Daily Archives: September 22, 2009

Google News was Down?

Apparently Google News went offline for about two hours earlier today. Here’s what Google had to say about it:

“Today, from about 12:25 p.m. to 2:20 p.m. PDT, many users experienced difficulties accessing Google News. We know how important Google News is to our users, and we take issues like this very seriously. This issue has now been resolved. We apologize for the inconvenience.”

I personally didn’t experience the outage, and I am sure that I used Google News during the period in question. It must have been a geographically limited outage.

In the interests of full disclosure and customer service, Google ought to provide further detail on what happened, why they believe the problem occurred, and what is being done to prevent a recurrence.

Oracle Gearing Up for Battle in Converged Datacenter

I just commented on Larry Ellison’s public remarks at a Churchill Club event held in San Jose last night.

In that post, though, I neglected to draw notice to a particularly interesting comment that was attributed to Ellison by Fortune’s Jon Fortt:

Ellison, 65, said that even after 32 years at the helm of Oracle, he doesn’t see retiring anytime soon. He intends to develop Oracle into a technology powerhouse that provides not just software, but computing, storage and networking gear. The company recently started mapping out its five-year plan, and he intends to continue at the helm at least long enough to execute it.

Let me play part of that back again: “He intends to develop Oracle into a technology powerhouse that provides not just software, but computing, storage, and networking gear.”

It would be interesting to hear Ellison expound further on that idea. On the surface, it sounds a lot like the converged datacenter strategies being pursued by Cisco and HP.

In the meantime, while waiting for Ellison to clarify what he meant, we might gain some insight into where he’s heading by perusing a blog post written earlier this year by Jonathan Schwartz, Sun’s CEO and president.

Here’s a key excerpt:

As I’ve said before, general purpose microprocessors and operating systems are now fast enough to eliminate the need for special purpose devices. That means you can build a router out of a server — notice you cannot build a server out of a router, try as hard as you like. The same applies to storage devices.

To demonstrate this point, we now build our entire line of storage systems from general purpose server parts, including Solaris and ZFS, our open source file system. This allows us to innovate in software, where others have to build custom silicon or add cost. We are planning a similar line of networking platforms, based around the silicon and software you can already find in our portfolio.

We believe both the storage and networking industry’s proprietary approach, and their gross profit streams, are now open to those us with general purpose platforms. That’s good news for customers, and for Sun.

At the heart of this convergence is Solaris – enabled by technologies such as ZFS (around which we’re building our entire storage line), and Crossbow (around which you’ll see us build some very compelling networking products).

From what Schwartz wrote and the diagram (see below) included in his blog post, one wouldn’t be making an unreasonable leap of logic to conclude that the Sun blueprint for datacenter systems convergence would have put it on a collision course with Cisco and HP, both of which have similar plans for datacenter domination.

Untitled.jpg

If Oracle adopts Sun’s manifesto and jumps into the ring against Cisco and HP, it will be hoping that its own software and Sun’s open-source Solaris will represent the “secret sauce” that confers sustainable competitive edge over its rivals. What’s fascinating is that each of the three will have come from a different jurisdiction of the datacenter — Cisco from networking, HP from computing, Oracle from enterprise software — all working feverishly to buy or build the parts that complement and complete the whole.

IBM is in the competitive mix, too, though it is taking an integrator’s approach to datacenter convergence, not relying on owning all the hardware, perhaps reasoning that it is heading toward commoditization anyway. For IBM, software and professional services are the keys to the datacenter kingdom.

Oracle could contend that, on paper, its acquisition of Sun’s hardware and open-source software gives it a clear advantage in putting together cost-effective, converged datacenter solutions for enterprise customers.

But the market isn’t a piece of paper. Plenty can go wrong on the road to execution.

The Oracle of Oracle Speaks

Larry Ellison is the oracle or Oracle. He makes public pronouncements less frequently than he once did, and that’s a shame.

Thankfully, as reported at the Fortune website, he broke his self-imposed vow of public reticence at a Churchill Club event in San Jose last night. It’s always good to be able to parse the master’s words.

And why not? Can a cat not look at a queen? Can a beggar not question a prince? Can a dog — yes, I would be that mangy mutt — not have his day?

Without further ado, then, I will present selected quotes from Chairman Larry, interposing my own remarks after each one.

On the economy:

“The American consumer is so deeply in debt, this is not going to come back, certainly for five years. I believe we’re going through some fundamental changes.”

It’s refreshing to see such candor from somebody in a position of wealth and influence. If there’s self-interest in this remark, I’m struggling to detect it.

Unlike the talking heads on CNN and CNBC, Ellison is giving us the straight goods. As I’ve said before, the American consumer is tapped out, the halcyon days of endless IPOs and gold-plated stock options will not return, and whatever recovery we experience will be muted and tepid.

Ellison also begged to differ with economists and pundits who predict a “V” or “W” shaped recovery. What letter does Larry think will most closely represent the shape of the economic recovery? The letter “L.” Look closely at the letter “L.” It will become evident that Ellison is forecasting a recovery not worthy of the designation.

Again, he’s right. For the last while, the American economy repeatedly has called on its consumers to lift it out of the doldrums. George W. Bush even told people to go shopping after the terrorist attacks of 9/11. But the frenzied shopping has come to an end. What worked for the US economy before won’t (and can’t) work now. It’s time for a new playbook.

On Sun’s value to Oracle, Ellison said:

“If, just for one dollar, if we could buy IBM, HP, Sun or any of these tech companies, I’m not sure we wouldn’t pick Sun.”

That’s disingenuous. Where did the candor go?

As Jon Fortt of Fortune points out, Sun is losing $100 million a month, while IBM makes a couple billion dollars a month. Ellison didn’t get to where he is today by picking losers.

On Oracle’s ultimate intentions for MySQL:

“No, we’re not going to spin [MySQL] . We are keeping everything. We’re keeping tape. We’re keeping storage. We’re keeping x86 and SPARC. And we’re going to increase investment in all of them.”

This is a problem, but it isn’t insurmountable. The European Commission clearly has concerns about what Oracle, as the pending owner and custodian of MySQL, will ultimately do with it. That’s the reason the EC held up Oracle’s acquisition of Sun, subjecting it to an extending review that will last into early 2010.

On whether the European regulators will approve the acquisition:

“The US took their time and deliberations and cleared it. The Europeans have to do their job, but I think once they do their job, they’ll come to the same conclusion.”

I think he’s right. That said, you’d never want to bet the house on a decision being mulled by European regulators.

On the consequences of the acquisition’s delayed approval:

“The longer this takes, the more money Sun is going to lose, and that’s not good for anybody.”

Well, the delay isn’t good for anybody affiliated with Oracle or Sun, but I don’t see HP or IBM, or even Microsoft and SAP, shedding anxious tears or rending clothes in anguish. To the contrary, those companies are eagerly rubbing their hands together and hoping the delay continues indefinitely.

On cloud computing:

“Cloud? Clouds are water vapor. My objection to cloud computing is the fact that cloud computing is not only the future of computing, it is the present and the entire past. Google’s now cloud computing. Everybody’s cloud computing. … All it is, is a computer attached to a network. What are you talking about? What do you think Google runs on? It’s databases and operating systems and memory and processors! What are you talking about?”

Regardless of whether you think cloud computing means “a computer attached to a network” or “never having to buy another server again” (because your applications are served up remotely), the definition of cloud computing should be readily understood by everybody. Right now, that’s not the case. That’s because cloud computing has become a marketing buzzword, an intentionally ambiguous phraseology meant to create an impression of fuzzy warmth in those that hear and see it.

Score another one for Larry. I wish he’d speak publicly more often.

Why Dell Will Successfully Integrate Perot

At least a couple market analysts seem concerned about Dell’s ability to integrate and absorb its announced acquisition of Perot Systems and the 23,000 employees that come with it.

Credit Suisse’s Bill Shope says:

“Perot’s 23,000 employees represent a formidable integration challenge for Dell, and we are concerned with Dell’s limited acquisition track record.”

He also has reservations about how the acquisition might affect broader restructuring at Dell, particularly the company’s ongoing efforts to lower operating expenses. Says Shope:

“In particular, we believe Dell’s key challenge will be to prevent its operating expenses from ballooning as revenues recover in 2010. We fear that the additional burden of integrating a large services asset will add risks here.”

Jason Noland of Robert W. Baird shares Shope’s concerns about the integration challenge for Dell, noting that Dell has never digested an acquisition this big.

I want to issue a couple rebuttals.

First, I think these comments represent the myopic quarter-to-quarter mindset that preoccupies many in the analyst community. Rather than considering the big picture and Dell’s long-term viability in a market that is undergoing dynamic change, they worry about whether Dell’s operating expenditures will suffer a short-lived spike as the company assimilates an important acquisition. It’s an incredibly short-sighted view, one that misses the point behind the acquisition.

I’ll be blunt: Dell could not stand still. It had the choice of going deeper into consumer markets or strengthening its enterprise offerings. It would have been a dire mistake for Dell to plunge deeper into consumer markets. The company not only derives the majority of its revenue from sales to enterprise customers; it’s also more comfortable dealing with business customers and more responsive to their needs.

Conversely, Dell isn’t a brand prized by consumers. It’s just had too many misadventures and missteps dealing with them. There’s no reason to believe Dell buying Palm, for instance, would end any differently from 3Com’s disastrous stewardship of Palm back in the 1990s. When one also considers that the consumer market is no panacea for magical growth in the foreseeable future — unless your corporate moniker is Apple — Dell really had no choice.

At the end of the day, a company has to be true to itself.

One might reasonably object to the price Dell paid for Perot, but it’s harder to make the case that Dell shouldn’t have pulled the trigger on exactly this sort of move. With the strong services foundation Perot will provide, especially in its core healthcare and government markets, Dell now can buy and build additional products and services that can be sold into those markets. The Perot acquisition forms a cornerstone on which Dell can build higher-margin value propositions for enterprise customers, above and beyond the sale of PCs and servers.

The other objection raised by analysts is that Dell might struggle with the integration of Perot. That’s always a possibility, not just for Dell but for many other companies besides.

Even so, I am reasonably confident in Dell’s ability to make the integration work. Dell has cut its teeth on small acquisitions in preparation for a bolder move. More to the point, it has brought aboard personnel who are adept at closing, integrating, and fully assimilating major acquisitions.

Among them is David Johnson, Dell’s senior vice president of corporate strategy (or head of corporate planning and development, depending on whom you ask at Dell and the circumstances in which you pose the question). He was formerly an M&A executive with IBM.

Many of you will recall that Johnson was the subject of a fierce and litigious tug of war between IBM and Dell. That battle is ongoing, which is why Dell was adamant that Johnson was not involved with the Perot acquisition.

Okay, he might not have been involved, literally and technically, in the acquisition of Perot; but I strongly suspect he will be closely involved in the integration of Perot into Dell. Notwithstanding Dell’s legalistic and semantic tap dancing, Johnson figures to be in the integration mix, as do others Dell has brought aboard to see through exactly this type of transaction.

In summary, Dell isn’t exactly the acquisition ingenue that some analysts believe it to be.

Hitachi and Huawei Potential Bidders for Nortel Carrier Business

The consensus opinion, which I shared, was that bankrupt Nortel’s next step in its systematic dissolution would involve the auction of its Metro Ethernet Networks (MEN) business unit.

Instead, Nortel and its bankruptcy stewards have thrown a curveball, choosing to auction off its carrier-networks business first. From a Nortel press release issued yesterday:

Nortel Networks Corporation [OTC: NRTLQ] announced today that its principal operating subsidiary, Nortel Networks Limited (NNL), and its U.S. subsidiary, Nortel Networks Inc., plan to sell, by auction, the assets of its Carrier Networks business associated with the development of Next Generation Packet Core network components (Packet Core Assets). The Packet Core Assets consist of software to support the transfer of data over existing wireless networks and the next generation of wireless communications technology, including relevant non-patent intellectual property, equipment and other related tangible assets. In connection with this proposed sale, NNL also expects to grant the purchaser a non-exclusive license of relevant patent intellectual property.

As recounted at Unstrung, much of the technology in Nortel’s Carrier Networks business was developed from the acquisition of Sunnyvale, Calif.-based Shasta Networks, purchased in 1999 for cash and stock valued at $340-million. Building and extending that platform, Nortel has competed active in the mobile-data infrastructure market for the past decade, so the technology in the business unit is proven and tested.

Nonetheless, as the foregoing excepted paragraph from the Nortel press releases states, the buyer of the carrier-networks business will not relevant patents. Nortel will keep those for now, just as it kept its LTE patents. Rather than getting patents, the acquirer of the carrier-networks business will obtain a non-exclusive license to use relevant patents associated with the products and technologies included in the deal.

This approach is identical to the one Nortel took in auctioning off its wireless-business assets, eventually nabbed by Ericcsson for $1.13 billion. If you’ll remember, Ericsson procured the products and technologies comprised within the wireless business unit, but it did not get its hands on the LTE patents, which Nortel retained. Ericsson was granted non-exclusive rights to the LTE patents, however.

That provision antagonized RIM, which wanted the LTE patents and the unencumbered rights to license them on terms of its choosing. Hoping to scupper Nortel’s deal with Ericsson, RIM unsuccessfully appealed to the Canadian government on patriotic grounds, arguing that valuable intellectual-property assets were being sold into foreign hands. What was interesting about RIM’s case was that the Blackberry maker had no intention of acquiring the wireless business unit, which is involved in markets far removed from RIM’s strategic remit. Instead, RIM’s acquisitive sights were fixed exclusively on the LTE patents.

Apparently, Ericsson and RIM are set to battle for the LTE patents when Nortel decides to auction them off. Now we’ll have to wait for Nortel to decide when auction off the patents associated with its carrier-networks business, too.

As for likely candidates that will bid on Nortel’s carrier-networks business, Unstrung’s Craig Matsumoto thinks Hitachi is a probable player . He notes that Hitachi has been working with Nortel on an LTE packet-core network for Japanese operator KDDI Corp. What’s more, HItachi opened an LTE core-architecture R&D center in Richardson, Texas, next door to a Nortel R&D facility.

Just down the road is Huawei, which officially unveiled an LTE laboratory this summer in Plano, Texas. Huawei is a rising player in the wireless packet-core market, and it has plans to expand its footprint in North America. It also claims to have been granted 147 LTE patents by the European Telecommunications Standards Institute (ETSI), representing 12 percent of the 1,272 LTE patents assigned by ETSI as of August 2009.

While Huawei has the profile of a company that would bid on Nortel’s carrier-networks assets, I am skeptical as to whether it would step up to the auction plate and take its cuts.

A Chinese company with alleged close links to the Chinese government, Huawei probably would receive a rough ride from US regulators if it were to successfully bid on any Nortel assets. Even the acquiescent Canadian federal government might demur at the purchase of a Nortel unit by Huawei.

One last point: It is interesting that, as far as is known, Nortel is not seeking a stalking-horse bid for this business unit. It solicited stalking-horse bids for both the wireless business and its enterprise business.