could finish each other’s sentences. If they had an issue at which they were at loggerheads, they’d resolve the argument behind closed doors, not hash it out publicly.

A second scenario suggests that Microsoft has decided belatedly and sincerely that the Yahoo acquisition option is no longer a worthy objective. As such, the company’s executive leadership has chosen to put the onus back on internal development, perhaps dedicating more resources to the effort henceforth. This is entirely possible, but not as likely as the third scenario.

Finally, Gates’ words — and some ambiguous commentary along similar lines from Microsoft Chief Strategy Office Craig Mundie — are just a ruse, a misdirection, to provoke Yahoo CEO Jerry Yang and his board members, through pressure applied by increasingly anxious investors, to reconsider and come groveling back to the bargaining table. Sadly, I think this is what the Microsoft crew is trying to achieve.

Microsoft is trying to achieve this effect not just with statements from its executive heavy hitters, but also with the carefully timed disclosure that Microsoft has released potential proxy board members from their agreements to serve in the event it made a hostile bid for Yahoo.

Again, as I have made abundantly clear, I don’t think Microsoft should be pursuing Yahoo, not at the previous price and not at a moderately smaller valuation. Still, evidence suggests that Microsoft hasn’t given up on the plan.