Daily Archives: November 4, 2009

Oracle Threatens “War” Against EC Regulators

I wrote earlier today that push was coming to shove in the standoff between the European Commission (EC) and Oracle regarding the former’s in-depth review of the latter’s pending $7.4-billion acquisition of Sun Microsystems.

Perhaps I understated matters.

If a report by Paul Meller of IDG News Service is accurate, Oracle is preparing to take the battle to the hockey rink, with the gloves coming off and the jerseys of EC regulators getting pulled over their heads in the ensuing melee.

Anticipating a statement of objection from the EC this week. Oracle is planning to mount an aggressive onslaught against the European regulatory body.

Said an anonymous source, “familiar with Oracle’s thinking”:

“The ball game would change dramatically if the Commission issues a statement of objections.

Oracle has been holding back until now, and contrary to what the Commission says, it has addressed the substance of the Commission’s concerns about the deal in huge abundance.”

Holding back? Oracle? That alone sounds farfetched, but I’ll let it pass.

Of course, the sticking point remains MySQL and the competitiveness of the database market. The EC contends that Oracle hasn’t satisfied concerns regarding how Oracle’s ownership of MySQL would affect competition in the database market. Oracle, if the anonymous source quoted by Meller is correct, believes it has addressed the EC’s concerns.

Meller’s source also confirms what has been written here before: that Oracle sees MySQL as “a strategic imperative of the deal.” Oracle wishes to use MySQL as its competitive entry against Microsoft in SMB accounts and in developing markets, such as China, India, Eastern Europe, and Latin America. For Oracle, owning MySQL is all about beating Microsoft in fast-growing database markets where its existing products give prospective customers sticker shock.

Another anonymous source, “close to the merging companies,” suggested that the merger file was handled in the summer months by “B-team” European regulators while the frontline roster of EC competition bureaucrats was enjoying lengthy seasonal vacations. I suppose it’s never too early to exploit the anti-European stereotype of indolent Old World grandees spending the summer under sun umbrellas on Mediterranean beaches.

One of the anonymous sources in Meller’s story said an EC formal objection to the Oracle-Sun merger will trigger transatlantic “war,” with American politicians, such as Speaker of the House Nancy Pelosi, ready to intercede on Sun’s behalf. It would be similar to the U.S. government’s reaction to the last major deal blocked by the EC, involving GE’s bid to acquire Honeywell in 2001, according to the source.

What we’re seeing now are preemptive hardball tactics from Oracle. It’s trying to intimidate the EC into backing down, into letting the deal go through unmolested. The intimidation might work, with Oracle’s saber rattling persuading the EC not to spark a transatlantic row by further obstructing or denying the acquisition.

Then again, the tough-guy tactics could backfire. EU Competition Commissioner Neelie Kroes doesn’t seem a shrinking violet. On this rink, on European soil, she just might be willing to drop the gloves with Larry and Safra.

Despite Conflicted Parents, NSN Reportedly Considering Nortel MEN Bid

Joint ventures, by their very nature, are complicated beasts. Even when the parent companies get along and are relatively aligned in their strategic directions, differences arise.

Sometimes joint ventures experience mild personality disorders resulting from the conflicting or diverging needs of the parents. Occasionally, though, when the discrepancies between parent companies are pronounced, the joint venture can exhibit all the behaviors and tendencies of a bipolar psychotic.

I think that’s what we’re witnessing at Nokia Siemens Networks (NSN), the loss-making joint venture between Finland’s Nokia and Germany’s Siemens. The latter partner has lapsed into depressed passivity, unsure whether it has the heart, the stomach, or the wallet for protracted losses in the telecommunications-gear market. Nokia, however, after taking its lumps and its goodwill writedowns, is enthusiastically gearing up for another run, with particularly keen emphasis on the wireless operators of North America as prospective customers.

So, if you’re wondering why Siemens and Nokia supposedly can be seriously weighing their ongoing commitment to NSN a few weeks ago and then reportedly pondering an auction bid for insolvent Nortel Networks’ Metro Ethernet Networks (MEN) business as of yesterday, you have to understand both the nature of joint ventures and the characters of these two parent companies.

As Nokia comes under increasing attack from low-end handset vendors in the developing world and high-end smartphones from the likes of Apple, Palm, and licensees of Google’s Android mobile operating system, it is desperate to strengthen its increasingly tenuous grip on carrier relationships, especially in North America, where its traditional weakness has become particularly egregious. For Nokia, then, NSN is a strategic bulwark, one it’s not yet ready to abandon.

For Siemens, well NSN is . . . what, exactly?

At one time, I’m sure NSN made sense for the German engineering conglomerate, and if Siemens Enterprise Communications (another joint venture, this one with Gores Group) had been successful in wresting Nortel’s enterprise business from Avaya at an earlier auction, there might have been some reciprocal synergies worth exploring. Now, though, it’s easy to understand Siemens’ gloomy ambivalence toward the whole project. Just how does NSN serve Siemens’ overall strategic objectives?

It’s an open question.

Anyway, getting back to NSN’s prospective interest in Nortel’s MEN business, I suppose a bid is entirely possible, especially if Nokia is driving the bus.

As I type this post, CIena’s $521-million cash-and-stock bid is the pacesetter in the forthcoming MEN auction. Actually, Ciena is only entrant to declare formal interest, though speculation has built in recent days regarding potential bids from Ericsson (possible), Cisco (is John Chambers suffering a late mid-life crisis?), and Infinera (possible).

Keep in mind, however, that, as of now, NSN has not thrown its hat into the auction ring. It could be that the reports we’re reading are just trial balloons, meant to test reactions and flush other bidders from hiding.

Either way, the clock is running on prospective bidders. As reported by Light Reading, the deadline to submit bids for the Nortel MEN auction is Monday, Nov. 9, with the auction itself scheduled for Friday, Nov. 13.

Let’s hope the bidders, and Nortel’s creditors, aren’t superstitious.

Microsoft’s Latest Layoffs Take It Beyond Initial Targets for 2009

Seattle-based TechFlash last night got wind of impending layoffs at Microsoft, and those were confirmed today by reports at paidContent.org and elsewhere.

In the latest purge, Microsoft is cutting about 800 jobs. In January, in response to decreasing sales and profits, the company announced it would shed 5,000 positions. Although the latest cuts are said to be part of the previously announced downsizing, paidContent.org indicates that the latest payroll reductions at Microsoft take it beyond the 5,000 target set early this year.

A statement from Microsoft on today’s cuts reads as follows:

“Earlier this year, we announced that in order to reduce costs, increase efficiency and prioritize our focus areas, we would eliminate approximately 5,000 positions by June 2010. Today, we are eliminating around 800 positions spread across multiple businesses and locations and have completed our reduction plan sooner than we had anticipated 11 months ago. At the same time, we continue to hire in priority areas, but also understand that continuing to manage our businesses closely, as we always do, can mean additional headcount adjustments.”

Even though its latest quarterly financial results pleasantly surprised analysts, they included declines in revenue and earnings. What’s more, CEO Steve Ballmer said earlier this week in South Korea that the golden era of corporate IT spending is unlikely to return.

When Microsoft announced its purge at the beginning of the year, it reserved the right to exceed its cost-cutting layoff targets. Now many are wondering when the cuts will end.

Push Coming to Shove in Oracle-EC Standoff

As Oracle and the European Commission continue to square off over the former’s pending $7.4-billion acquisition of Sun Microsystems, the eventual outcome remains in doubt even as the respective positions of the principals become unambiguous.

With the Financial Times reporting yesterday that Oracle is braced for a formal objection from Brussels to its planned Sun acquisition, we know that positions have hardened.

The EC is demanding that Oracle prove that its ownership of MySQL, which currently belongs to Sun, will not compromise competition and customer choice in the database market. Alternatively, presuming Oracle cannot satisfy EC concerns regarding competitive harm that would result from its ownership of MySQL, European antitrust regulators would like Oracle to agree to the concession of divesting MySQL.

All indications suggest that Oracle has no interest in parting with MySQL. For Oracle, that open-source bauble represents a critically valuable piece of Sun’s corporate domain. There is no way Oracle would be inclined to leave it behind.

Similarly, one can reasonably conclude that Oracle obviously has not been successful in persuading the EC that, from a competitive perspective, it would represent a responsible, trustworthy custodian of MySQL. I am not privy to the case Oracle has made at the EC nor to the expectations or the negotiating position the EC has assumed. Still, given what we do know, it’s clear no headway is being made.

If the EC invokes a formal objection, Oracle’s acquisition of Sun will not be dealt a lethal blow. What’s more, a possibility exists, as the article in the Financial Times says, that “one side or the other will back down, according to observers in Brussels.”

But it’s getting late in the game, and Oracle has noted that Sun, which is shedding employees and cutting costs during this extended period of regulatory purgatory, is losing approximately $100 million monthly. Meanwhile, Sun’s data-center rivals — IBM and HP — feast on the uncertainty surrounding the company’s eventual fate.

Make no mistake, there is uncertainty surrounding Sun’s fate. It isn’t as if IBM and HP have to resort to exaggeration or fabrication to frighten Sun customers into their welcoming embrace.

At some point, though we haven’t reached it yet, Oracle might decide to walk away from this deal, to pursue its data-center aspirations along some other avenue.

Watch the Sun (JAVA) stock price. It will reveal a lot about which way the pendulum is swinging. On April 20, just after the deal was announced, Sun’s shares traded at $9.15. As of noon today (November 3), Sun stock exchanged hands at $8.28 per share, down approximately 9.5 percent from when news of the acquisition broke.

For those keeping score, Oracle’s takeover bid for Sun was pegged at $9.50 per share. Sun’s share price today is down nearly 13 percent from that benchmark.

Cisco Might Face Squeeze, but It’s Beaten Back Competition Before

Jon Oltsik, principal analyst at Enterprise Strategy Group (ESG), has authored a provocative piece at Network World on what he calls “the Cisco squeeze,” a market phenomenon in which the networking giant finds itself under siege on three separate fronts.

I encourage you to read Oltsik’s commentary and come to your own conclusions. That said, I took issue with two primary planks in Oltsik’s platform of argumentation.

My first objection relates to Oltsik’s contention that Cisco has enjoyed a “lack of true competitors” heretofore, and that it now finds itself subject to unprecedented competition.

I don’t remember it that way. As somebody who worked at Cisco back in the 90s, I recall heated competition with a variety of networking rivals, including the likes of 3Com, Cabletron, Wellfleet and SynOptics (which merged to form Bay Networks), Chipcom (later acquired by Cabletron), Nortel (which acquired Bay Networks), Newbridge Networks, and scores of others.

People might forget this fact, but at the time of the Wellfleet-SynOptics merger that formed Bay Networks, market analysts were emphasizing that the merged company had a market-share edge over Cisco .

If Cisco has met scant competition in recent years, it is because the company vanquished the competition if faced during the high-growth years of enterprise networking. Far from having no competitors, Cisco invariably demolished those that challenged it for enterprise-networking supremacy.

I think the relevant question isn’t: How will Cisco deal with unprecedented enterprise competition? Cisco has had competition before.

The real question is: How will today’s Cisco Systems, a corporate colossus extending into an eclectic array of “market adjacencies,” see off competition that is, in many cases, more resolutely focused on the enterprise-networking opportunity than Cisco itself?

Another objection I have to Oltsik’s piece is his implicit suggestion that Cisco’s “internal innovation” has enabled it to keep pace with market developments and requirements. Well, I don’t want to argue that Cisco doesn’t have engineers capable of delivering valuable innovation, but it’s at least equally true that Cisco has grown into the titan we see today on the basis of cleverly conceived, well-executed acquisitions of companies on the cusp of becoming its competitors for customer business.

For proof, look no further than Cisco’s first acquisition, of Cresendo Communications, which brought Cisco its Catalyst switch family and a number of executives who played prominent roles Cisco’s fast-paced growth.

A few years later, Cisco acquired Granite Systems for Gigabit Ethernet switching. Subsequently, Cisco acquired Aironet for its wireless products and technologies, and Arrowpoint for its load-balancing and traffic-management switching. Those are just a few examples, but they prove the point that Cisco always has used acquisitions as both growth engines and to fill holes in its strategic product portfolio.

For Cisco, acquisitions always turn on buy-versus-build decisions. Sometimes, when the company runs the numbers, buy trumps build. When that happens, acquisitions ensue.

There’s nothing inherently wrong with that strategy unless the acquisitions are poorly conceived or sloppily executed. Cisco has been fortunate to have a better track record than most companies that have used acquisitions to grow their businesses. For a stark contrast, please see the motley acquisition track records of Alcatel-Lucent, Nokia, and the insolvent Nortel.

Cisco does face new challenges, and Oltsik makes some valid points. But he gets it wrong when he suggests that Cisco hasn’t confronted serious competition before and that a “big acquisition” by Cisco in the enterprise space necessarily would represent a red flag.

Reputation Bashing in Joltid-Volpi Brouhaha?

In a short piece summarizing and commenting on the latest developments pointing toward a settlement of the legal conflicts and ownership of Skype, All Things Digital’s Kara Swisher opines as follows:

Skype founders Niklas Zennström and Janus Friis had sued Index and also partner Michelangelo Volpi via tech companies they control, Joltid and Joost.

The pair had already been in a legal battle over software licensing issues with eBay (EBAY), the company that had sold Skype to in 2005.

They then accused Index and Volpi, employing a reputation-bashing style, of using confidential information as part of a consortium bid to acquire a large chunk of Skype.

Well, did Zennstrom and Friis use “a reputation-bashing style” in their litigious cage match with Mike Volpi? I suppose that’s one interpretation of what occurred, but it’s not the only one.

For the record, I read Volpi’s email correspondence, written while he was CEO of Joost, adumbrating his plan to take control of Skype and perhaps serve as chairman of that company. I am not a lawyer, and I am not crazy enough to pass legal judgment on what Volpi said and did while sitting in the big chair at Joost, but it seems to me at least some of his behavior, in that role, was ill-advised and ethically questionable.

I am not the first, nor the last, to reach that determination.

In closing, I’ll just say that even though one’s reputation can be bashed, if one’s integrity is as adamant and unyielding as aggregated diamond nanorods, the bashing will do neither significant nor lasting damage. Conversely, if one is not quite an impregnable ethical fortress, the bashing of one’s reputation can do serious harm.