CEO Mark Canepa Resigns as Extreme Networks Sheds Staff

The rumors I reported regarding Extreme Networks were true.

In an SEC filing and an accompanying press release posted last night on its website, Extreme Networks announced cuts to 70 employees and the resignation of CEO Mark Canepa.

The layoffs amount to approximately nine percent of Extreme’s worldwide workforce.

While Extreme looks for a permanent CEO, Bob L. Corey will succeed Canepa as acting chief executive. Canepa, who resigned to pursue “other opportunities,” will remain with the company for a limited time to assist with the transition. He will also surrender his board position at Extreme.

Said Gordon Stitt, chairman of Extreme’s board of directors, regarding Canepa’s resignation:

“Mark has managed the company through a difficult and challenging time for our industry. During his tenure, he implemented significant changes that have improved many aspects of our operations. We greatly appreciate his service to Extreme Networks.”

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Polycom Places SVP/GM on Administrative Leave in Galleon Fallout

If publicly traded companies must deliver bad news, they do it on Friday nights. That’s because stock markets aren’t open on Saturday, at least in North America.

Tonight Polycom had some bad news to deliver, announcing in an SEC filing that Sunil K. Bhalla, the SVP and general manager of its Voice Communications Solutions, would be placed on administrative leave, effective immediately. His duties will assumed by Polycom CEO Robert Hagerty.

The announcement is connected to the insider-trading scandal involving the Galleon Group, a technology hedge fund founded and run by Raj Rajaratnam.

As recounted in a story published in the UK’s Guardian, Polycom was one of the companies on which Rajaratnam allegedly received inside information. The FBI confirmed last week that a Polycom executive had passed on information regarding the company’s quarterly results.

Riverbed: Back on Track, but Future Derailments Possible

Riverbed bounced back from a disappointing set of results in two prior quarters by producing relatively strong numbers in its fiscal third quarter.

As reported by the Associated Press (AP), net profit in the three months to Sept. 30 hit $5.5 million, or 8 cents per share, compared to a net loss of $12.4 million, or 17 cents per share a year ago. Adjusted for one-time items such as stock-based compensation, the company said it earned 19 cents per share.

Revenue grew 18 percent to a record $102 million. Analysts surveyed by Thomson Reuters expected earnings of 15 cents per share on revenue of $97 million.

Nonetheless, looking ahead, market analysts are concerned about operating margins and about the lack of major new products at the company.

A market leader in WAN optimization — where it competes primarily against Cisco, Blue Coat, and Juniper — Riverbed had been expected to expand its product portfolio with Atlas, a storage-optimization appliance that it preannounced with considerable fanfare in the fall of 2008. That plan has been scrapped.

With Atlas having been shrugged off, Riverbed is planning to announce a new product that will enable public and private cloud computing for its enterprise and government customers. More details on that offering will be available next month at Interop in New York.

According to a transcript of Riverbed’s analyst conference call available at Seeking Alpha, Eric Wolford, the company’s senior vice president of marketing and business development, had the following to say regarding the company’s reversal on Atlas:

“First, we made the business decision that Atlas is a standalone product, which is not a good fit for Riverbed; and then second, as I said earlier, we saw and I’m sure you all see it, too, that there is a very attractive market opportunity where we’re very strong and we can innovate and we can come up with some very exciting new products to enable clouds for enterprises and government.

So it’s a big shift going on inside of IT. There’s a long run shift and there’s problems that are identified by various smart organizations and we can solve those problems. So we’re going to disclose more about what we’re doing with regard to cloud at Interop. But, basically, it was those two things: business decision on Atlas and attractive alternative market opportunities to go after.”

Still, Riverbed was exceptionally enthusiastic about Atlas. It made bold claims regarding the product’s commercial prospects and its value proposition for customers. Market analysts and customers can be easily forgiven for wondering what happened between then and now. They also can be excused for applying greater skepticism to subsequent grand product strategies Riverbed might wish to preview.

Some analysts also are concerned about renewed competitive vigor from Cisco, courtesy of new WAN capabilities in its ISR G2 router. Riverbed says it isn’t unduly worried about Cisco, having held its own against the networking giant previously.

Another concern for Riverbed is that it is deriving an inordinately high percentage of its business from government accounts (about 29 percent of revenue in the just-finished quarter). By its nature, that business will be lumpy from quarter to quarter, so Riverbed must look to grow elsewhere to compensate for potential irregularity in revenue flow from government customers.

To summarize, Riverbed got back on track in the third quarter, but that doesn’t mean it won’t experience future derailments.

Ericsson: Problems with JVs, Challenges in Core Market

Earlier this week, Ericsson announced quarterly financial results that were significantly wide of the mark.

Some observers blamed the disappointment on difficulties experienced by its handset and semiconductor joint ventures, with Sony and ST Micro, respectively.

There is no question that Ericsson must fix those joint ventures or bail on them. In conjunction with Sony, it seems to be working on a plan that might rescue Sony Ericsson from handset oblivion. The prospects for its joint venture with ST Micro seem less sanguine.

Still, irrespective of those issues, Ericsson has a looming problem in its core wireless-networking business that the company might have difficulty surmounting. The problem isn’t just the global economic downturn, which has had a severe impact on Ericsson’s business in many developing countries, where credit remains exceptionally tight.

Eventually, upgrade cycles will visit wireless operators in North America and Europe, and buildouts of 3G networks will continue in developing markets such as China, India.

What is at issue, though, is whether Ericsson can hold its margins and market share against strengthening competition from Chinese vendors, principally Huawei, but also ZTE. Both companies stand to take sizable business in their home country, as one might expect, but they are becoming formidable competitors in Europe and North America, too.

Numbers from market researchers Technology Business Research (TBR) and from Dell’Oro Group demonstrate that Huawei, in particular, is gaining share in wireless-network infrastructure.

According to Dell’Oro, Ericsson remains the pole sitter, holding 32-percent market share in the second quarter, unchanged from its performance in the same quarter a year earlier. Nokia Siemens remained the second-largest vendor with a 20 percent share — representing a loss of ground from the prior year — while third-place Huawei gained to 17 percent.

For its part, TBR says Ericsson is holding its own, walking a fine line between growth and profitability, continuing its gradual migration to a services-led approach in its customer engagements with wireless operators. Ericsson will need that services-led margin, because Huawei is charging hard.

Said John Byrne, a research director at TBR:

“With clear momentum in EMEA and an increasing focus on North America, both Huawei and ZTE are well-positioned to continue to take market share away from Western vendors, especially Alcatel-Lucent and Nokia Siemens.”

Ericsson isn’t immune from the competitive threat posed by Huawei and ZTE. Said Fredrik Thoresen, an analyst at DnB NOR in Oslo, Norway:

“There’s fierce price competition from companies like Huawei and we may see some of that coming through in Ericsson’s numbers.”

That services-led effort, then, becomes key for Ericsson. Its product margins will be under pressure from Chinese vendors that are renowned for offering capable, competitive priced gear.

Carl-Henric Svanberg, the departing Ericsson CEO who will be setting up shop in the big chair at BP (yes, that BP), was chagrined at having to meet what he considered unreasonable market expectations.

“We have said all along that it would be unrealistic that we wouldn’t be affected by the downturn. Some of the expectations out there were a bit high.”

“What we are seeing right now is the new projects that were planned nine months or a year ago when the financial crisis was much tougher. Now everyone understands we are moving to safer territory but it takes time for operators to plan.”

So, even though the company acquired insolvent Nortel’s wireless-network assets for $1.13 billion, beating a bid from Nokia Siemens, it isn’t counting on a quick turnaround. Despite better prospects beginning to emerge from wireless operators in North America, Europe, China, and India, Ericsson’s other developing-world markets remain constrained by a paucity of credit.

Notoriously reticent, Ericsson won’t provide clear visibility or strong guidance regarding its own expectations. Excluding the problems it is having with its joint ventures, the company has tough challenges ahead. Those come not only from inclement markets, but from stiffening competition.

If Cisco were to jump into the wireless-networks fray, as some suspect it might after its purchase of Starent, the game could get even tougher.

Juniper will Grow on R&D, Not M&A

On the world’s stock markets and bourses, a company’s shares will appreciate or depreciate for many reasons. When earnings releases are announced, however, the expectations of market analysts and investors are critical to how the results will be received.

Juniper Networks is a prime example. In salubrious times – yes, we can still remember those, can’t we? – any company that announced quarterly revenues and earnings substantially below those recorded in the same period the prior year would be ripped to shreds by detractors, its shares left in a freefall.

But these aren’t salubrious times. We’re living through a period of diminished expectations.

As such, Juniper’s latest results, and the forward guidance that accompanied them, have been received favorably.

For Juniper’s third quarter, which ended September 30, the company reported net revenue of $823.9 million, an increase of five percent from second-quarter revenue of $786.4 million, but a decline of 13 percent from the third quarter of 2008. Revenue was higher than the $799.5-million consensus estimate anticipated by a flock of analysts consulted by Thomson Reuters.

Quarterly profit of $83.8 million, or 16 cents per share, was down from $148.5 percent, or 27 cents per share, last year. That was up 21 percent sequentially on the second quarter, though. Excluding items, profits were 23 cents per share, down from 32 cents per share the previous year but better than the 21 cents per share that analysts anticipated.

Basically, analysts weren’t anticipating a whole lot. Still, neither the economic conditions nor analysts’ expectations can be blamed on Juniper, though the company has benefited from having the bar set relatively low.

The company is seeing slighter better times on the near-term horizon, resetting market expectations a bit higher for its performance in the current quarter.

On a conference call with the analysts yesterday, Juniper said it expects revenue of $860 million to $895 million in the quarter, pegging profits in a range of 23 to 26 cents per share. Analysts were anticipating revenue of $835 million and earnings of 23 cents per share.

Beyond the usual interplay of expectations and results, some interesting developments surfaced on the conference call.

For starters, Juniper’s CEO Kevin Johnson sought to dampen expectations that his company would be an enthusiastic buyer on the M&A trail. It appears that Juniper will not be looking for growth-oriented purchases on either the carrier or enterprise side of its business. That means it isn’t in the hunt for Brocade Communications; nor will it be seeking to respond to Cisco’s acquisition of Starent Networks, a Juniper strategic partner in wireless-operator engagements.

Instead of looking for acquisitions, Juniper will focus on generating its growth from old-fashioned, in-house research and development, a quaint concept to some analysts who wanted to see the company swing some boardroom deals.

Said CEO Kevin Johnson:

“We continue to invest in R&D and that investment is paying off. Our execution is improving, and I’m confident that we’re coming out of the economic downturn stronger . . . .

. . . . “This is not to say that we will not or do not look at acquisition opportunities. We do look at them, but we expect organic R&D to be a primary value creator.”

Johnson and other Juniper executives touched on R&D repeatedly during discussions with analysts, and the message was clear: Juniper isn’t looking to be a buyer in any consolidation waves that might form in the enterprise data-center or the carrier-gear space.

Auriga USA analyst Anthony Carbone was listening:

“That was the first time under new management that they’ve come out with such a strong statement, that they’re going to focus organically. I think that puts to bed some speculation that’s been going on.”

I concur. As I’d said previously, Juniper looks more inclined to be a seller than a buyer in any M&A activity that ensues. That said, I’m not saying it will be bought immediately, but I would imagine it might be attractive to, let’s say, an HP or an IBM if it continues to stick to its R&D knitting and to extend the gains it is making on the enterprise side of its business.

Speaking of which, as pointed out over at Networld World, the results from the enterprise side of the house were encouraging. Juniper CFO Robyn Denholm said the enterprise business was “better than expected,” and Johnson said the results for the enterprise business represent “a starting point for a level of momentum” Juniper believes it can achieve in that market.

In the context of mentioning that IBM-branded Juniper products offered under a recent OEM arrangement are now available, Johnson said:

“Our vision of the data center architecture of the future is resonating . . . . We will continue to throttle up execution globally. We’re share takers in the enterprise market, we’ve got a lot of upside. As the economy improves, enterprise investments will improve, but at a slower rate than service providers.

“The level of buzz with customers in the enterprise continues to grow. It’s indicative of our opportunity. But we’ve got to execute and engage with customers.”

All of which explains why the company will not be looking to distract itself with M&A exploits.