Daily Archives: November 11, 2009

HP’s ProCurve Engineers Might be Biggest Losers in 3Com Acquisition

I will have a longer post tomorrow on HP’s acquisition of 3Com for $2.7 billion, but my first reaction, I will readily admit, was befuddlement.

3Com no longer has a relationship with Huawei, will experience declining market share in China, and is pursuing a “China Out” strategy to compensate for lost business in that country. It also has a tarnished enterprise brand in North America, which probably will lead HP to retire the 3Com name completely.

So I thought about it. HP must have had a reason to pursue this acquisition.

Then, all of a sudden, it hit me. I remembered a Forbes feature article published online in the middle of October,”Cisco’s Threat From China,” and I realized that Mark Hurd’s HP is all about cost controls, preferably sharp and sustained cost reductions.

Look, HP could have obtained better routing technology, greater routing market share, and superior core data-center switching from an acquisition of Juniper Networks.

Then again, an acquisition of Juniper would have cost HP about six times (or more) what it paid for 3Com. That was considered too high a price, I’m sure, by Hurd and his bean counters.

Besides, 3Com offered something that no other enterprise-networking vendor could provide to HP. Quoting from that Forbes feature article:

Most of 3Com’s 6,000 employees, 52% of its $1.3 billion in revenue and nearly all of its research and development staff are in China. While 3Com has only a 3% slice of the networking gear market worldwide, it controls a third of China’s market–just a few percentage points less than Cisco.

Forget about the revenue from China. That’s under siege now that 3Com doesn’t have Huawei as its H3C partner. What’s important here is that most of 3Com’s employees, and all its research and development, are based in China. I’ll have harder numbers tomorrow, but my conservative calculations suggest that a fully loaded Chinese networking engineer probably costs about a fifth the price of his American counterpart.

What hasn’t been mentioned by HP, or by the business press, is that there is significant overlap between the HP and 3Com product portfolios everywhere but in the data-center core, where 3Com has the H3C S12500 . Before this deal, HP even targeted 3Com heavily in its competitive-marketing programs.

All of which brings me to what I suspect is the essential truth about HP’s acquisition of 3Com. When you look at the cold, hard facts, it’s difficult not to conclude that HP purchased 3Com at least as much for its low-cost Chinese R&D as for its product portfolio, which features extensive overlap with HP’s own ProCurve products.

The big losers in this deal might not be Cisco, or Juniper, but HP ProCurve engineers in the USA.


Motorola Division Up for Sale: WSJ

Sources have told the Wall Street Journal that Motorola is preparing to sell its home and networks mobility division for approximately $4.5 billion.

The article, quoting “people familiar with the matter,” says potential acquirers include private-equity firms and telecommunications-equipment vendors.

Allegedly among the private-equity firms considering the purchase are TPG and Silver Lake Partners, both of which are said to be attracted to the division’s continuing profitability. On the other side of the aisle, equipment vendors said to be candidates to purchase all or part of the division include South Korea’s Samsung Electronics Co., China’s Huawei Technologies Co., Sweden’s L.M. Ericsson and Pace PLC of the U.K.

Not surprisingly, neither the private-equity firms nor the gear vendors have anything significant to say about their rumored interest in Motorola’s assets.

J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. are said to be advising Motorola on the sale of its home and networks mobility division, which is now Motorola’s largest.

It includes core and edge network products, such as two-way digital video headend systems and bandwidth-management systems, along with related software; access-network products and technologies, including those supporting GPON (Gigabit Passive Optical Networking), CMTS (Cable Modem Termination Systems), BAN (Broadband Access Network) and FTTx (fiber to the home or enterprise); wireless-network infrastructure for 3G and 4G networks, including LTE and WiMAX; and customer-premise equipment, such as digital set-top boxes, DSL and cable modems, residential gateways, and WiMAX modems.

Considering that the division’s product portfolio is so varied, it’s conceivable that it Motorola could sell parts of it to at least two different buyers. For example – and this is only hypothetical – Samsung or Pace might purchase the customer-premise equipment and the access-network products and technologies, with Ericsson or Huawei buying the wireless-network infrastructure. Alternatively, Motorola might decide to keep the wireless infrastructure and sell the remainder of the division.

The mooted sale of the home and networks mobility division follows a nosedive in Motorola’s financial performance that effectively torpedoed the company’s plans to spin off its handset business, which hasn’t had a hit since the Razr climbed to the top of the sales charts several years ago. Of course, Motorola is hoping that its geekily marketed Droid smartphone reverses its declining handset fortunes.

Motorola says it maintains its commitment to a long-term plan that would split the company into two businesses: mobile devices and broadband mobility solutions.

Abundance and Variety in Defunct VC-Backed Companies

The list probably is not exhaustive, and the year isn’t finished, but the Wall Street Journal’s Venture Capital Dispatch is offering an ongoing inventory of venture-backed companies that have closed shop in 2009.

I tried to discern a pattern from the tombstone epitaphs in the venture-backed cemetery, but I couldn’t see one. Among the departed you’ll find late- and early-stage companies, firms involved in corporate and consumer technologies, biomedical and pharmaceutical concerns, and even a smattering of cleantech ventures.

You’ll find that many were backed by major VC firms, and some were financed by lesser-known players. The only underlying commonality is that all saw their funding dry up during a severe, and now apparently protracted, economic downturn.

Adobe Cuts More Employees

Adobe continues to shed staff with alarming regularity.

In a regulatory filing submitted to the Securities and Exchange Commission (SEC) last night, Adobe disclosed that it would cut 680 full-time employees, about nine percent of its global workforce.

Said Adobe in a statement:

“Adobe is restructuring its business to align costs with its fiscal 2010 operating plan and budget, the company’s three-year strategic priorities, and the realities of the business environment, as well as to ensure its ability to continue investing in long-term growth opportunities.”

This latest payroll purge follows a nine-percent workforce reduction within the Omniture unit, which had about 1,200 employees when it was acquired by Adobe in September. Before that, in December of 2008, Adobe announced that it would part with approximately 600 employees after the disappointing sales performance of its Creative Suite 4.

Since then, Adobe’s fortunes have waned more than they’ve waxed. The company has experienced decreasing revenue and earnings in recent quarters, with its top line taking a particular beating. In the absence of growth, Adobe has taken to vigorous cost reductions, which have included a yearlong drumbeat of job cuts.

The company’s words and actions suggest that it doesn’t anticipate a near-term rebound.

Logitech’s LifeSize Buy Represents Logical Progression

Logitech, best known for computer peripherals, has announced the acquisition of videoconferencing vendor LifeSize Communications for $405 million in cash.

Whereas Tandberg, currently the object of Cisco’s ambivalent acquisitive interest, makes its money selling midrange to high-end videoconferencing systems, LifeSize concentrates primarily on device-based personalized videoconferencing products within the budgetary reach of SMBs. At the very high end of the enterprise market, we find Cisco with its customized, room-based telepresence systems.

LifeSize has some higher-end product offerings in its portfolio, but its device-based products will be better suited to Logitech money-making prowess. Logitech’s expertise is in designing, making, marketing, and selling (through its vast channels) computer peripherals such as mice, keyboards, and webcams.

It’s that latter product group that shares an affinity with LifeSize’s device-based videoconferencing. No doubt Logitech will push LifeSize’s current offerings through its existing channel partners while working on next-generation products that further broaden the availability and market reach of high-quality, low-cost personalized videoconferencing.

Logitech gradually is attempting to ascend the videoconferencing value chain. Last fall, Logitech paid about $30 million to acquire SightSpeed, a vendor of software-based videoconferencing software. Following up on that purchase a year later, Logitech now has moved up to acquire a device-based videoconferencing vendor.

Still, Logitech doesn’t have the profile, relationships, or resources to take LifeSize into battle against Cisco, Tandberg, or Polycom in more sophisticated room-based systems. Logitech doesn’t have the DNA, or the customer mandate, for that fight.

Notwithstanding the ceiling on how high Logitech’s reach can extend, the Swiss vendor of peripherals is well placed to make a lucrative push with most of LifeSize’s small-form-factor, device-based products. Those offerings fall comfortably within Logitech’s wheelhouse.

All in all, LifeSize was a logical next step on the acquisition trail for Logitech. The combination should result in increased sales of the LifeSize product portfolio into SMB accounts and even into the high-end consumer sphere, though I suspect one motivation for this move by Logitech was to lessen its dependence on the clapped-out consumer space.