Daily Archives: November 5, 2009

IDG Report Says Blue Coat to Lay Off 20 Percent of Staff

Even though Blue Coat Systems announced earlier today in a press release that it would effect a “net reduction in headcount of approximately 10 percent,” equating to about 145 to 150 personnel, Robert McMillan of IDG News Service is reporting that Blue Coat will lay off about 20 percent of its staff.

Pursuant to McMillan’s report, approximately 280 jobs will be slashed in the across-the-board layoffs, affecting marketing, sales, and engineering.

Skype Settlement Said to be Imminent

Although a settlement seems to be in place — with Skype founders Niklas Zennstrom and Janus Friis receiving a 10-percent equity stake in Skype, plus two board seats, and with Index Ventures and Mike Volpi getting banished from the deal — a formal announcement including all the pertinent details has yet to be delivered by the legal gods to us mere mortals.

It shouldn’t be long, though.

Network World Reprises Volpi’s Medley of Email Hits

For those who cannot get enough of the intrigue, scheming, and shenanigans surrounding the boardroom-to-courtroom-to-boardoom battle for the ownership of Skype, Brad Reese at Network World reproduces a medley of Michael Volpi’s greatest email hits.

Thrill to Volpi’s message about “getting the father of SIP to jump ship” from Cisco. Enjoy his follow-up message to Egon Durban, managing director at private-equity firm Silver Lake, regarding the need to fill out a SIP engineering team with five or six solid VoIP software engineers. Marvel at Volpi’s disparagement of former colleagues and Skype-deal confederates.

Moreover, consider that he was writing all these email hits while still employed as the CEO of a company (Joost) that was founded and run by the same duo, Niklas Zennstrom and Janus Friis, who founded Skype before selling it to eBay and who entertained hopes of owning it again. Also ponder that much of the same underlying p2p software used at Joost, at least originally, also served as the architectural foundation for Skype.

Finally, consider that Volpi was said to have led and been involved in an architectural transition at Joost that saw the video-sharing site move from the p2p foundations on which it was based — using the same Joltid technology that was licensed by Skype — to a client-server architecture that employed Flash-based web clients at the end points.

At minimum, there would appear to be superficial similarities between the architectural overhaul that had occurred at Joost and what Volpi proposed for Skype.

Blue Coat Shifts Development to India in Significant Restructuring

A market leader in WAN optimization, where its primary adversaries are Riverbed and Cisco, Blue Coat Systems dropped a three-pronged announcement today.

One thread in the announcement was Blue Coat’s confirmation that net revenue for its second fiscal quarter, which ended October 31, tracked toward the high end of its previous guidance of $116 to $121 million.

Along with that news, however, it also announced a sweeping restructuring that will see it shed about 10 percent of its global workforce. Connected to that restructuring was Blue Coat’s announcement that it has acquired Indian firm S7 Software, which has approximately 50 engineers involved in software development, code migration, and network security. Blue Coat is paying $5.25 million for S7, which it describes as a “top engineering company in India.”

Expected to close in the third quarter of Blue Coat’s 2010 fiscal year, the S7 acquisition is the fulcrum for the company’s extensive restructuring.

According to a corporate fact sheet Blue Coat published earlier this year, it had about 1,450 employees, which means approximately 145 will be laid off.

As Blue Coat says in a press release:

The restructuring plan will shift a number of engineering positions from Sunnyvale, Calif. and Austin, Texas to it other locations, such as the site it plans to acquire in Bangalore, India, through the S7 Software acquisition. It also involves the closure of three small facilities in Riga, Latvia; South Plainfield, New Jersey; and Zoetermeer, The Netherlands. Blue Coat is also reorganizing other functional areas, including sales and marketing, general and administrative, and support, to gain greater efficiencies.

This is not a modest reallocation of resources; it’s a substantive overhaul. In the near term, it means the transfer of some Blue Coat jobs from North America and Europe to India, but in the long term it also suggests that Blue Coat will attempt to do as much of its engineering as possible in lower-cost India.

Regarding future R&D, Blue Coat said the following:

The Company’s research and development work will now be undertaken at four sites that include: Sunnyvale, Calif.; Draper, Utah; Waterloo, Canada; and the new center in Bangalore, India. Each development center will be vertically integrated, so that each can assume full responsibility for the entire development process for each new or enhanced product or technology. Previously, projects crossed multiple design centers, resulting in a higher cost structure and slower time-to-market.

Depending on how well the S7 venture proceeds, it isn’t difficult to envision Blue Coat researching and developing new products in India, with “enhanced” products or technologies pursued at the North American sites.

Regardless of Tandberg Resolution, Cisco’s M&A Reputation Dented

If Cisco thought it could acquire Tandberg with the $3-billion all-cash proposal it has on the table, the networking giant’s braintrust might want to think again.

To close the deal, Cisco needed 90 percent of Tandberg’s shares to be tendered at the offer price of 153.50 Norwegian crowns per share. Almost from the outset, just after the proposed takeover was announced, Cisco was fighting resistance from approximately 24 percent of Tandberg’s shareholders who wanted more money than Cisco offered.

Upset at having to deal with such intractability, Cisco decided to reach for sticks and vinegar as opposed to carrots and honey. Cisco spokespeople repeatedly said they felt the bid was fair, with some suggesting that Cisco might walk away from the deal rather than sweeten the original offer.

Cisco’s stance hardened further with a blog post from Ned Hooper, chief strategy officer and senior VP at Cisco. He not only asserted that the offer was fair, but he pointed out the risks as well as the rewards associated with Cisco’s proposed Tandberg acquisition.

He also mentioned that, while Cisco saw potential riches in video collaboration — a $34-billion opportunity, according to Cisco — most collaboration today was done with voice technologies. Tandberg doesn’t offer voice collaboration, but Polycom — Tandberg’s primary rival in videoconferencing systems — does. Hint, hint, wink, wink, and nudge, nudge.

So, did Hooper’s blunt words and implicit warnings have the desired effect? Did Tandberg’s dissident shareholders, who don’t appear to have a white-knight bidder waiting in the wings to top Cisco’s offer, fold their tents and reluctantly acquiesce to Cisco’s demands that they just take the proffered money and go away?

Not quite.

Reuters reported late yesterday that investment adviser OppenheimerFunds, on behalf of funds and accounts owning a 5.78 percent stake in Tandberg, said it will not agree to sell the shares it manages to Cisco at the current offer price.

Never one to cut off its nose to spite its face, OppenheimerFunds also said it remains open to improved offers from Cisco or from anybody else who wants to pay to play with Tandberg.

As a result of OppenheimerFunds’ declaration of intent, Tandberg shareholder opposition to the Cisco acquisition has grown. Investors owning as much as 30 percent of Tandberg’s shares are now telling Cisco to reach into its prodigious reserves of foreign cash to get this deal done at a higher price.

Endorsed wholeheartedly by Tandberg’s board of directors, the deal must be approved on or before November 9 by those possessing at least 90 percent of Tandberg’s shares. As it stands, with just four days on the calendar remaining, Cisco seems a long way from that goal.

It seemed unthinkable when Cisco announced its intention to acquire Tandberg at the beginning of October, but this deal could unravel completely.

Just after Cisco made its offer, I was mildly surprised that Cisco walked into a hornet’s nest of significant minority-shareholder dissent at Tandberg, but I felt the networking giant would soon manage a dignified, quiet resolution, perhaps boosting the offer marginally, albeit reluctantly. From Cisco’s perspective, such an outcome wouldn’t have been ideal — it sets a bad precedent, after all — but it would have been better than the dilemma it faces today.

Cisco has backed itself into a corner at Tandberg, and now its only options are backing down, backing away from the table, or considering an alternative transaction involving Polycom, a fit that would be less complementary than Tandberg.

How did it get to this point? How did Cisco misread the investor situation so badly at Tandberg? Did it rely too much on Tandberg’s board, not doing its own due diligence into the composition and constitution of critical shareholding blocs at the Norwegian company?

For a great many years, Cisco was an acquisition machine, conceiving and executing deals as fluidly and seamlessly as any company on the planet. Regardless of the eventual outcome, that’s not what happened at Tandberg.

Instead, something went wrong, practically from inception. What we must ask ourselves is whether this was an anomalous exception — resulting from Cisco’s first attempt to buy a large, public company based in Europe — or whether it’s a portent of more trouble ahead.