Monthly Archives: July 2008

F5 Receives Plaudits as VMware Acquisition Rumor Surfaces

F5 Networks, the company that wrote the book on how to challenge and beat Cisco in a network-equipment market, is getting well-deserved plaudits on a couple fronts today.

First, F5 has been acknowledged by Gartner, Inc. as the worldwide market-share leader, based on revenue, for Application Delivery Controllers (ADCs) in the first calendar quarter of 2008. In addition, Gartner has placed F5 in the leaders quadrant of Gartner’s 2008 Magic Quadrant for Application Delivery Controllers.

Elsewhere, Joe Panettieri, writing at Seeking Alpha, provides his interpretation of why F5 has succeeded where so many other companies have failed: beating Cisco Systems in the world of computer networking.

It’s an interesting take, though I think Panettieri places too much emphasis on F5’s online community and not enough on the company’s channel strategy and its unswerving focus, from product management to sales, on understanding and properly prioritizing and addressing customer requirements.

F5, in taking command of the application-delivery networking space, does far more right than wrong, and Panettieri is right about how F5’s laser-sharp, deep-and-narrow approach has successfully countered Cisco’s broader-based strategy and product portfolio in the hotly contested market segment where the two companies have gone head to head.

Speaking of F5, a new rumor is making the rounds. This one posits that VMware is in the midst of acquiring F5.

I don’t know whether it will happen, but it does pass the plausibility test. VMware is under competitive siege in the virtualization space, and F5’s application-delivery networking could give edge, not to mention market-leadership in an established (and related) market. Moreover, F5 and VMware already have a partnership that seems to have worked well.

All previous rumors regarding acquisitions of F5 obviously have proven false, so we’ll have to see whether this one is the exception that ends them all.


No Rescue in Sight for Faltering Motorola

Once, way back in the recesses of time, Motorola was an estimable brand, a company with popular products and a leadership position across multiple growth markets. It had solid management and board that wasn’t indifferent, too.

Today? Motorola is a smoldering ruin, under competitive siege across its core markets, losing market share almost everywhere, and afflicted by an executive team and board of directors that can’t devise a strategic plan more ambitious than breaking up the business units and divisions into bite-size morsels that can be sold piecemeal.

That’s the Carl Icahn plan, and Yahoo and its shareholders ought to take note. What’s happening to Motorola would be happening to Yahoo if Icahn and Microsoft’s Steve Ballmer had their way. We can agree to disagree on many things, but I think nearly everybody can agree that what’s happening to Motorola is a fate one wouldn’t wish on any company, particularly one that once was synonymous for American innovation and technological prowess.

Unless tomorrow’s second-quarter financial results are much better than analysts expect, Motorola is heading for the abyss. It’s almost impossible to see a sliver lining in the storm clouds above the company’s headquarters. The news is bad, and it’s getting worse by the day.

We learned today, for instance, that the company has fallen even further behind in the handset race. Whereas once, not that long ago, Motorola was a close second to Nokia in handset market share, it is now fourth, outdistanced by Nokia, well behind Samsung, and suddenly eclipsed by current bronze medalist, LG Electronics. Like a grim reaper, the number-five slot beckons.

Ten years ago, as the periodicals and history books will tell you, Motorola was the market leader.

That’s ancient history now, especially to the market analysts and investors who were hoping that a profitable handset division could be spun off in in the months ahead.

“The handset business needs to achieve profitability before it can be spun off,” said Kaufman Bros. analyst Raimundo Archibold. “Who’s going to want to own a company that’s bleeding money … We need to gain some sense the losses can be tempered.”

It doesn’t look as though the losses will slow, not until there is almost nothing left to fall off the table. Unfortunately, the losses aren’t only occurring in the handset group. Motorola employees with career alternatives are said to be leaving in droves. Recruitment of new talent is becoming a maddening, thankless task, a sure path to madness or substance abuse.

As for the rest of the company, Motorola appears to be hoisting the white flag of surrender. Everything under Motorola’s aegis is being positioned for sale.

Its Home & Networks Mobility group, for example, is being carved into three separate businesses: Broadband Home Solutions, which will consist of cable and video equipment, including set-top boxes and modems; Broadband Access Solutions, next-generation broadband equipment; and Cellular Networks, wireless network equipment.

Motorola can spin this tale any way it wants — and, don’t worry, it’s doing just that — but what it all amounts to is capitulation. Don’t think savvy market watchers and shrewd investors are being deceived by the misdirection and obfuscation.

Said Ed Snyder, principal at Charter Equity Research:

“The Street sympathizes with [Motorola Chief Executive] Greg Brown, but they’re not going to give him any money.”

Wise move. Make him, and the Motorola board, earn it.

Google Passes on Digg

I was among the observers who couldn’t grasp why Google seemed intent on buying Digg, the social=networking news-aggregation site.

The view from this corner, as well as from others, was that Google could roll its own social-networking news-ranking algorithm for a lower price and with less baggage than would accompany an acquisition of Digg.

Apparently, though, Google remained primed and ready for a $200-million buyout of Digg right up until later-stage due diligence last week. Putative insiders, who claim to be familiar with the thinking of the parties involved, suggest that Google walked away for one of two reasons.

According to the first scenario, technical issues undermined the deal. An alternate interpretation intimated that Google aborted the deal for “personality” reasons, eventually concluding that the Digg team wasn’t culturally suited for corporate life at Google.

The second scenario seems likelier, if only because show-stopping technical issues probably would have been identified well before the 11th hour of due diligence. One would hope, anyway.

Rumors of Cisco Layoffs

As competitors, including Juniper Networks and Brocade Communications Systems (through its acquisition of Foundry Networks), gear up to chip away at Cisco’s long-held dominance in enterprise networking, there are unconfirmed reports that the networking giant is shedding staff across multiple business units.

We’ll look for corroboration and further details regarding these reports. If you have any information you’d like share, anonymously or otherwise, you know where to find me.

Dignan, Too, Wonders About Microsoft’s Focus

Maybe I was channeling Larry Dignan earlier today in my polemic against Microsoft’s profligate insistence on trying to crack the consumer space at the opportunity cost of focusing more on the enterprise.

In his ZDNet column, also available at Seeking Alpha, Dignan wonders about the sagacity of Microsoft’s insistence on trying to capture an unwilling Internet consumer market while the enterprise is beckoning for more attention.

Writes Dignan:

Instead of chasing Yahoo, plotting to be an advertising empire and pining for consumers with things like the Xbox and Zune perhaps what Microsoft really needs is an IBM moment of clarity. Remember IBM? Big Blue used to do everything too, but then it suddenly got it. IBM unloaded its PC business to Lenovo and started focusing on the two things that were insanely profitable: Software and services. Oh yeah, the hardware is still there too, but IBM is all about enterprise and helping business get stuff done.

IBM’s public persona may have taken a hit with the average consumer–it’s not like Tivoli, Rational and IT services are discussed at picnics–but there’s no question it made the right move. IBM is more profitable than ever. And it’s focused.

Microsoft could use some of that focus. It’s not that Microsoft is forgetting the enterprise business. In fact, Microsoft is hellbent on being the No. 1 enterprise software company. The problem: That enterprise windfall is funding things like Live Search and Xbox. I credit Microsoft for its willingness to invest and be tenacious, but you have to wonder about the returns here.

Dignan wonders about the returns, I wonder about the returns, and Microsoft investors should wonder about the returns.

Actually, they ought to do more than wonder. What they should do is pepper the Microsoft executive team with hard-hitting questions about the feasibility and viability of these consumer pipe dreams. They should demand to know why Microsoft believes the time and money spent on an aborted acquisition of Yahoo shouldn’t have been spent on furthering the company’s advantage in enterprise solutions, including business-oriented web services.

Essentially, Microsoft’s investors need to keep the company focused and accountable. The Ballmer-led Microsoft is in serious danger of heading off in too many directions for too little return on investment.

Of course, Microsoft’s executive team will argue that it can win in both the enterprise and consumer markets. It’s up to the company’s investors to temper that hubris by pointing to Microsoft’s past performance and its corporate DNA — which, as Dignan points out, doesn’t exactly augur well for success in the consumer realm.

Ballmer Intent on Throwing Good Money After Bad

I have said it before and I’ll say it now: Microsoft does not have the market mandate to aggressively pursue and capture consumer markets. In most cases, consumers only buy Microsoft products and services when they have no other choice.

Zune has been a nearly unmitigated failure, Xbox and Xbox 360 have been qualified failures, and Microsoft’s Internet services, with the exception of Microsoft Messenger, have been perennial also-rans.

Admittedly, consumers — most of whom also have jobs (except the the kids, of course) — also use Windows and Office, but those can hardly be defined as consumer offerings. For the most part, people have used Office not because they have any special fondness for it but because their work necessitated its adoption. All that might be changing, but that’s for another post at a later date.

In a textbook instance of throwing good money after bad, Microsoft profligately expends resources in pursuit of a consumer market it can never own, at least not a degree that would justify the overall investment.

At Microsoft’s annual meeting with analysts, as covered by the Wall Street Journal, the company’s CEO Steve Ballmer signaled that Microsoft will continue to fight the trend, irrespective of past performance and current capabilities.

From the Wall Street Journal coverage:

Investing in search is important, he said, because it is a foundation for creating other consumer Internet services.

“Search is one of the starting points on the Internet,” Mr. Ballmer said. “It’s the best place to distribute new Internet services to the consumer.”

What Ballmer says is true — search is a foundation for the distribution of new web services to consumers — but the consumer, generally speaking, has shown little inclination to patronize such services when they carry Microsoft’s brand. Ballmer, as is his wont, blithely ignores this reality, much as a captain of a doomed frigate might ignore an iceberg in his path.

I’m not saying Microsoft can’t be a player in web services. In the enterprise, where it has, after much trial and tribulation, finally developed products that put it on a favorable competitive footing against Linux and Unix, Microsoft has an excellent opportunity to prosper from web services.

I just don’t buy Microsoft as a consumer juggernaut. That train has left the station a long time ago. Ballmer missed it. Somebody at Microsoft should advise him to play to the company’s strengths rather than to its weaknesses.

Cringely Sees Through Ballmer’s Posturing

In wondering whether the Microsoft-Yahoo soap opera has reached its merciful end, especially for beleaguered Yahoo employees and shareholders, Robert X. Cringely sees through the transparent posturing of Microsoft CEO Steve Ballmer.

First, there’s Ballmer’s official response at Microsoft’s earnings call this week:

“It didn’t work out, fine, we’re done, we can move on. Does that mean nobody will ever talk to anybody again? I suspect the answer to that is also no. It’s a long time and a big world, but we are moving on.”

Quiz: How do you know Steve Ballmer is spreading more fear, uncertainty, and doubt? His vocal chords are engaged.

Ballmer, with corporate-raider Carl Icahn’s willing or inadvertent connivance, is attempting to generate enough fear, uncertainty, and doubt about Yahoo’s viability so as to engender further downward pressure on the company’s stock price and valuation. When Yahoo finally reaches its nadir, Ballmer hopes to pick up the remnants for a badly warbled song. (Hey, Steve loves to croon, as past videos make clear.)

Then again, it might not be necessary for Microsoft to pick Yahoo’s emaciated carcass .

Microsoft contends that search — and, by extension, search advertising — is a two-horse race, with Google currently playing the part of a Triple Crown winner and Microsoft plodding behind like a second-rate claiming nag. If Yahoo were to fall off the face of the planet, or to gradually fade off the charts as a result of attrition and customer defection, Microsoft would benefit, if only be taking some of the share left behind by an erstwhile rival.

Yes, Steve Balllmer is clever and shrewd. But he’s transparent enough that Yahoo and its shareholders should be able to see through the cynical act.

Investment Advisory Firm Keeps Yahoo Intrigue Brewing

On the surface, Glass Lewis & Co’s latest advice to its clientele of institutional investors that own shares in Yahoo seems designed to press Yahoo’s board of directors to remove compensatory considerations that might dissuade another takeover bid from Microsoft — or from anybody else, for that matter.

Earlier today, Glass Lewis recommend that its clients vote against the re-election of three Yahoo directors — Yahoo Chairman Roy Bostock, and directors Ron Burkle and Arthur Kern — all of whom wield gavels on Yahoo’s compensation committee. Among the alleged crimes and misdemeanors that Glass Lewis imputes to the compensation committee are excessive compensation awarded to Yahoo executives during the fiscal year 2007 and the passage of an employee-severance program discourages an acquisition of Yahoo.

In the words of Glass Lewis:

Nominees BOSTOCK, BURKLE and KERN all served as members of the compensation committee in fiscal year 2007, during which time the Company paid more compensation to its top executives but performed worse than its peers. The members of the compensation committee have the responsibility of reviewing all aspects of the compensation program for the Company’s executive officers. It appears to us that members of this committee have not effectively served shareholders in this regard. Further, we are concerned that the committee approved the adoption of the Change in Control Severance Plans with potential brobdingnagian payouts, potentially discouraging a takeover.

Plaudits should go to the advisory firm for the use of the seldom-used word “brobdingnagian,” but otherwise one is inclined to think it is up to some mischief. In trying to oust the three board members, Glass Lewis effectively is attempting to stage a coup, making it possible for Yahoo to be sold to Microsoft, which patiently waits in the wings for impatient Yahoo investors to bash away at the company’s executives, board, and market value.

Microsoft’s divide-and-conquer tactics might have worked, too, except for the fact that Yahoo’s corporate-governance bylaws will not compel the company to accept the resignations of the three board members, even in the event that a majority of shareholders vote for their removal.

Expect more noise and more distraction when Yahoo’s shareholder meeting occurs on August 1. However, it’s in the best interests of Yahoo and its shareholders to move past the Microsoft affair and into a more constructive mode of long-term strategic planning and operational efficiency.

Yahoo Must Leave the Microsoft Debacle Behind

As one surveys the analyst commentary and investor reaction to Yahoo’s latest quarterly financial results, it is difficult not to conclude that CEO Jerry Yang and the board must cease and desist from any further acquisition-related discussions with Steve Ballmer and his predatory crew at Microsoft.

Not only is Microsoft arguably not interested in acquiring Yahoo, at least for what most third-party bystanders would consider fair value, but it is now blatantly obvious that the distraction represented by the seemingly endless Microsoft discussions has become a major impediment to Yahoo’s ongoing operational rhythm and its long-term strategic success as a viable company.

Now that Carl Icahn, the wheeler-dealer asset flipper and attention-deficit-addled investor, has been sated, at least temporarily, with a seat on the the board of directors, it is time for Yahoo to begin acting like a real company again.

As Lehman’s Douglas Anmuth says:

“YHOO needs to strengthen core operations for the stock to work, but we think it also needs to re-engage with investors, many of whom have viewed the company as an M&A and arb story over the last several months rather than a fundamental investment opportunity.”

Indeed, it is time for Yahoo to explain where it is going strategically, to explain how it will get there, and to demonstrate tangible progress toward its objectives. Anything less just invites a revival of fevered conjecture and speculation about a return of Microsoft to the degraded bargaining table.

At this point, that’s not good for anybody at Yahoo, except perhaps for Mr. Icahn, who remains compelled to make a deal — apparently any sort of deal — to slake his inveterate urges.

Spurned H-1B Workers Urged to Head North

It seems bizarre and wholly irrational that law-abiding H-1B visa holders whose permits expire after six years — one three-year term and one three-year extension — have no means of remaining in the USA as legal and productive citizens.

Still, that’s the reality, as experienced by thousands of foreign technologists who are forced to leave the USA after finishing the maximum six-year terms allotted under the H-1B visa system. For these typically well-educaed, well-trained, and professionally skilled individuals, no recourse exists for them to remain legally in the country, much less to gain citizenship.

The Canadian province of Alberta is attempting to capitalize on the situation by aggressively recruiting H-1B visa holders whose permits are set to expire.

Alberta cannot be blamed for its opportunism. The province has a fast-growing, vibrant economy — supercharged recently by the high prices of oil and other natural-resource commodities — and it has a clear need for IT professionals that can assist in application fields such as the computerized discovery, extraction, and refinement of natural resources. Alberta, of course, also has a growing IT industry, represented by scores of software companies, nanotechnology concerns, and HP’s VoodooPC unit.

Alberta’s pitch to H1-B visa holders can be found at this government website.

The US H-1B system appears to be serious broken. It probably won’t get fixed until a new president is in the White House, if then.