Daily Archives: July 7, 2009

Substance Might Lurk Behind McAfee Takeover Rumors

Rumors that McAfee might be acquired have been on a low boil for some time, but they heated up markedly toward the end of June.

About then, McAfee’s stock hit a ten-year high while Pacific Crest analyst Rob Owens speculated that the computer-security mainstay might be an acquisition target.

These rumors might be nothing more than hot air, but there’s reason to believe a modicum of substance might lurk behind them.

For one thing, McAfee has done a good job of battling back from self-inflicted oblivion. Perennial second fiddle to Symantec in most consumer and enterprise security markets, McAfee fell way off the pace earlier this decade. It has regained its stride, though, especially in SMB and enterprise markets, where the company has bolstered its product portfolio through acquisitions and renewed focus.

Symantec still retains a sizable lead over McAfee and everybody else in security software for the consumer market, but that market is vulnerable to Microsoft Security Essentials, free anti-malware software whose beta run was quickly oversubscribed.

At least some early reviews of Microsoft Security Essentials have been favorable, and Symantec and McAfee are exposed to any market-share incursions Microsoft can make in the consumer space. That is particularly true in emerging markets, where consumers largely have not made a previous commitment to an antivirus vendor.

Getting back to the enterprise market, though, McAfee has done well claw back at Symantec and others. It also has established interesting strategic partnerships, including one with HP.

In addition, McAfee and HP have established alliances or partnerships in secure data-center networking (HP ProCurve), SMB markets, virtualized storage, compliance, and enterprise-wide security solutions.

As HP begins to get serious about taking market share from Cisco in enterprise networkingas well as in enterprise servers, storage networks, and the virtualization of the data center — it could be thinking there’s more than one reason to get closer to McAfee.

MatlinPatterson’s Nortel Squeeze Play

Nortel’s astonishingly dramatic disintegration, preceded by years of pathological dysfunction and executive-level incompetence — not to mention egregious neglect from a docile board of directors — is like a horrific, slow-motion car crash that draws the morbid fascination of rubber-necked onlookers.

In the form of leveraged buyout firm MatlinPatterson Global Advisors — described by some as a “vulture fund,” which doesn’t seem an approbatory sobriquet — we now have ambulance-chasing lawyers on the scene of the wreck, looking for a way to squeeze some money from the tragedy.

Ostensibly, MatlinPatterson is portraying itself as Nortel’s savior, a white-knight acquirer that will save the company from the fate of dismemberment and divestment of its faltering business units. Is that really what MatlinPatterson is trying to accomplish, though? Are they a noble defender of all that was great and good about Nortel?

Let’s get a few things straight.

Essentially, MatlinPatterson is a chop shop. It doesn’t build companies. Instead, it buys distressed assets, of which Nortel undoubtedly qualifies, dresses them up and tries to extract as much as possible from subsequent buyers.

What’s more, MatlinPatterson holds $400 million in Nortel bond debt, giving it a significant vested interest in Nortel’s ultimate disposition as a salable property or properties.

As a substantial Nortel debtholder, MatlinPatterson was dissatisfied with the $650-million bid that Nokia Siemens Networks made for Nortel’s wireless assets, which account for about 25 percent of the company’s sales and include its CDMA and LTE technologies and patents.

Nortel’s executive team and board are committed to selling not just its wireless business unit, but also its Metro Ethernet and enterprise assets. Once those are gone, that’s it, the show is over.

Clearly Matlin Patterson believes the market, as evidenced by the bid from Nortel Siemens Networks for Nortel’s wireless assets, is not adequately valuing what Nortel has to offer.

As a debtholder in a company that is moribund, MatlinPatterson is playing the grim hand it has been dealt. Pay no attention to MatlinPatterson’s hollow rhetoric about reviving Nortel and bringing it back to a semblance of glory. It’s too late for that, and MatlinPatterson, shrewd exploiters of distressed assets, know precisely what time it is.

“It’s very much a Humpty Dumpty story and we’re beyond the point at which anyone can hope to keep all of the various pieces together under Nortel’s banner,” said Carmi Levy, an independent technology analyst based in London, Ontario.

“I think what they (Matlin) are trying to do is they are trying to measure the market for what the potential value would be for wireless, for Metro Ethernet and for enterprise,” said Levy.

Indeed. That’s exactly what’s happening.

MatlinPatterson is trying to get more from Nortel Siemens Networks, and it’s also positioning to get more from the tire kickers that have been warily circling Nortel’s enterprise and Metro Ethernet assets.

MatlinPatterson isn’t serious about engineering a Nortel comeback, but it is serious about trying to salvage as much as it can from a fallen company in which it has significant exposure.

With Designs on Consumers, RIM Faces Tough Fight

For years, Research in Motion has made its reputation and its money with its line of BlackBerry smartphones, which overwhelmingly are used for business messaging, primarily email.

RIM, first to market with elegant “push” email to mobile devices, supported by the enterprise-grade encryption and corporate email integration of its BlackBerry Enterprise Server (BES), quickly established technology and market leadership over Microsoft and others in mobile business messaging.

Now, though, to drive further market growth and support the upward trajectory of its stock price, RIM has been determinedly seeking to expand beyond mobile business messaging. It has designs on the consumer space, where email is a secondary concern (if a concern at all), and where sleek product design, seamless support for video and audio, and — above all else — consumer-oriented applications and content drive adoption.

While RIM leads technologically and in the marketplace in the realm of mobile email for business users, it is not a dominant consumer brand. Apple — and even Nokia and Samsung, among others — have more strength as consumer brands.

There’s no question that the iPhone is coming on strong in the smartphone space, with the market surge predicated on the strength of Apple’s consumer-friendly AppStore — packed with more than 50,000 third-party applications, the vast majority of which are consumer-oriented, and its more than one billion downloads. RIM remains ahead of Apple in smartphone market share, but one could easily contend that RIM has less growth ahead of it than does Apple.

So, RIM is making its consumer push with the BlackBerry, introducing new BlackBerries, designed with consumers rather than business users in mind. The key to RIM’s consumer success, however, will be whether it can win the hearts and minds of developers and creators, which provide applications and content to consumers, respectively.

That’s why RIM’s BlackBerry App World is so crucial to its consumer success. RIM has approximately 2,000 applications on App World, a far cry from the comparatively astronomical number accrued on the App Store for the iPhone. What’s more, while RIM has attracted some consumer applications to the BlackBerry App World, the site still has more of a business skew, in tone and substance, than does Apple’s App Store.

RIM has considerable work to do if it is to match Apple and others in considerable appeal. It’s early for the BlackBerry App World, of course, but Apple isn’t standing still, and the iPhone and other devices likely will have more cache in developing markets.

Applications and content will drive consumer adoption of next-generation smart phones. RIM has a tough fight ahead.