Monthly Archives: November 2009

Cisco Surfaces in Transcribed 9/11 Pager Messages

At CBSNews.com, Declan McCullagh reports that pager transcripts, apparently documenting messages sent during the events of 9/11, have been posted at WikiLeaks.org.

As McCullagh notes, the pager logs seem to represent messages transmitted on September 11, 2001, through the networks of Arch Wireless, Metrocall, Skytel, and Weblink Wireless. It’s not clear how the transcripts were obtained, but over-the-air interception is strongly suspected.

From an information-technology perspective, the most intriguing message is one allegedly sent at 4:18pm by Jim Massa, then Cisco’s director of federal operations, to Charlie Giancarlo, then Cisco’s chief development officer and now with private-equity firm Silver Lake, which recently claimed an ownership stake in Skype.

Here’s an excerpt from McCullagh on the Cisco-related exchange:

Whatever their origin, the logs are likely to raise more questions than they answer. Take this intriguing message that was sent by Jim Massa, then Cisco’s director of federal operations, at 4:18 p.m. It said: “NEED TO DISCUSS FBI TEN THOUSAND UNIT REQUIREMENT ASAP.” The recipient appears to be Cisco Chief Development Officer Charlie Giancarlo, who left the company in 2007 and now works at a venture capital firm in Menlo Park, Calif. called Silver Lake.

A Cisco representative said in e-mail to CBSNews.com: “I know we worked closely with law enforcement after the attacks but I don’t have any specifics.” Massa did not immediately respond to a request for comment.

One possibility is that the FBI urgently needed routers or other Cisco gear to upgrade its own network. But technical experts that CBSNews.com contacted believed it’s more likely that the FBI was working with Internet service providers to reconfigure their networks with Cisco hardware to allow wiretaps to be conducted more readily. Around that time, Cisco was beginning to develop wiretap capabilities for its routers — a concept that eventually became known as “lawful intercept.”

Jim (or James) Massa now runs Loom Enterprises, a consultancy that allows “synergistic relationships to be formed between individuals, businesses, educational institutions, governments as well as faith-based and non-faith-based non-profit organizations.”

We’ll seen whether McCullagh can learn more about the FBI’s urgent “ten-thousand unit requirement.”

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Brocade CEO: “I Never Was Actively Shopping the Company”

Every company worth its salt — and many others besides — has a contingency plan. The fact is, there’s a Plan A, there’s a Plan B, and sometimes there are Plans C, D, and E.

The world rarely conforms to our wishes, and we must adapt accordingly.

So, it’s no surprise that Mike Klayko, CEO of Brocade Communications, now proclaims that his company is destined for greatness as an independent entity. With no industry giant willing or able to buy Brocade, at least not for an amount to the liking of Klayko and the company’s board of directors, the storage-networking vendor’s chieftain must pretend that independence was the plan all along.

I have only read his words, not heard or seen him speak them, so I can’t say whether he’s a good actor. However, nearly everybody believes that Brocade was for sale, and that Klayko, realizing that his company was looking like a jilted bride at a marriage altar just off the Las Vegas Strip, had to project an alternate reality.

Said the Brocade CEO of the acquisition speculation, which was widely believed to have emanated from the company’s investment-banking agent, Qatalyst Group:

That’s just wrong. Why would we want to go ahead and do that when we have never been in a better position than we are today?”

Oh, I don’t know. Could it be because the company was afraid the consolidation wave would ebb and never come back ashore?

That issue aside, could Brocade have been for sale previously, but is no longer on the block? Not according to the company’s CEO:

“I never was actively shopping the company. When there’s misinformation we have to correct it. . . .”

“We’ve got a very bright future. We’ve spent the last five years planning and putting all the different pieces in place to execute on a very, very large infrastructure build out opportunity.”

Be that as it may, we could have a lot of fun parsing Klayko’s words. For example, perhaps he wasn’t “actively shopping the company,” but others, including Brocade’s investment banker, were doing the job for him.

Those finer distinctions probably don’t matter. Brocade might not be for sale, but it could still be bought. Similarly, the company still has OEM relationships with IBM and Dell, even if its relationship with Hewlett-Packard, which recently bought networking vendor 3Com, is suddenly fraught with uncertainty.

Broadpoint AmTech analyst Brian Marshall retains a sanguine view of Brocade, both as a takeover target and as an independent player.

“I think Oracle would be interested. Dell, Juniper, all those guys. So I definitely think it’s a strategic asset and people are probably kicking the tires there. At the end of the day, let’s look at it on a pure fundamental basis. This name’s cheap.”

For investors, it’s always wise to evaluate a publicly traded company primarily, if not exclusively, on the basis of its fundamentals. Everything else is a speculative sideshow.

What Intel Capital and Cisco Have in Common

What do Intel Capital and Cisco have in common?

Well, they probably have a few things in common, but something they definitely share is an interest in promoting and profiting from proliferation of the smart grid.

It’s an obvious connection.

Intel makes microprocessors, and it’s eager to get its chips into any IP-connected device that requires, or could benefit from, an electronic brain. Meanwhile, Cisco is the world’s leading purveyor of IP-based network infrastructure, including routers, switches, and wireless networks. Once all the embedded devices and end points on the smart grid have electronic brains, they’ll need to be networked to share and disseminate data.

Talking to Fortune’s Michael V. Copeland about Intel’s investments in companies that promote ubiquitous computing, Arvind Sodhani, Intel’s head venture capitalist, said the following:

“We benefit from growth in all those areas. Take clean tech and the electric grid. As the grid becomes more intelligent, more computing will go into things like household meters. We want to get our Atom processor into meters, and there are 120 million households in the United States alone.”

It makes sense. As conventional information technology (PCs, servers, enterprise networks, service-provider infrastructure, etc.) advances further into slow-growth maturity in the developed world, vendors such as Cisco and Intel will be seeking greener pastures in cleantech adjacencies.

Nokia Slashes Jobs Amid R&D Overhaul

On its own and as part of its joint venture with Siemens, Nokia is shedding staff in concerted efforts to reduce costs.

Last week, the world’s largest manufacturer of mobile phones cut 330 positions at research-and-development facilities in Denmark and Finland. Earlier this month, Nokia Siemens Networks (NSN), its telecommunications-equipment joint venture with Germany’s Siemens AG, announced that it would eliminate between 4,500 to 5,800 jobs by 2011.

Nokia today announced further headcount reductions, indicating that it would pare about 220 R&D jobs in Japan as part of an ongoing restructuring.

Said Nokia:

“As part of its global efforts to align its research and development (R&D) operations to be in line with its focused portfolio of future products, Nokia will be reducing its R&D activities in Japan.”

Before today’s move, Nokia had announced about 4,000 job reductions since January, including approximately 1,300 voluntary redundancy packages.

Nokia’s R&D group includes about 17,000 employees. Nokia, like many other information-technology concerns, is shifting some R&D jobs from relatively high-cost jurisdictions to lower-cost ones.

The company announced a third-quarter net loss of 559 million euros amid rising competition in the smartphone market. It also has suffered well-documented problems with its Nokia Siemens Networks joint venture.

Ciena Gets Nortel’s MEN; NSN Faces Uncertainty

Now that Ciena has claimed Nortel’s Metropolitan Ethernet Networks (MEN) business assets, which include optical- and Ethernet-networking products and technologies, questions linger about what exactly transpired and what happens next.

Ciena’s winning bid was worth $769 million, about $248 more than the stalking-horse bid it submitted in October. Comprising $530 million in cash and $239 million in senior convertible notes due in June 2017, Ciena’s bid topped an indeterminate offer put forward by ambivalent Nokia Siemens Networks (NSN), which did its best afterward to rationalize why it didn’t come away with the auction prize.

The big winners in this auction are Nortel employees. About 85 percent (2,000) of Nortel’s MEN personnel will join Ciena, presuming the deal clears regulatory hurdles. The transaction must receive court approval in the United States and Canada, which it expects to get at a joint hearing December 2, as well as in France and Israel.

Based in Linthicum, Md., Ciena practically doubles in personnel as a result of the acquisition. It also gains about 1,000 new customers spread across 65 countries. Included among those new customers are carriers AT&T Inc., Verizon Communications Inc. and Comcast Corp.

Ciena says the deal will be “significantly accretive” to its operations in fiscal 2011. As noted by the Wall Street Journal, Nortel was a leader in developing 40 gigabit optical-networking equipment, allowing carriers to quadruple their network capacity without incurring much additional cost. It is also among the industry leaders developing the next-generation 100-gigabit optical-networking technology.

But the past tense of the preceding paragraph is notable. Like the rest of insolvent Nortel, the MEN business has struggled under the purgatory of bankruptcy protection. For the first nine months of this year, Nortel’s MEN business reported revenue of $988 million, down 21% from a year earlier. Results have been gradually worsening. In the latest quarter, Nortel’s MEN revenue fell 26 percent to $295 million in relation to the corresponding quarter last year.

While the market for carrier-Ethernet gear continues to grow, even during a downturn that has inhibited expansion in most carrier-related market segments, competition is fierce. Infonetics expects the market for carrier-Ethernet equipment to reach $34 billion by 2013, growing from $17 billion in 2008. Nonetheless, competitors including Huawei, Alcatel-Lucent, Ericsson (Redback), ZTE, and Extreme Networks. The added scale that Nortel brings to Ciena will help, but it doesn’t guarantee success.

Besides, as many analysts have noted, Ciena and its executive team have no experience integrating an acquisition of this size. Any student of technology acquisitions will tell you that more is likely to go wrong than to go right, especially when the team managing the integration hasn’t had the benefit of previous experience in similar circumstances.

Still, there’s no question that Ciena’s leadership is confident of being on the right track and will do its best to leverage what Nortel’s MEN assets offer. The same cannot be said for Nokia Siemens Networks (NSN), the Swedish-German joint venture that finds itself back in limbo after this auction. Having already fallen short of the mark in a bid for Nortel’s wireless assets, ultimately captured by Ericsson, NSN now has been a two-time loser in the Nortel auctions.

Bidding this time in conjunction with private-equity firm One Equity Partners, Nokia Siemens Networks (NSN) was at pains to justify its failure to overtake Ciena in the MEN auction ring. In a terse statement posted on its website, NSN said the following:

Nokia Siemens Networks confirms that, with its financial partner, it did not submit the highest bid for Nortel’s optical networking and carrier Ethernet assets in the bankruptcy court-sanctioned auction that began on Friday morning and extended through the weekend. Nokia Siemens Networks believes that its final offer represented fair value for the assets, and further bidding could not be financially justified.

It’s possible that the auction bid for Nortel’s MEN assets was something of a Hail Mary pass for the joint-venture partners. Now that it has fallen incomplete, Nokia and Siemens are likely to reconsider their commitments to the venture. Many think Siemens will want out of the arrangement. Meanwhile, Nokia might not have the fortitude or resolve to buy out its partner’s stake in the company. There’s a reasonable possibility that the joint venture might seek another partner or put itself for up for sale completely.

As for Nortel’s creditors, they must be pleased. At the end of the auction, they received a winning bid that was nearly a quarter-billion dollars more than the initial stalking-horse offer from Ciena. It wasn’t quite the $1.13-billion payday they derived from the sale of Nortel’s wireless assets to Ericssson, nor the more than $900 million they got from Avaya for Nortel’s enterprise business, but it wasn’t bad.

Gradually running out of assets to sell, Nortel is expected to make an announcement about the sale of its Global System for Mobile Communications (GSM) business later this week.

Nokia Siemens Networks Bids on Nortel’s MEN

As expected, Nokia Siemens Networks (NSN) officially stepped into the auction ring today to challenge Ciena for the privilege of owning insolvent Nortel Networks’ Metropolitan Ethernet Networks (MEN) assets.

The auction, as fas we know, is continuing. The winner would have to clear all the usual regulatory hurdles before consummating any purchase.

Speculation surfaced recently that Infinera might also take an auction-day run at Nortel’s MEN assets, but, as of now, we’ve received no confirmation that a third party has entered the proceedings.

Dell’s Digressive Transition

I agree with the market analysts who have observed that Dell is a company in transition. What concerns me, however, is that Dell doesn’t seem to know where it wants to go or how it intends to get there.

As I reviewed Dell’s latest quarterly results, released to the world yesterday, I was stuck, not for the first time, by the contractions between the company’s words and actions. There were also a few contradictions between what the company said from moment to moment.

At a fundamental level, Dell must make a definitive decision about whether it’s a purveyor of IT solutions for businesses or whether it is consumer-oriented computing company. It is unlikely to succeed at both. The world has changed since Michael Dell first steered his company to prominence as the direct-to-customer PC vendor with the lean supply chain.

For every move Dell makes in the right direction, it seems to take a countervailing misstep. This quarter’s results, like those in the previous quarters, tell some of the story.

As reported in Computerworld by the IDG News Service, Dell’s net income for the three months to Oct. 30 was $337 million, or 17 cents per share, down from $727 million, or 37 cents a share, in the same quarter last year. Revenue declined 15% to $12.9 billion.

Sales were down from last year in all of Dell’s main business units, including the large-enterprise division, where revenue dropped 23 percent. Dell’s revenue fell 19 percent in the small-and-medium-sized business (SMB) segment.

The results were worse than expected. Dell’s profit before one-time charges was 23 cents per share, below the 28 cents per share financial analysts had forecast, according to Thomson Reuters. Its revenue also came in below Wall Street’s target.

It’s baffling that Dell, which isn’t exactly a public-market ingenue, could have allowed itself to miss expected targets so badly. Savvy public companies — Cisco, Apple, HP of recent vintage — take considerable pains to ensure that analysts that follow them don’t get carried away with boundless optimism. It isn’t for nothing that the truism “underpromise and overdeliver” was coined. Too often, Dell has adhered to an inversion of that adage: overpromise and underdeliver. Unfortunately, that credo doesn’t impress the investment community, as evidenced by Dell’s stock price, which is down nearly 10 percent today as I type this post.

According to Brian Gladden, Dell’s CFO, the company will continue to put profit before market share. In the last quarter, he said, Dell walked away from some consumer retail deals for PCs because “the margins weren’t acceptable for us.”

That’s a worrisome statement, primarily because Dell has provided scant insight into how the situation will be reversed. If the company struggles mightily to sell PCs to consumers at a profit, it begs the obvious question: Why is Dell toiling in the consumer market at all?

If there is some master plan as to how Dell will arrest declining market share and brand value in the consumer space, the company should articulate it.

Otherwise, Dell might want to think about putting its resources into areas other than the consumer space, areas where it will be more likely to see healthy margins in tandem with market-share gains. I think even Dell would agree that it would be a Pyrrhic victory to maintain acceptable PC margins in the consumer space while seeing its market share plummet into a tenebrous abyss. That would be a vicious cycle, with market-share losses eroding both Dell’s economies of scale and its brand value relative to other consumer-market PC players.

Similarly, what’s the point, and the big-picture strategic plan, behind Dell’s half-hearted foray into the smartphone market, first in China and Brazil and then presumably in the USA?

The entire exercise smacks of a bunch of marketing executives huddling optimistically in a boardroom, with one of them musing, “If we could capture one percent of the smartphone marketplace, we’d generate a huge new revenue stream.” Regrettably, that sort of wishful thinking — unsupported by dispassionate logic, a systematic strategic plan, and carefully tested assumptions — usually ends in tears. Dell will need more than a me-too Android-based handset to capture a meaningful share of the smartphone space, even in China and Brazil, national markets that are more exacting than Dell assumes.

It’s not as if Dell doesn’t have other opportunities.

Michael Dell himself is looking ahead to a corporate PC refresh cycle triggered, in part, by Windows 7. There’s nothing wrong with Mr. Dell’s reasoning on that point. Businesses of all sizes largely skipped Windows Vista, and it’s reasonable to expect that they will, as Dell suggests, look to upgrade their PCs before long. Dell thinks it will happen over the next 18 months. I think it might take a little longer to play out, but it seems destined to happen.

Dell, which has a relatively good reputation in the SMB space, should be putting considerable resources into positioning itself as the go-to vendor for those upgrades. I wonder to what degree distractions from the consumer side of the house might detract from emphasis, focus, and resources that could be directed at the SMB opportuinity.

Similarly, Dell has a tremendous opportunity to convert its $3.9 billion acquisition of Perot Systems Corp. into lucrative returns. During these hard times, Michael Dell realizes the same thing GE CEO Jeffrey Immelt recognizes: government-stimulus spending can be a vendor’s friend.

With Perot, which generates about half its sales from healthcare customers, Dell is well placed to benefit from the allocation of $20 billion in U.S. stimulus funds toward the purchase of healthcare-related information-technology products and services. Again, Dell should not take its eye off that prize.

Even in large enterprises, Dell seems slowly but surely to be piecing together a data-center plan that will allow it, with the assistance of Perot, to compete effectively in certain vertical markets. Strategically, with its partnerships and thinking, Dell is following a path strikingly similar to IBM’s, even down to having the same networking-equipment OEM partners in Juniper and Brocade.

Michael Dell’s oft-stated long-term goal is to reduce Dell’s reliance of personal computers, which account for approximately 60 percent of his company’s revenue. Meanwhile, Dell as a company derives about 80 percent of its revenue from business customers of varying sizes, with the remaining 20 percent coming from consumers.

If the company already is ceding large chunks of consumer territory to competing PC vendors because it can’t make money in that market, perhaps the time has come for the company’s executive braintrust to expedite the transition away from both PCs and consumers. The smartphone should probably be kicked into touch, too, unless Dell’s goal is to tie it to an enterprise push in conjunction with Google, which also aspires to grow its enterprise presence.

I said before that Dell is a company with too many fingers in too many pies. Dell only has so many fingers, and not every pie it sees is worth eating.