Sun’s Share Price Bears Watching in Oracle-EC Showdown

The SEC and others should keep a close watch on Sun Microsystems’ share price, and any big trades that influence it, in the weeks ahead.

As Oracle’s $7.4-billion bid for Sun is delayed by an extended regulatory review by the European Commission (EC), the risk is great of somebody benefiting financially from improper access to inside information.

Oracle wants to go through with its purchase of Sun, but it wants to acquire the whole company, including MySQL. Oracle CEO Larry Ellison has stated explicitly that he wants to own MySQL and has no wish to spin it off.

Conversely, European regulators have competitive concerns about Oracle’s ownership of MySQL. The regulators aren’t concerned so much with MySQL’s open-source integrity as they are with the fact that Oracle, IBM, and Microsoft control approximately 85 precent of the worldwide database market.

MySQL competes against Microsoft’s SQL Server in many developing markets where Oracle’s relatively high-priced database products aren’t major players. Oracle sees those developing markets as critical to future growth. With MySQL in hand, Oracle could gain market share in developing markets while hurting Microsoft. For Ellison, who always likes to win but enjoys it more when he’s beating an archenemy, there isn’t a better scenario.

But the EC might look askance at Oracle taking MySQL off the board. Again, the objections from the EC relate to competitive matters, not to issues of open-source integrity. Oracle has said it would keep MySQL alive, that it would continue developing and supporting it, and those assurances haven’t been good enough for the European regulators. That’s because the issue is market dominance, and Oracle doesn’t become any less dominant as the owner of MySQL. To the contrary, one could argue that it will become stronger, particularly in markets where it currently has a modest profile.

The two sides are digging in and compromise will prove difficult. As long as Oracle insists on ownership of MySQL, the EC is likely to deny the Sun acquisition. Somebody will have to blink or it could end in tears, with Oracle walking away from the table, Sun slipping further into the swamp of despond, and perhaps the whole cycle to start again with IBM reasserting a modified version of its previous Sun bid.

Now I’ll circle back to my original point. Given that the two sides are intractably opposed to one another, what happens if somebody gains early knowledge of how the EC will rule in its review? Similarly, what happens if somebody knows what Oracle’s braintrust is thinking and how it will respond to an ultimatum from the bureaucrats in Brussels?

Sun’s shares are trading at a 16-percent discount to Oracle’s $9.50-per-share takeover offer. That tells us doubts are growing about whether the transaction will go through. What we don’t know is whether that movement is driven by “smart money” or by conjecture based on regulatory enigmas, deductive reasoning, and speculation.

The situation bears watching. It isn’t as if insider trading hasn’t been known to occur in these circumstances.

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Cisco’s Brinkmanship with Tandberg Shareholders

Cisco Systems seems to be indulging in some brinkmanship in its showdown with dissident Tandberg shareholders obstructing the networking giant’s acquisition of the Norway-based videoconferencing-systems vendor.

A Reuters report, quoting a “source familiar with the matter,” indicates that Cisco is reviewing its options in relation to the Tandberg transaction. Those options include withdrawing or raising its $3-billion bid.

Hamlet was set in Denmark, not Norway, but that historical footnote won’t prevent Cisco from doing some procrastination of its own. According to the Reuters source — who likely is from within the Cisco camp — Cisco probably will not decide whether it wishes to buy or not to buy before the tender offer for Tandberg’s shares expires on November 9.

Investors holding approximately 24 percent of Tandberg’s shares rejected the Cisco offer, even though Tandberg’s board of directors recommended that shareholders approve the deal. To consummate the transaction, Cisco must gain the acceptance of shareholders possessing 90 percent of Tandberg’s stock.

Cisco actually has multiple options. Rather than increasing the value of the offer or withdrawing it altogether, Cisco could extend the original offer. Given that no white-knight buyer has appeared on the horizon, as I mentioned previously, Tandberg’s recalcitrant shareholders must consider their next move carefully.

For its part, Cisco is saying that it has made a fair offer. It has made noises about rescinding the takeover bid, but the Reuters source indicated that Cisco “is far from deciding that it will withdraw its bid, although it is being strongly considered by top executives.”

Said one of the restive Tandberg shareholders:

“It would seem odd to me that (Cisco) would walk away for a few hundred million dollars … I think for 170 NOK they will probably get it through.”

Maybe that’s all Cisco needed to hear.

Cisco clearly wants to fill out its top-heavy telepresence offerings with Tandberg’s broader, market-leading videoconferencing product portfolio. In theory, CIsco could spurn Tandberg and consider Polycom as an alternative, but the fit would not be as good, with Cisco having to pick up audioconferencing products it probably wouldn’t value.

Cisco probably isn’t elated about having to deal with a Tandberg shareholder uprising. That said, it will not behave irrationally.

If it makes a sweetened bid, Cisco will make sure it’s a modest one. If that Tandberg shareholder’s sentiments are representative of 14 percent of holdout shares, then Cisco would have to boost its offer by a little more than $300 million to close the deal.

Cisco will make the Tandberg rebels sweat — it doesn’t want to go through this sort of ordeal every time it attempts to buy a company — but the deal will get done.

McAfee and Symantec Contend for Market Share and Stock-Market Favor

Two major security-software vendors released their latest quarterly results this week. It’s instructive to look at how the markets reacted to those results and to look ahead and see what we can discern about each company’s prospects moving forward.

Symantec, which had been struggling in prior quarters, surpassed the expectations of market watchers in its second quarter, which ended October 2. Excluding certain costs, profit was 36 cents a share; analysts had predicted 33 cents on average, according to a Bloomberg survey. Including revenue from acquired companies, sales were $1.48 billion, exceeding the average estimate of $1.43 billion, but down three percent from the same quarter a year ago.

Symantec saw six-percent growth in its sales of security software to consumers. Sales in the storage and server-management segment fell nine percent, while security and compliance sales slid three percent. Symantec, which had previously experienced sales-execution problems in enterprise-security markets, seems to be rectifying that problem, with several high-value deals coming to fruition in vertical markets such as financial services, the federal government, and telecommunications.

Geographically, Symantec saw growth in China specifically and Asia more generally, and it saw a semblance of stability beginning to return to its business in North America.

Extending a previous practice, Symantec will buy back up to $1 billion in shares through public and private transactions. Symantec still has about $57 million remaining under its current share-repurchase plan. The company has bought back over $1.9 billion in shares since the last plan was approved in June 2007.

Share-buyback programs usually enhance the value of remaining shares, but they also have the effect of making it easier for executives to reach performance-based benchmarks because the earnings-per-share value increases as the number of shares in circulations decreases.

The overall theme of Symantec’s results was stabilization, and the market was appreciative. Symantec shares went up after the results were announced.

If Symantec benefited from the market’s low expectations, McAfee was undermined by the market’s relatively high expectations.

You wouldn’t know it from most of the business-press headlines regarding McAfee’s results, but the company actually did well in its fiscal third quarter.

McAfee reported sales of $485.3 million, up 18 percent from $409.7 million in the same period last year, just below the $486.6 million that Wall Street had predicted. Meanwhile, the company reported profit, excluding items, of 62 cents per share for the third quarter, above the average forecast of 60 cents, according to Thomson Reuters I/B/E/S.

The company is seeing slower growth on sales of anti-malware products to consumers. Up eight percent to $177 million in the quarter, consumer sales grew at their slowest rate since 2007. On the other hand, corporate sales grew 25 percent to $308 million, even though McAfee CEO Dave DeWalt said enterprise sales were affected by reduced sales of PC-based anti-malware software to companies that have fewer employees than they had previously. With fewer employees, companies have less need for PCs and PC software, including security products.

DeWalt made an interesting point about software sales to consumers. He noted that accounting rules require McAfee to book revenue from each consumer sale over 36 months. As such, he said, revenue reported in any one quarter is “a backward looking indicator.”As for what transpired specifically in the third quarter, DeWalt said consumer bookings grew 12.5 percent.

Looking ahead, McAfee foresees fourth-quarter profit, excluding items, of 61 to 65 cents per share on revenue of $505 million to $525 million. Analysts expect McAfee to earn 63 cents per share on revenue of $507 million.

McAfee fell just short of expectations on the revenue side, and it was punished accordingly by analysts and investors alike. Conversely, Symantec wasn’t a train wreck, as some analysts had anticipated, so it was rewarded for taking steps toward stability.

Although some of the business press focused on Symantec’s pickup in consumer business, the real battle between it and McAfee will occur in enterprise accounts, from SMBs all the way up to the largest corporations. Even though investors like the margins associated with anti-malware sold to consumers, that market is intensely competitive, even more so now Microsoft finally has a free consumer offering, Microsoft Security Essentials (MSE), that is good enough to cut into the for-pay sales of Symantec, McAfee, Trend, and others.

Neither Symantec nor McAfee will admit that Microsoft is a threat on the consumer front, but, behind the scenes, they must be concerned about market erosion.

Symantec is making considerable effort to rectify the problems it had in its SMB channel. It also won some big enterprise deals. Increasingly, what it does in enterprise markets will be critical to its long-term prosperity. Although evidence suggests McAfee is gaining ground on Symantec in business markets, “big yellow” is getting back to basics and will make its smaller rival earn any further advances.

It won’t be easy for either vendor. Even as they’re getting pinched competitively in the consumer space, Symantec and McAfee confront constrained corporate budgets.

According to Bloomberg, Goldman Sachs Group reported this month that enterprise global spending on security programs next year will grow about 5 percent, compared with an 8 percent increase for all enterprise software.

Embattled Alcatel-Lucent Hopes to be Ready for Rising Tide

When Ben Verwaayen took over as CEO of Alcatel-Lucent, he inherited a listing ship full of mismatched baggage and angry recriminations from his French and American senior officers, who formed the company and gave it its ungainly name in a disastrous merger of two equally beleaguered telecommunications-equipment vendors.

Nobody would mistake Alcatel-Lucent for the Love Boat. To this day, the word “troubled” often serves as a preceding adjective in describing the company.

To his credit, Verwaayen not only has, in his words, “played with the cards he was given,” but he’s been determined to look forward rather than backward, not seeking to condemn or to defend the corporate marriage of convenience and desperation that took two embattled, large companies and turned them into an incontinent, self-harming colossus.

Running Alcatel-Lucent is a dirty job, and, for now, Verwaayen has to do it. As he’s said previously, his goal is to get the company’s house in order, to avoid M&A hijinks, and to turn Alcatel-Lucent into a “normal company.”

In releasing its third-quarter results today, Alcatel-Lucent disclosed that it continues to cut costs, continues to inch toward improved operating margins, but that it also continues to struggle to generate top-line growth.

Losses reached €182 million ($269 million) in the third quarter. That was more than the €40 million it lost a year earlier and worse than analysts had forecast. Revenue fell 9.3 percent in the third quarter to €3.7 billion, also below market expectations.

In its legacy fixed-line telecommunications business and in its wireless-equipment group, Alcatel-Lucent is suffering from torpid market conditions and intensifying competition. The latter is particularly true in the higher-growth wireless side of the house, where Alcatel-Lucent faces its usual adversaries — Ericsson and Nokia Siemens Networks — as well as hard-charging Chinese players Huawei and ZTE.

The Chinese players are on the rise, with the European aristocracy back on its heels, looking for areas — such as Ericsson’s emphasis on services — where they can hold a long-term edge over the lower prices and improving quality of the Chinese vendors’ equipment.

Markets, and the buyers within them, are a problem for Alcatel-Lucent, too. Europe, traditionally its strongest market, remains in the dumps. Credit is brutally tight for operators in Eastern Europe and most of the developing world beyond China and India, making it tough for Alcatel-Lucent to identify and benefit from growth markets. In the US, where the company derives about a third of its business, it is competitive but doesn’t expect a major upturn until 2011.

It’s a tough world for Alcatel-Lucent, and its been that way for a while. The company hasn’t earned a quarterly net profit since 2006.

As for the remainder of this fiscal year, Verwaayen remains hopeful that the company can break even for the 12-month period. To reach the break-even point at adjusted operating level, according to the Financial TImes, the company will need to record operating profits of about €360m in the fourth quarter.

Given that a growth surge isn’t anticipated, Verwaayen and his executive team will have to fiercely slash costs to reach their year-end objective. The company reiterated its expectation that the market for telecommunications equipment will decline between eight to 12 percent on the year, and it doesn’t sound particularly sanguine about an immediate sales spike. Meanwhile, Alcatel-Lucent is about 80 percent through a cost-cutting regimen that targeted a €750-million reduction in annual expenditures. (Non-core asset sales also might occur soon.)

Verwaayen and his team don’t see a bonanza in 2010. Instead, they see growth of approximately five percent, not in the high single digits. They have more hope for 2011, and some of that hope — at least for network upgrades and a better overall economic climate globally — seems justified. Then again, even if the market rebounds by then, will Alcatel-Lucent be best positioned to benefit disproportionately or even commensurately with the rising tide?

It’s a question one needs to consider. Huawei and ZTE will only get stronger, and Ericsson isn’t going away. There are big questions surrounding Nokia Siemens Networks, not least of which is the parent companies’ desire to persist in the joint venture. Then again, it’s difficult to know now whether the restructuring or sale of that company ultimately will help or hurt Alcatel-Lucent.

The rising tide might be coming, but it remains to be seen whether Alcatel-Lucent will be sufficiently seaworthy to prosper from the next leg of the market’s journey.

Juniper Takes Center Stage for Rebranding and Repositioning

For a day, Juniper took center stage in the networking firmament. The company preened and strutted while making a series of product, positioning, and partnership announcements that amounted to an old-fashioned, but somewhat new-media, promotional onslaught.

The announcements and related analyst briefings included a stop at the New York Stock Exchange — a recent customer of Juniper’s and the venue where Juniper stock now trades — which said a lot about the overall objective of the exercise.

Indeed, the location was apt, because what Juniper practically screamed from every one of its announcements was that a new day had dawned, not just for the “new network” Juniper claims it enables, but also for a company that had to redefine itself in the face of convergence and consolidation occurring in enterprise data centers and carrier networks.

In coming to the New York Exchange, Juniper wanted to get in front investors with a broad message about how the company presents a flexible, intelligent, and open alternative to the closed, proprietary systems offered by data-center behemoths Cisco and HP.

To get that message across, Juniper trotted out open, programmable capabilities in its flagship JUNOS software. It also announced new JUNOS chips and systems, including the JUNOS One line of processors and JUNOS Trio chipset with “3D Scaling,” a technology that has nothing to do with 3D visualization but reportedly provides dynamic support for additional subscribers, services, and bandwidth.

Juniper also unveiled new JUNOS-based cloud-networking and security products, including enhancements to Juniper’s SRX Services Gateway as well as modules, implementation guides, and best practices for building a “Cloud Ready Data Center.”

It also played up its partnerships, including the OEM deal with Dell and an expanded OEM relationship with IBM. An additional partner mentioned today was BLADE Network Technologies, which will develop JUNOS-based blade switches for data centers.

Then there were the branding elements. If you noticed that JUNOS got mentioned frequently in the all the hubbub, you probably will not be shocked to learn that the network operating system will get its own branding push as the software intelligence that makes the “new network” go. Look upon JUNOS as Juniper’s partner-friendly answer to Cisco’s IOS legacy. It will get prominent placement in discussions with customers and partners alike.

Juniper has a new logo, too. It features a rounded sans-serif font that is an upper-case approximation of the lettering used in the posters for “2001: A Space Odyssey.”

Juniper no doubt has an odyssey in mind, but one more earthbound and revenue generating than Stanley Kubrick’s cinematic offering from 1968.

What I find interesting about what played out today is not only how Juniper is trying to positioning itself as an alternative to the data-center imperialism of Cisco and HP, but also how it is attempting to make a case to customers and partners that it is about more than interchangeable networking hardware.

With its JUNOS branding exercise, with all the new functionality it’s trying to bring to its software, Juniper is trying hard to make itself indispensable to IBM and Dell. As much as IBM wants to build software that will provide sweeping management and orchestration over data-center hardware, Juniper wants to make sure some of that software intelligence is complementary to or partly dependent upon JUNOS. If it succeeds, IBM — and Dell to a lesser extent — can’t just swap out networking partners and their boxes.

Watch the interplay between IBM and Juniper. They are partners, yes, but their strategic aspirations aren’t completely aligned. They will jockey for position in the data center, each one trying to impress upon customers how much value — and accompanying margin — it deserves.

Another interesting aspect to today’s fusillade of promotion is what it might tell us about Juniper’s future market orientation. The company still has gaps to fill in its product offerings for carriers and enterprises, but its partnerships — at least those on show recently — are steering it increasingly toward the enterprise.

Juniper can’t be all things to all people, which is why it has taken the partner-centric, extensible, and open approach with JUNOS. It can’t fight with Cisco and HP — and perhaps Oracle, contingent on what happens with the Sun acquisition — in delivering comprehensive, converged data-center solutions.

Instead, it has chosen to make a virtue of an inherent limitation — and it just might work. For now, it has IBM, Dell, and others in its camp, but it will have to walk a fine line to reach the dizzying heights to which it clearly aspires.

Depressing Thought of the Day: Facebook as Web’s Main River

At TechCrunch, MG Siegler makes the following observation:

Facebook wants every site on the web to be a tributary. And it wants to be the main river.

Really, has the web come to this? What a crushingly depressing thought. If all roads lead to Facebook, it’s time to get off the roads, build new ones, or explore some other frontier.

Bartz Rails at Ghost of Yang as Microsoft-Yahoo Deal Needs More Time

Microsoft and Yahoo struck a complex deal related to search and advertising. As such, I am not surprised that it hasn’t gotten done by the self-imposed deadline the companies set as the wrap-up date.

In a filing with the Securities and Exchange Commission (SEC), Yahoo said the two companies had mutually agreed to continue their negotiations beyond October 27 — yes, two days ago — the original target date for delivery of a definitive agreement.

Don’t read too much into the extension. The deal still looks to be going forward, but it is complicated, stretching over ten years and replete with potential antitrust minefields.

Said Yahoo:

“The parties are working diligently on finalizing the agreements, have made good progress to date, and have agreed to execute the agreements as expeditiously as possible.”

Explained Microsoft:

“Microsoft and Yahoo! are committed to this agreement and believe this is a highly competitive deal that is good for consumers, advertisers and publishers. We have made good progress in finalizing the definitive agreements. Given the complex nature of this transaction there remain some issues that need some additional clarity and definitive details. So, the teams at Yahoo! and Microsoft are continuing to work on the remaining details, and we have mutually agreed to extend the period to negotiate and execute the agreement. We plan to do this as expeditiously as possible. Both companies are optimistic that we will be able to close this deal by early 2010.”

Nothing to see here, folks, excepted lawyers and executives studying annotated copies of tentative agreements, with attendant clauses and subclauses, in boardrooms and at conference tables.

Something that we wish we didn’t have to witness, but continue to have flung into our line of sight like a bad reality show, is Carol Bartz’ inveterate and intemperate attacks on previous Yahoo regimes and on her favorite media punching bags. During her presentation to market analysts paying a visit to Yahoo, as noted by Kara Swisher at All Things Digital, Bartz’s target was the previous Yahoo administration.

I’ve written previously about how counterproductive and senseless such fulminations can be, especially when they’re being issued by a CEO. Sadly, the following comments, taken from an earlier post in this august forum, remain more relevant than ever:

Something else she (Bartz) needs to stop doing is blaming the past regime for the Yahoo problems she hasn’t imputed to the media. There’s no upside to continuing a jeremiad against a defunct regime. She should be looking forward, not backward. Jerry Yang and his lieutenants might have bequeathed problems to Bartz and her team, but that’s why they’re there – to solve those problems. The new team has been brought aboard to boldly and confidently chart a new course, not to endlessly bemoan the baggage they’ve inherited.

Besides being pointless, her excoriations of the past regime are culturally poisonous. In attacking Yang and the Yahoo of old, she implicitly assails those Yahoo managers and employees who were left behind and remain with the company. Rather than rallying the troops under all-encompassing banner, she risks instigating an us-against-them dynamic, whereby the new members of the company are arrayed against the holdovers.

I just don’t get it. Bartz gains nothing by ripping into the ghost of Jerry Yang. In fact, the entire backward-looking routine has gotten very old.

Bartz has been at Yahoo for a while now. She’s steering the ship, and whether it goes into an iceberg or a tropical paradise will be down to her and those in her chain of command. I’m sorry to have to return to an earlier admonition, but the blame game must end at Yahoo.

Slippery Analogies in Today’s Smartphone Wars

Over at Betanews, Joe Wilcox has written a provocatively titled column: “iPhone cannot win the smartphone wars.”

His thesis? Well, the title says it all. I encourage you to read it, but I also encourage you to think critically about it. As I read it, criticisms and objections sprung readily to mind.

Here’s the thing: Wilcox might well be right in his central argument that the licensees and the ecosystem supporting Google’s Android will push it to market dominance over Apple’s iPhone. The future, as we all know, is unwritten.

That said, his reasoning for why it will happen could be partly or entirely wrong. What’s more, Android’s success is more likely to come at the expense of Microsoft than of Apple.

The biggest problem I have with Wilcox’s argument is that he draws heavily on analogies that seem, at least to these eyes, strained. If comparisons are slippery, analogies are like black ice: Their calm surface masks underlying uncertainty. (Yes, I am aware that I just used a simile to cast doubt on analogies. Just play along and enjoy the show.)

Wilcox’s key analogy is that the iPhone and the Android are latter-day reincarnations of the Macintosh and the DOS/Windows PCs of the 80s and 90s.

He posits that Microsoft’s more-open DOS/Windows platform attracted a juggernaut ecosystem that overpowered Apple’s relatively closed Macintosh. Where he stretches the truth, and where the analogy loses its traction, is in his strong suggestion that Apple had built a compelling application advantage over the DOS/Windows hoard that was comparable to the more than 85,000 iPhone applications that are available today at the App Store. That just isn’t so.

Oh, Apple got off to a great start in desktop publishing, sure, but it did not have the broad base of application support that the iPhone has today. I see the logical symmetry, the theoretical consistency, that Wilcox wishes to impose on today’s events — that the license-based operating-system approach of Microsoft in the 80s and 90s is comparable to the license-based approach that Google is taking with Android on mobile devices — but the comparison isn’t entirely apt and the past-performance charts of Windows’ ascent do not foreordain Android’s path to riches.

There is no way that anybody can suggest, with statistical evidence to support their claims, that Apple ever had the established application dominance in the PC world that it holds today in the mobile space. The advantage Apple holds today, while not insurmountable, is much greater. It needs to be taken seriously.

I am not arguing that Android won’t be a market success. I think there’s one licensable mobile operating system that will rise to prominence, if not outright leadership, in the smartphone market. I don’t think that mobile operating system is Windows Mobile, which is staggering around in a stupor; nor do I think it will be Symbian, which is opening up, sort of, but is strongly controlled by a vendor (Nokia) that proffers its own handsets and is not universally trusted by potential licensees. (Then, of course, there is Symbian’s relatively sclerotic condition as a mobile operating system, requiring more cosmetic surgery and under-the-hood overhauls than the nearly-as-creaky Blackberry platform.) Like Nokia, Symbian isn’t going away, but nor is it on the cusp of a renaissance.

So, by default, we have Google’s Android, blessed by circumstance and perhaps by merit as the only viable licensable mobile operating system for handset OEMs to ride into the smartphone marketplace. You’ll notice, by the way, that most of the Android OEMs are or were licensees of Windows Mobile. The big loser from Android’s rise will be Microsoft, at least initially.

In summary, then, I am not saying Wilcox is entirely wrong. He’s probably right in asserting that Android will be a force with which to be reckoned, provided that Google maintains its commitment to the endeavor. Where he’s wrong, I believe, is in his assessment that Apple’s iPhone will follow in the footsteps of the Mac from the 80s and 90s.

In its breadth and depth of application support, its mainstream popular appeal, its brand cache — really, by every tangible and intangible measurement — the iPhone has gone well past any measure of success that the old Macintosh enjoyed.

Besides, information-technologies markets — not to mention Apple itself — have evolved since the era of synthesizer bands.

F5 Mentioned as Takeover Target . . . Again

Looking at the search-engine terms that have led people to this impoverished blogdom, I see more than a few of you must have read the recent article in Barron’s on ten technology companies the publication has identified as takeover prospects.

The list includes the following companies: Riverbed Technology Inc.,
BMC Software Inc., F5 Networks Inc., Brocade Communications Systems Inc., Juniper Networks Inc., Red Hat Inc., Citrix Systems Inc., CommVault Systems Inc., 3Par Inc., and NetApp Inc.

Many of the aforementioned really do qualify as the usual suspects. F5 Networks, for example, has been the subject of periodic takeover speculation extending as far back as the late 90s. Obviously, none of that conjecture was validated. For now, anyway, I am willing to bet it will be no different on this occasion.

Among the companies listed, CommVault, 3Par, and perhaps Juniper seem most likely to find buyers in the near term.

Dell’s OEM Deal with Juniper Likely to Spark Further Action

In announcing their OEM agreement today, Dell and Juniper Networks potentially have triggered an interesting sequence of events among vendors of enterprise servers and networking gear.

The deal itself will see Dell rebrand Juniper’s MX Series routers, EX Series Ethernet switches, and SRX Series services gateways as Dell PowerConnect products.

In many respects, the deal is similar to one IBM struck with Juniper to sell many of the same products. There are differences between the deals, though, which have more to do with the respective strengths of Dell and IBM than with the Juniper products involved.

As David Helfer, vice president of OEM at Juniper, told InternetNews.com:

“Our relationship with Dell is complementary to our partnership with IBM. Our go-to-market model and the presence that Dell has in the market, both in small and medium-sized business as well as in public sector, are strengths of Dell and we look forward to partnering with Dell out in the field.”

Simply put, Juniper sees IBM as its pathway into the largest of enterprise accounts and it sees Dell as its conduit into SMB and government customers.

Of course, Dell and IBM also share an OEM relationship with Brocade Communications. In many respects, at least in relation to its networking partnerships, Dell seems to be following IBM’s lead.

Like IBM, Dell perceives a difference between what Juniper’s networking products offer customers and what Brocade’s gear brings to the party, even though there is an overlap in data-center switching between Juniper’s EX Series switches and Brocade’s Foundry switches.

Speaking with InternetNews.com, Larry Hart, senior manager of networking at Dell, explained:

“Both of these partners come at the solution from slightly different perspectives. Brocade is largely coming at it from a storage perspective and has a very healthy business in Ethernet LAN switching, while Juniper is a recognized leader in WAN and security solutions and they bring expertise in that space.”

“By having this type of choice for our customers, we’re giving them the variety and option to deliver on the promise of the efficient enterprise.”

Dell is correct in arguing that Juniper’s products offer distinct advantages in Layer 3 routing, WAN connectivity and security. Nonetheless, the folks at Brocade can’t be pleased, particularly because this deal — and what it portends about Dell’s approach toward data-center networking — would seem to put at least a temporary kibosh on a rumored (by some, anyway) Dell acquisition of Brocade.

More than ever, Dell seems to be following IBM’s playbook.

Like IBM, Dell has chosen not only the same OEM networking partners, but also the same integrative services-led approach to putting together converged data-center solutions atop standards-based hardware infrastructure. With Perot, Dell now has a services team — albeit a smaller one than IBM’s — that can execute on the plan, though it lacks the software depth and breadth that IBM possesses. My guess is that Dell will pursue storage- and virtualization-software acquisitions in the months ahead to bolster its data-center credibility.

For Juniper, this is a good deal. It places it in the center of the action, working both with IBM in the largest enterprise accounts and with Dell in SMB markets and government and healthcare.

While many observers have noted that the deal intensifies competition between Cisco and Juniper, it also deepens competitive antagonisms between Juniper and HP, which has a similar data-center strategy to Cisco’s, except that HP started from servers and extended outward to network infrastructure whereas Cisco started in networking and has branched out to servers. Both vendors want to be soup-to-nuts, one-stop solution providers in the converged data center.

In cutting OEM deals with IBM and now with Dell, Juniper is furthering the strategic objectives of HP”s data-center-server competitors.

What will be interesting now is HP’s reaction. It could go it alone, continuing to build out its homegrown networking and storage infrastructure. That’s the conservative option, and it’s probably the one HP will take.

However, if HP really wanted to be a big cat among the pigeons, if it wanted to throw its server-vendor rivals into convulsions of data-center confusion, it would consider acquiring Juniper.

Not only would HP benefit from Juniper’s core data-center switching and routing technologies, but it would strike a devastating strategic blow at two major competitors. That’s just my mischievous mind at work, and I have no idea whether HP would make such a move. Still, the idea must be tempting for Mark Hurd and the HP ProCurve Networking bosses.

There would be overlap, though, between ProCurve and Juniper, and that’s the aspect of the deal that HP would have to consider carefully before pulling the trigger.

This deal also has consequences for smaller networking players. As data-center convergence takes hold, smaller players such as Extreme Networks, Enterasys, and 3Com are left in dire straits competitively. They could reposition in niche markets and the SMB space, but Dell and others will find them there, too.

As Yankee Group’s Zeus Kerravala bluntly stated in comments to Network World:

“The Seven Dwarfs are dead. This is a whole different landscape. It’s not just networking; it’s networking and computing combined.”

The vertically challenged vendors to which Kerravala alluded are Cisco’s seven adversaries in Ethernet enterprise switching, all of which battle for the 75% of the market not controlled by the networking giant.

Those players, no doubt, will be rooting for an HP acquisition of Juniper, which would give them a scintilla of hope that they might play a meaningful role — or serve as acquisition bait — for Dell and IBM.

Today’s announcement is sure to trigger further moves on the data-center chessboard. All eyes now turn toward HP, which is likely to reply in one way or another.

Network World on Challenges Facing Security Vendors in China

An interesting article appears in Network World today regarding the challenges security-software vendors confront in trying to crack the Chinese market.

The obstacles are manifold, including product-localization issues, finding the right distribution channels, and product pricing.

Regarding product localization, China has not only its own language and dialects, but also its own unique types of malware. To address that challenge, McAfee has hired a research team to develop defenses against exploits that target popular Chinese applications.

Similarly, the channels through which Chinese buyers, particularly consumers, obtain security software are different from those preferred by Westerners. Whereas Americans and Europeans often adopt the anti-malware software that comes bundled on PCs, Chinese consumers prefer to download their own security software or to use online virus-scanning services. They also favor anti-malware subscriptions from Internet service providers.

Last but certainly not least, Chinese consumers of security software favor low-priced offerings, which come primarily from home-grown vendors such as Rising, Kingsoft, and Jiangmin. Western vendors of security software are among China’s consumer-market leaders measured in sales revenue, according to Gartner numbers cited in the article, but they lag in unit-volume market share and find themselves under pricing pressure.

The unique challenges of the Chinese market are worth bearing in mind as one attempts to grapple with how quickly, and how effectively, security-software vendors can increase sales in that part of the world.

Cisco Taps U.S. Cash for ScanSafe Buy

Considering that ScanSafe is based in both London and San Francisco, I wondered whether Cisco would use U.S. or overseas cash for the $183 million deal.

A spokesman from Cisco’s investor-relations department informs me that, because ScanSafe is domiciled in the U.S, Cisco will tap its American cash to execute the deal.

Before announcing the acquisitions of Tandberg and Starent earlier this month, Cisco reportedly possessed a cash mountain of $35 billion — $29 billion overseas and $6 billion in the USA. If all three deals go through, Cisco will have about $32 billion in overseas cash and more than $2.9 billion in domestic cash, according to my fingers-and-toes calculations.

That gives Cisco plenty of flexibility to pursue additional ScanSafe-sized, all-cash acquisitions in the USA, but not much wiggle room for another Starent- or Tandberg-sized cash-only deal in its home market. If it has one of those in mind domestically, stock likely will be part of the equation.