Daily Archives: October 27, 2009

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.

Extreme Tightens Belt in Bid to Endure

After warning that it wouldn’t meet expectations for its fiscal first quarter, Extreme Networks didn’t offer any surprises when it reported its financial results yesterday.

With an interim CEO and 70 fewer employees than it had a week ago, Extreme will attempt to restructure so that it can break even on revenue of about $70 million in future quarters.

Network World’s Tim Greene reported that, as part of the restructuring, the company also eliminated the job of chief counsel, getting rid of Robert Schlossman and replacing him with Vice President Diane Honda. After reviewing the company’s website, Greene deduced that Extreme’s head of human resources and head software developer also have departed the company.

In its second fiscal quarter, Extreme expects revenue between $76 and $78 million. On average, analysts are expecting the company to report revenue of $75 million, according to estimates from Reuters. We’ll see whether Extreme can hit the numbers.

The company said it fell short of its targets in the first quarter because of supply-chain issues, but market watchers say Extreme suffered at least as much from its own poor execution as well as from intensifying competition.

Skepticism regarding the company is strong. Many analysts and investors think Extreme is battening down the hatches and just trying to survive until it can find a buyer.

Said Zeus Kerravala, Yankee Group analyst:

“They’re in a tough spot. This is a company that’s truly having a hard time finding its way. . . .

When you look at all the network vendors out there, what problem is it that Extreme is trying to solve that isn’t being solved by somebody else? If you look at data centers, all the emphasis is on converged fabric, and they just don’t have a roadmap to get there. I think they’ll go the route of Enterasys. They’ll get smaller and smaller and continue to exist off their installed base until their assets get acquired by somebody else.”

That increasingly seems to be Extreme’s ultimate fate.

Cisco Extends Security Portfolio with ScanSafe Acquisition

Cisco announced the acquisition of hosted-security vendor ScanSafe today. To acquire ScanSafe, Cisco will part with $183 million in cash and retention-based incentives. If all goes according to plan, the deal will close in Cisco’s fiscal second quarter of 2010, which equates to the calendar year’s first quarter.

Based in London and San Francisco, ScanSafe is a market leader in software-as-a-service (SaaS) Web security, serving customers that span small- and mid-size organizations as well as large enterprises. Among ScanSafe’s customers are Google, AT&T, and Sprint.

ScanSafe’s competitors include Blue Coat, Websense, Symantec, McAfee, Kaspersky, Purewire (now part of Barracuda), and Zscaler. According to market research from IDC, ScanSafe held more than 30 percent of the worldwide SaaS web security market, on a revenue basis, in 2008.

In a press release announcing the acquisition, Cisco said web security will be a $2.3 billon market by 2012. Presuming Cisco can expand upon and extend ScanSafe’s market presence, the networking giant looks well placed to see a return on its investment before long.

Cisco foresees ScanSafe meshing well with its IronPort on-premise content-security appliances. With the IronPort web-security appliances and ScanSafe’s web-based security services, Cisco’s security portfolio encompasses either premise or hosted security as well as a hybrid approach combining both.

When the acquisition closes, Scan Safe will be subsumed within Cisco’s Security Technology Business Unit (STBU).