Daily Archives: October 15, 2009

RAN Acquisition Would Give Cisco Complete Mobile-Data Solution

Another interesting aspect of yesterday’s Network World piece on the aftermath of Cisco’s Starent acquisition is an assessment by Catharine Trebnick, senior telecom analyst at Avian Securities, that Cisco is just one acquisition away from having a complete end-to-end mobile-data solution to offer wireless operators.

With Starent in the fold, Trebnick says, Cisco needs only the radio access network (RAN) component to fill out a complete wireless-equipment product portfolio that would put it into direct competition “with traditional end-to-end mobile-network suppliers such as Ericsson, Nokia Siemens Networks, Huawei, and Alcatel-Lucent.”

Given the problems Nokia Siemens Networks is experiencing — with its JV partners having to take massive goodwill writedowns and with market-share losses steadily accumulating — all it needs is another major competitor trying to displace it from carrier accounts.

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With Starent Acquisition, Cisco Focus Shifts to LTE over WiMAX

Like Sisyphus, Intel keeps rolling WiMAX up the wireless mountain, only to have carriers, their network-infrastructure providers, and market analysts push the star-crossed technology back to the bottom.

In the wake of a seemingly endless succession of grim forecasts and pessimistic prognostications, Intel must be pleased that it has Clearwire under contractual obligation to stick with WiMAX through 2011. That’s one way to keep customers in the WiMAX fold.

Meanwhile, the drumbeat of repudiation intensifies. It was bad enough that Nokia has compared WiMAX to Betamax and LTE to VHS. It was worse when industry guru Hermann Hauser declared WiMAX had failed in the crucible of the marketplace. It was darkly sepulchral when market-research firm Ovum recently consigned WiMAX to niche status, not only in the developed markets — such as the USA and Europe — but in developing markets, too.

Intel surely could count on Cisco to keep waving the WiMAX flag, right? Well, no.

As noted in a Network World article by Jim Duffy, Cisco’s $2.9-billion acquisition of Starent Networks indicates that Cisco is backpedaling from its WiMAX focus and gravitating toward LTE as the 4G underpinning of future mobile-data networks.

Major wireless operators and Cisco customers — such as AT&T and Verizon Wireless — already have gone in that direction, so it was only natural that Cisco would follow suit. Unlike Intel with Clearwire, Cisco doesn’t have the investment leverage to contactually obligate AT&T or Verizon to keep using a technology they might not want.

Ashraf Dahod, president and CEO of Starent and impending top gun in Cisco’s new Mobile Internet Technology Group, makes no bones about Cisco’s LTE orientation. Says he:

“Our goal is to aggressively focus on the UMTS and LTE markets. “That’s where the future is; the future is LTE.”

Intel keeps rolling that WiMAX rock up the mountain, but now Cisco is one of those waiting at the top to push it back down.

No Reply: Neither 3Com nor U.S. Ethernet Innovations Affirms or Denies Affiliation

This is a just a quick update on the post I wrote about whether 3Com is affiliated with U.S. Ethernet Innovations, a company whose sole purpose is to enforce and litigate patent claims relating to legacy 3Com technologies.

At this point, neither company has answered the question. I don’t want to suggest that either party is trying to obscure the nature of a relationship, presuming one exists, between the companies. I am just looking for a simple answer to a simple question: Is 3Com affiliated with U.S. Ethernet Innovations? The answer is binary: yes or no.

I know many of you want the answer to this question. As such, I will continue to pursue it.

Tandberg Shareholders Ask Cisco for More

I don’t know the Norwegian phrases for “no deal” or “we want more,” but I would imagine they were invoked frequently by restive Tandberg shareholders during the past couple weeks.

In a previous post, I wrote that a significant minority of Tandberg shareholders were dissatisfied with Cisco’s $3-billion-plus acquisition proposal and might consider holding out for a better offer.

In the end, though, I didn’t think the shareholders would push that particular envelope. In my view, no other company will emerge as a white night. Cisco appears to be the only vendor that has the means, motivation, and opportunity to acquire Tandberg for more than $3 billion.

Still, the shareholders were upset. They ran their numbers and concluded that Cisco wasn’t paying a sufficient premium — Cisco’s offer was 11 percent above Tandberg’s closing share price the day before the acquisition was announced — and that the networking giant hadn’t considered the full synergistic value Tandberg represented.

Today we learned that Tandberg shareholders, with more than 24 percent of the company’s stock, rejected Cisco’s recent $3 billion offer for the market-leading vendor of videoconferencing systems. They want more from Cisco — or from anybody else, really. (The Cisco acquisition was and is conditional on an acceptance rate of 90 percent of Tandberg shares.)

Swedish brokerage SEB Enskilda, which represents 21 shareholders in the Norwegian company, had this to say:

“The shareholders are convinced that Tandberg will generate strong returns as an independent company, but are open to evaluate a higher offer from Cisco or a third party.”

SEB Enskilda spokesman Nils Kasper Lodden, as reported by Bloomberg, elaborated further:

“Our agenda is all the time to help our clients to generate more returns. The shareholder structure in Tandberg is extremely fragmented. Many of the shareholders weren’t very happy with how the value creation from a combination of Tandberg and Cisco was divided between the two parties.”

Even though Cisco has argued that its offer was “fair” — endorsed by Tandberg’s board of directors — some market analysts believe Cisco might be willing to raise the offer enough to placate the dissident shareholders. Many believe the recalcitrant shareholders will not push too hard or too high, that they probably can be satisfied with a relatively modest increase on the initial offer.

Others, including Mark Sue of RBC Capital Markets, were skeptical of the shareholder uprising, suggesting that it didn’t signify an auspicious start to a potentially long-term relationship between the two companies.

Regardless of who’s right, Cisco probably remains the only high roller at Tandberg’s videoconferencing table. As I said before, with no other competing bid in sight, Tandberg’s shareholders will have to deal with Cisco or do no deal at all.

NSN Weighs Heavily on Nokia and Siemens

Announced today, Nokia’s latest quarterly financial results are not good. Its loss in the third quarter was more than market watchers expected, Nokia’s first since it began reporting quarterly results in 1996.

Known primarily as a vendor of mobile handsets, Nokia is trying to put a positive spin on things. It’s saying that consumer interest in high-end mobile devices is growing, that industry unit shipments in 2009 won’t fall as much as the company originally projected, and that it has some snazzy smartphones reaching market in the fourth quarter.

Nonetheless, Nokia’s global market share is stagnant, and it remains susceptible to competitive incursions at the low and high ends of the market. It’s still reasonably strong in Europe, but it is losing ground in China and Asia, and it has utterly failed to establish market prominence in North America. The company’s mobile strategy doesn’t seem clearly articulated, and it is difficult to see how Nokia will redefine itself as it comes under increasing attack from above and below.

Despite those problems, Nokia’s mobile-device business is solid as a rock relative to its Nokia Siemens Networks (NSN) telecommunications-equipment joint venture with Germany’s Siemens AG.

In the just-ended quarter, Nokia took a goodwill writedown of 908-million euros on Nokia Siemens Networks. It said the business unit’s market share will drop more than expected this year, as it yields to constrained telecommunications budgets, pricing pressure, and competitive encroachments from vendors such as Ericsson, a practically “normal” Alcatel-Lucent, and ascendent Chinese vendors Huawei and ZTE.

Compared to the same period last year, Nokia Siemens Networks’ third-quarter revenue dropped a vertiginous 21 percent. Nokia says it remains fully committed to the joint venture, that restoring revenue growth and market share at Nokia Siemens Networks are among its foremost priorities. Still, an impairment charge of approximately $1.36 billion can’t sit well with Nokia’s executive team or its board of directors.

One can only wonder how Nokia’s JV partner will respond. According to a source that spoke with Dow Jones Newswires, Siemens is confronting an impairment writedown of 1.6-billion euros for Nokia Siemens Networks.

Joe Kaeser, Siemens AG’s CFO, opined recently that information technology is “not a great place to be in these days.” He disclosed that Siemens will review its joint ventures, including NSN, which he candidly said was not meeting Siemens’ performance targets.

At this juncture, Siemens probably will remain committed to the joint venture, taking the heavy impairment hit while trying to figure out how it can work with Nokia to get the business back on track.

Can that be done, though? At what point, if the joint venture keeps losing market share and money, does Siemens decide that it will no longer wishes to throw good money after bad?

The question isn’t hypothetical. Ericsson is firing on all cylinders, doing very well competitively, and the perpetually embattled Alcatel-Lucent finally seems to be back in the game. Then there’s Huawei, which is now aggressively pursuing and winning carrier customers worldwide, including some in the USA. Meanwhile, ZTE looms as another Chinese threat in the telecommunications-equipment space.

As always, the numbers will tell the story. Right now, the numbers for Nokia Siemens Networks are telling a terrifying story. Before long, Siemens might decide it can do without the fright.

Google Android’s Soft Target

In mobile operating systems, and particularly the fast-growing smartphone neighborhood, many observers foresee a cage-match showdown between Apple, with its iPhone, and Google with Android. Some wonder whether Google’s Android will “kill” Apple’s iPhone.

I think they’re missing the point.

Apple controls nearly ever aspect of the iPhone, from its hardware design through to the approval process for applications that can be offered on Apple’s App Store. Even the most ardent open-systems proponents would have to concede that Apple’s approach has been commercially successful and that the iPhone has been enormously popular.

At last count, there are 85,000 applications available on the App Store. The iPhone and its entertainment-device sibling, the iPod Touch, are used for practically every purpose imaginable for a mobile device. If we’re honest with ourselves, we’ll recognize that the iPhone will continue to find favor with a large number of users well into the future.

So, if Apple’s franchise is relatively secure, who will Google’s Android hurt the most?

Let’s think about it. Apple owns and tightly controls its own smartphone operating system, as does RIM with its business-messaging Blackberry. Nokia has its quasi-open Symbian, which is looking a little long in the tooth and rough around the edges, definitely vulnerable to market-share erosion. Palm has its Pre, loaded up with the nascent webOS, which again is a single-vendor integrated solution. The jury is out on the Pre, but Palm’s fate is essentially in its own hands.

But which mobile vendor looks most like Google? Which vendor offers a mobile operating system to third-party handset and smartphone vendors of all shapes and sizes?

It’s Microsoft, of course, with its Windows Mobile, the latest version of which has just been soundly thrashed by reviewers.

Yes, one could quibble that Windows Mobile is a closed environment and Google Android is open. Still, the fact remains that both license their mobile operating systems to third-party handset vendors. Neither has its own handset. They compete directly with one another for the handset real estate of third-party vendors who do not have mobile operating systems of their own.

Now let’s look at Google’s early Android licensees: Motorola, Acer, HTC, LG, Samsung. What do they have in common? Give up? Each one also is or was a licensee of Windows Mobile.

That means that each vendor that shifts a handset from Windows Mobile to Google Android contributes to a corresponding market-share loss for Microsoft and a market-share gain for Google. If these vendors enjoy more commercial success with their Android handsets than they had with their Windows Mobile phones, it’s likely they’ll never return to the Microsoft fold.

For Android to be reasonably successful out of the gate, Google need only ensure that it converts as many Microsoft licensees to its mobile OS as possible. To achieve that objective, Google also will have to ensure that developers build great applications for its platform, and that it establishes and maintains strong business and technical relationships with the handset vendors.

Google Android will not have to take share from Apple’s iPhone at all – not initially, anyway. That’s a good thing, too, because the Apple mobile franchise is pretty strong.

Google is wise to start its mobile march by exploiting a soft target. They don’t come much softer than Windows Mobile.