HP’s Cautious Integration of 3Com’s H3C

As discussed in a previous post, many observers are curious as to why HP’s integration of 3Com will take another 18 months (or thereabouts) to complete.

In investigating the matter, I have learned that some parts of 3Com will be easier for HP to digest than others. The assimilation of 3Com into HP will occur at varying speeds, depending on the geographic and operational jurisdictions involved.

One major part of 3Com that will be slower to digest than others is H3C, the former China-based joint venture between 3Com and Huawei that evolved into 3Com’s R&D engine. H3C was a prime attraction for HP in its pursuit of 3Com, both for its relatively inexpensive engineering personnel and for its account presence and market share in China.

One reason for H3C’s success in China was that it was viewed as a Chinese company by China’s government. In China, that distinction is not insignificant. As China continues to pursue a policy of “indigenous innovation” that will see it favor companies and products of demonstrably Chinese provenance, HP’s ownership of a “Chinese company” might prove critical in allowing it to compete effectively for customer patronage in the country and to qualify for cost-saving government programs.

How does this affect HP’s integration of 3Com? Obviously, H3C is a big, important part of 3Com. HP will not want to do anything that compromises H3C’s status as a Chinese entity. Membership in that club has its privileges.

H3C’s market share and sales in China have faltered as Huawei has gone from partner to competitor. Meanwhile, Cisco and others are increasingly establishing R&D facilities in China to curry favor with the country’s authorities. Given the context, HP will not want to lose what made H3C and 3Com so attractive to it in the first place.

Just for fun, go to the H3C website. At first, set your location as North America. You’ll be directed to a page that sets H3C’s product portfolio firmly within the context of HP Networking. Now, go back to the H3C start page and set your location as Asia Pacific (English). You’ll now notice that there’s scant mention of HP Networking; it’s all H3C.The site even offers a promotional tagline that must make HP Networking’s U.S.-based marketing executives cringe: “H3C — IToIP Solutions Expert.”

H3C will continue to run its own show in China and in the Asia Pacific region for the foreseeable future. It is one of the reasons the 3Com integration will not proceed as fast as many observers think it should.

Advertisement

Apple Vaults Past Microsoft in Market Cap, but Markets Never Sleep

There was considerable discussion last night, continuing through this morning, about Apple supplanting Microsoft as the technology company with the largest market capitalization.

The discussion is warranted. When a changing of the guard occurs at the top of the heap — even if it’s a heap built on ever-shifting market valuation  — people will notice and try to invest great meaning in the event.

At a basic and literal level, of course, it means that the market ascribes greater value to Apple than to Microsoft. In terms of mindshare and brand, Apple has been outgunning Microsoft for some time, and the market now believes that, based on where the two companies stand today, Apple is a more valuable company that Microsoft.

What you need to remember about markets, however, is that they’re dynamic. Every day, they rise and fall, twist and turn. They never stop. They aren’t like the World Cup, for example, where a tournament is played, teams are gradually eliminated and one eventually claims the title, all its own until the next World Cup in four years.

On the market, nothing is ever fully settled. There’s no time to celebrate a milestone, because any milestone achieved is arbitrary and fleeting.

So, while I think it’s interesting that Apple has surpassed Microsoft in market capitalization — and while I agree that it says much about both realities and perceptions of both companies in the recent past and in the here and now — I also realize that the market is not finished taking its snapshots and making its sometimes capricious determinations.

Today is another day, and tomorrow will be another. Considering all the ferment and volatility we’ve witnessed in the technology sphere during the last couple months, one arguably could make the case that neither Apple nor Microsoft will necessarily accrue more relative strength during the next several years.

Obviously, Microsoft’s past-performance chart, as well as its current struggles, looks worse. It’s by no means certain that Microsoft can remake itself as its core franchises — Windows and Office — are threatened by a broad-based transition to cloud computing.

Similarly, though, the snapshot the market took yesterday might have captured Apple at its peak.  Apple is under attack for its App Store policies and practices, and its ascendant iPhone is likely to meet stiffer competition in the smartphone market from Google Android-based handsets, RIM’s BlackBerry (still a force in enterprise accounts, despite what you might have heard), HP’s Palm, Nokia (though that’s less certain), and even Microsoft, which is in the process of reanimating its moribund mobile business yet again.

Let’s not forget, too, about the Chinese handset players, who are likely to be major forces in their home markets and might not be content to play the comparatively passive role of software licensees.

Clearly news of Apple usurping Microsoft as market-capitalization king was deserving of notice and commentary. We need to remember, though, that it’s only a snapshot in time, and that markets — the public markets in which stocks are traded and those in which products and services are bought and sold — never sleep.

Microsoft Loses Patience with China

It wasn’t too long ago that Microsoft’s Craig Mundie, the company’s chief research and strategy officer, offered a public lecture to Google on how it should have been more patient and flexible in its dealings with China.

Mundie’s commentary was condescending, patronizing, self-serving — and an utterly obsequious ploy by Microsoft to curry favor with Chinese authorities. Rather than chortle at Google’s apparent misfortune, Microsoft should have kept its counsel and stuck to its coding.

Now we learn that Microsoft’s own patience with China is wearing thin. Earlier today in Singapore, Microsoft CEO Steve Ballmer said China’s weak enforcement of copyright laws has hurt his company’s revenues and compelled it to focus on other markets in Asia.

An Associated Press (AP) report containing Ballmer’s remarks also noted that China — destined to become the world’s biggest computer market this year when it overtakes the U.S. — accounts for 15 to 20 percent of global PC sales, but just one (as in 1) percent of Microsoft revenue.

Said Ballmer:

“Intellectual property protection in China is not just lower than other places, it’s very low, very, very low. We see better opportunities in countries like India and Indonesia than China because the intellectual property protection is quite a bit better.”

When Ballmer returns to head office, he might want to share that insight with Mundie.

Facebook Croons New Tune, But Song Remains the Same

Bruce Nussbaum, a former assistant managing editor at Business Week who now serves as a professor at Parsons School of Design, makes the argument that some of Facebook’s current privacy-related woes stem from its inability to remain attuned to cultural changes affecting its audience.

I’m not sure whether I buy the argument in its entirety, partly because Facebook long ago left behind its singular focus and dependence on college and high-school kids. Still, two brief sentences in Nussbaum’s blog post at Harvard Business Review are undeniably true:

At the moment, it (Facebook) has an audience that is at war with its advertisers. Not good.

No, it’s not good. But, as I argued early last year, Facebook was destined to be in conflict with its audience. The outcome was inevitable, resulting from Facebook’s inability or unwillingness to be transparent about the specifics of its business model and its exploitative relationship with its audience.

Facebook was neither forthcoming nor honest. Then, as now, Facebook continues to play a cynical game with those who use its service. It continues to lead them to believe they incur no downside for using a nominally free service. Then, as subscribers drop their guards, Facebook exacts a price, furtively dismantling privacy protections and trading on the sorts of sliced and diced demographic data that advertisers crave.

Now, as Facebook goes through another privacy overhaul, promising to make amends for what has become a pattern of deception and dishonesty, subscribers to the service ought to recall a hackneyed admonition about violated trust: Fool me once, shame on you. Fool me twice, shame on me. (George W. Bush emphasized a variation on this theme, you might remember.)

The truth is, Facebook can’t change. It’s too late. It’s caught in the bind I described in that blog post back in early 2009. Still, even though Facebook is ensnared in a trap of its own design, its audience doesn’t have to go along for the ride.

Cisco Announces Ruggedized Gear for Smart-Grid Substations

Until now, Cisco has done more talking than doing on the smart grid.

Yes, Cisco has made investments, including a notable stake in GridNet, and it has been involved in some prominent smart-grid projects and trials. But those efforts have been tentative, and they haven’t involved Cisco introducing new products specifically built for utility customers pursuing smart-grid deployments.

Earlier today, though, Cisco rectified that situation, announcing a hardened, ruggedized router and a similarly hardened, ruggedized switch, both of which are designed for deployment in utilities’ electricity substations. The new Cisco IP-based smart-grid products — the Cisco 2000 Series Connected Grid Router (CGR 2010) and the Cisco 2500 Series Connected Grid Switch (CGS 2520) — are adaptations of existing Cisco gear.

As reported by Network World, the CGR 2010 is based on Cisco’s Integrated Services Router (ISR), whereas the SGS 2520 is based on Cisco’s Catalyst 2000 and 3000 series products. The SGS 250 comes in two four-slot versions, with speeds and feeds similar to those of ruggedized switches from smaller players that have been active in the market well before Cisco’s arrival on the scene.

Like those competing offerings from the likes of RuggedCom and GarrettCom, Cisco’s smart-grid networking gear adheres to IEEE 1613 and IEC61850-3 standards for utility substation environments, including the capacity to withstand extreme temperatures. The devices also provide enhanced protection against electrical surges and electromagnetic interference.

Although smart meters and advanced metering infrastructure (AMI) receive a lot of media coverage because of their consumer-facing orientation, smart-grid products and technologies — such as substation networking gear — built for utilities’ distribution networks could possess a greater likelihood of achieving near-term commercial success.

While nobody seems sure whether or when consumers will want to fiddle about with smart meters and home-energy management systems to derive potentially modest savings on their electricity bills — consumers’ willingness to subject themselves to demand-response initiatives also remains unknown — utilities will have a need to upgrade and overlay their electricity-distribution systems with two-way communication networks. Those networks will provide efficiency savings by capturing and transmitting data from multiple intelligent electronic devices in the substation back to utility data centers for analysis.

By making their distribution networks smart, utilities will be able to quickly and accurately identify, isolate, diagnose, and perhaps even automatically repair network faults. They’ll also be able to reconfigure networks on the fly to circumvent trouble spots and keep electrons flowing.

For Cisco, the kingpin of Internet routing and switching, these new products represent a logical entry point into the smart-grid marketplace. Cisco already is a market leader in switching and routing. To get into the smart-grid space, all it had to do was adapt existing products to the specific requirements of substation deployment.

Cisco is hoping to benefit from the inherent conservatism of the utility sector. Utilities prize reliability — and hence risk mitigation — above all else. Utilities prefer to go with the tried and true over the conceptually interesting but unproven; and they also tend to favor established, well-known vendors over startups. Cisco is hoping its Internet market leadership, in enterprises and service providers, carries over to the utility industry, allowing it to tap an opportunity that it believes could be a hundred to a thousand times the size of the Internet, representing a $20-billion market in just five years.

The networking giant’s success isn’t assured, though. While Cisco is the top dog of enterprise networking, it’s a newcomer to the utilities. Even though its brand is known, it’s not known directly by many utility customers. It will have to build a base, as well as relationships and credibility.

In an email message to Forbes, Forrester analyst Doug Washburn discussed the challenge Cisco faces:

“It’s going to be critical for Cisco to forge partnerships with smart grid solution providers, the Accentures and ABBs of the world. Those companies] specialize in the utility industry and can engage the utilities at a business and strategic level, not just the IT and operational level.”

In talking with EE Times, Washburn elaborated further:

“I did not hear much from Cisco on this topic, and it’s an important one since these players (Accenture and ABB, and the like) help utilities determine their smart gird strategy which ultimately drives technology and vendor decisions.”

But Cisco has drawn Accenture’s support. In a press release announcing its hardened networking gear, Cisco includes a salutary quote from David M. Rouls, managing director of Accenture Smart Grid Services:

“Accenture and Cisco have a shared Smart Grid vision. We believe that the inherent value in moving toward a Smart Grid is derived from securely transporting, integrating and analyzing the vast amount of information that results in the transformation from analog to digital. Accenture is particularly excited to enable the data management, event processing, and analytics functionality delivered with the Accenture Intelligent Network Data Enterprise (INDE) and leverage the advanced networking capabilities of the Cisco CGR 2010 for our utility clients.”

Besides, when it comes to entering new markets, Cisco knows the drill, even though this challenge might be qualitatively different from those that have preceded it.

Internet historians will remember that Cisco was once new to carriers. It had to develop domain expertise, develop and acquire new skills, and build and nurture new contacts and long-term relationships. It was largely successful in that endeavor, and it will follow a similar blueprint in attacking the smart-grid opportunity in the utility sector.

The company already is following the well-worn playbook, hiring utility insiders to join and lead its smart-grid team, obtaining essential skills and valuable customer contacts in the bargain. It’s building relationships with early customers, too, including three utilities that will use its new products  in substation automation trials.

Network World reported that both Cisco products, the router and the switch, start at about $6,000, with the router available in July and the switch available in August. Meanwhile, EE Times reported that the router starts at a list price of $7,800, with the switch prices starting at $5,300.

Cisco has taken a while to make a product splash on the smart grid. This first tangible foray might not have the superficial glamor of a home-energy management play, but it’s a logical first step that allows Cisco to build a bridge from its successful past into a potentially lucrative future.

HP’s Hurd Vague on 3Com Integration

In a previous blog post, I cited a Computing (UK) story suggesting that HP could take another 18 months to fully digest its acquisition of 3Com. Subsequently, many observers were interested in learning whether the post-acquisition integration would actually take that long. A few intrepid journalists even went to HP directly with questions on the matter.

By all accounts, HP has offered ambiguous answers. Even HP CEO Mark Hurd wasn’t particularly helpful when he was asked about the 3Com integration during his company’s earnings conference call earlier this week. What follows is an excerpt, borrowed from Seeking Alpha, of that exchange:

Richard Gardner – Citigroup

I was hoping you could give us an update on the 3Com integration just in terms of your plans and your progress with sales specialist hiring, getting the sales force trained on the new product portfolio and getting the product in front of customers in the U.S. and Europe and any color on early customer reception to the portfolio and how many customers are willing to take a look at it now that it’s under the HP umbrella.

Mark Hurd

Let me give you a quick trip through HP networking so I can try to give you context and fit 3Com into it.

Again, we have a continuation of strong performance in what we call pro curve HP networking. Edge products, wireless products saw 31% in the quarter. That’s organic, obviously very strong for us.

Simultaneously, it’s important to note that we’ve been building software capabilities in ESN. We talk about this product call Virtual Connect. It is nothing more complicated that – most of the networking market is sold by number of ports. Those ports aren’t always fully utilized. Virtual Connect actually virtualizes those ports.

So as a rudimentary example, if a customer is usually buying 10 ports, we can virtualize them and perhaps reduce that by 30% to 40% so they now need six ports. Our strategy is then to come in with the best performing products and the best TCO in the industry to then actually work with the customer on those ports.

Historically, we’ve been on the edge of wireless. Now with 3Com, we can do the exact same thing in the data center. So for us, we’ve had a very good start with 3Com. We have been aggressive in hiring, hiring has started, and hiring is ramping.

In the quarter, 3Com, we closed two fortune logo accounts with 3Com products in the data center. We also had a number of very significant wins on what you would think of as the traditional pro curve line, and had a very strong virtual connect quarter as well.

So the reason I bring that up to you is to give you context that our networking strategy isn’t a 3Com strategy. It’s not a pro curve strategy. It’s not a virtual connect strategy. It’s an all of those capabilities brought together across the HP portfolio and it’s why we talk about this converged infrastructure; that the ability to leverage IT from the server family, the storage family and the networking family became so integral to our overall story.

So we think a very good start, we’re very excited about it. We’ve installed products. The 3Com technology is now in our data centers and is now performing our networking tasks. We plan to do more and more of that and so we feel very excited about it, and specialist hiring is ramping.

Hurd says a lot but he doesn’t provide a detailed answer to the specific question that was asked. From Hurd’s reply, we can conclude . . . what, exactly? Well, things are off to “a very good start,” and HP is “very excited about it.”

Beyond that, however, we don’t get a lot of detail on how the integration is going, whether it has gone more smoothly in some areas  as opposed to others, and whether the field-sales teams have been integrated and properly trained to bring combined 3Com-ProCurve HP Networking solutions to customers.

We can only assume that Hurd is being intentionally vague. We’ll have to get the straight goods elsewhere. Meanwhile, we can speculate, which is what I’ll be doing in a subsequent post.

Components Shortages Affecting Vendors Worldwide

At the moment, components shortages seem to be pervasive in the technology industry. Vendors large and small, throughout most of the world, have been affected by them to greater or lesser degrees.

The problem appears to be with us for a while. To be best of my knowledge — and I will concede at the outset that my research hasn’t been definitive — vendors everywhere in the world are having difficulty sourcing adequate numbers of many types of components. The only exception is China, where vendors in telecommunications, cleantech, and other fields have not reported that same component-sourcing difficulties that have hobbled their counterparts in Europe, North America, and other parts of Asia.

That doesn’t necessarily mean that Chinese companies aren’t affected by components shortages. All it means is that they haven’t reported them, at least in the English-speaking media I’ve perused. Still, it’s a development that bears watching. In that China does not ascribe to the tenets of unfettered capitalism, it sometimes operates according to a unique set of rules.

Today’s component shortages span various semiconductor types, including but not limited to DSPs, FETs, diodes, and amplifiers. Vendors of solar inverters, particularly those based in Europe, also have been affected.

Meanwhile, Reuters reports that a shortage of basic electrical components could last into the second half of 2011, limiting the ability of telecommunications-equipment manufacturers to respond to improving market demand.

Reuters reports that memory chips and other fundamental components such as resistors and capacitors are in short supply after their makers slashed output, fired staff, put equipment purchases on hold or went out of business during the recession.

The shortages already have been blamed for weaker-than-expected results last quarter at telecommunications-equipement vendors Alcatel-Lucent and Ericsson, which really don’t need the added grief.

Alcatel-Lucent blamed components shortages for a large loss that it posted in its first fiscal quarter. Alcatel-Lucent’s CEO Ben Verwaayen said the said the shortages involved “everyday” low-cost components. He explained that most components come from China, where the manufacturing industry hasn’t been revamped since major cuts that followed the severe global downturn. 

We already know that the supply-chain issues that afflicted Cisco’s channel partners and customers were blamed partly on component shortages.

What’s more, Dell partly blamed shortages and higher costs of components, including memory, for its inability to maintain gross margins during its just-reported quarter.



And AU Optronics, Taiwan’s second-ranked LCD manufacturer and a supplier to Dell and Sony, reported that an LCD panel shortage is likely to last into the second half of this year.

By no means are those the only vendors affected. You only have read the recent 10-Qs or conference-call transcripts of companies involved in computer networking, telecommunications gear, personal computers, smartphones, displays, or cleantech hardware to understand that components shortages are nearly everywhere.

I just wonder — and I make no accusation in doing so — whether Chinese manufacturers are as affected by the shortages as are their competitors in other parts of the world.

As Belkin Ramps Home-Energy Management, Where’s Linksys?

As Belkin ramps up its smart-grid activities in electric-vehicle charging and home-energy management, an obvious question arises: Where’s Cisco?

Specifically, where’s Cisco’s Linksys unit, the business that competes against Belkin in the home-nettworking market with a portfolio of wireless routers and other access gear?

Linksys would be a natural player in home-energy management. In fact, it wouldn’t be a stretch to imagine Linksys offering home-energy management or vehicle-to-grid (V2G) applications in residential and commercial environments.

True, Linksys already has powerline products, which were reportedly involved in Cisco’s smart-grid, home-energy management initiative with Duke Power. Nearly a year ago, speculation mounted regarding the imminent arrival of Linksys-branded, home-energy solutions.

Those products have yet to arrive on the market, though. Here are some scenarios that attempt to explain the Linksys no-show.

1) Patience — they’re still coming.

For all I know, Cisco could be on the veritable cusp of making a major Linksys home-energy-management announcement. Such an announcement might have been planned for months, and it might be made within the next few weeks.

2) The best smart-grid opportunities are elsewhere

Cisco might think the smart-grid market’s low-hanging fruit does not include home-energy management systems connected to smart meters. Indeed, considering all the infrastructure upgrades at utility data centers, across transmission networks, throughout distribution facilities, and spanning mesh networks that connect everything together, Cisco conceivably could have more than enough on its smart-grid plate.

What’s more, the home market might prove a tougher nut to crack than the aforementioned areas, most of which are, to varying degrees, “now” markets.

In this scenario, Cisco is treating home-energy management as a secondary consideration, a market segment to be addressed at a later date.

3) Maybe an all-Cisco-branded solution is in the works

In a way, this scenario connects to the first one, and maybe even to the second. Perhaps Cisco is putting together a utility-friendly end-to-end solution that will omit Linksys-branded products. I don’t know whether this scenario is probable — the Linksys brand has consumer cache, and it could be leveraged accordingly — but it can’t be dismissed.

4) Perhaps Cisco is asleep at the switch

Cisco is busy on multiple fronts across a growing number of technology-related markets. It’s entirely possible that Cisco’s market reflexes have slowed, and that it was beaten to the punch by a nimbler rival.

It’s possible, but I’m not buying it. John Chambers and his team waste no opportunity to cite the smart grid’s commercial potential and to emphasize Cisco’s singular suitability to address it. I don’t think Cisco has forgotten about this market.

In all probability, a hybrid of scenarios one and two explains the low profile Linksys and Cisco have projected in home-energy management.

Strategic Logic in Juniper’s 3-2-1 Pitch

Earlier this week, Juniper Networks unveiled new switches, routers, software, and services, all of which were positioned as helping enterprises adapt their network infrastructure to increasingly virtualized application requirements. In Juniper’s worldview, that adaptation involves an evolutionary transition from relatively complex, three-layer networks to simpler, flatter, single-layer networks.

Junper calls it the 3-2-1 progression in network architecture.

The company isn’t quite ready to flip the switch to activate the one-layer network, but it’s moving its product strategy, channel partners, and customers in that direction. The marketing message benefits from clarity, not always a given among networking companies, and the vision is compelling. Juniper now faces the daunting challenge of execution in bringing its Project Status to fruition.

What is Project Status? Here’s David Yen, Juniper’s data-center strategist, discussing it:

Project Stratus is the ultimate simplification, trying to collapse all of the layers of Ethernet switching effectively down to one. So the data center fabric essentially becomes a gigantic logical single switch. You must have the playing field flat in the hierarchy, then you can really maximize the kind of automation to do the job. The other major direction that Juniper is working on is the application of automation. The foundational platform we launched in Juniper Space was designed to serve as the platform with appropriate database and appropriate Web application servers built in; and yes, it has a publicly supported BPI so both Juniper’s module and third-party modules can be plugged in to apply various policies and automation that customers desire. A few modules we started releasing are to help the customers monitor the data center network to help them quickly set up MPLS-type networking protocols.

Where does Juniper stand today on the road to Stratus? Light Reading’s Craig Matsumoto writes:

Stratus is a combination of products Juniper is developing with IBM Corp. The plan is to collapse the three-tiered data-center architecture (access, aggregation, and core) into one layer, by networking to view the entire data center as a single switch.

For now, Juniper claims it can merge the aggregation and core layers, creating a two-tiered data center, by using the virtual chassis capabilities of its EX line — that is, by linking switches together into a multichassis box.

So, we’re at the “2” in Juniper’s  “3-2-1” data-center progression, having subsumed aggregation into the network core. Nonetheless, Project Stratus, first mentioned more than a year ago, appears to be at least a year away from commercial exposure.

In some ways, Project Stratus appears to be Juniper’s Xanadu. Maybe that’s not fair, because Juniper says it’s a genuine destination, that it can be found on the product and strategy roadmaps, and that we’ll arrive there soon enough. What was announced earlier this week — in the form of routers, 10-GbE switches, and software and services — was an intermediate step on the journey. In and of themselves, according to Juniper, those new products and services will help customers flatten their network fabrics to improve performance and decrease costs.

These products offer qualitative benefits to customers, and Juniper is working hard to quantity the savings and value the new offerings deliver.

On the software front, Juniper has introduced four JUNOS Space applications: Virtual Control, Ethernet Design, Security Design and Services Insight.

Virtual Control facilitates integration with VMware to manage physical and virtual systems from a common orchestration platform; Ethernet Design and Security Design support allow for configuration and deployment of data-center networks and attendant security policies; and Service Insight is intended to enable proactive detection, diagnosis, and resolution of network problems.

From a strategic standpoint, Juniper’s JUNOS software, including these new offerings, is meant to imbue network plumbing with automated intelligence, thus transforming it into something other than network plumbing. Juniper wants to orchestrate what and where it can, not only to provide more value to customers and to compete more effectively against Cisco and HP/3Com, but also because it needs to keep its server and storage partners (IBM and Dell foremost among them) from gravitating toward dumber, commodity-oriented network plumbing.

Along similar lines, Juniper announced new software for its SRX Series Services, providing IT managers visibility into application and data flows that are being reconfigured by virtualization and cloud computing.

Regardless of why Juniper is shifting the focus from speeds-and-feeds hardware performance to software-based network-management automation, the company is doing the right thing. The race for hardware bragging rights is a confusing and tiresome game of leapfrog that ends in Pyrrhic victory. It’s really a race without end that produces evanescent differentiation and relentless commoditization.

Many customers end up fixating on the wrong things, buying gear for the wrong reasons.

Surely somebody in this industry remembers what happened to the technical-workstation market. At one point, all the vendors thought it was about brutish hardware performance, but what mattered to customers were applications. (And, of course, that same script has been followed in the smartphone market.)

Just as we discovered that the value of the workstation or the smartphone was inextricably linked to and commensurate with the applications the devices could run, we’re finding now that the value of network infrastructure is similarly twinned to the increasingly virtualized and cloud-migrating applications that they support. Port density and raw performance aren’t unimportant considerations, but they aren’t what will redefine value or establish a new pecking order in the network-vendor firmament.

I think Juniper understands that. HP probably does, too, but it’s playing a different game. I could be wrong, but I think many within HP want the network to get cheaper and faster, but not necessarily smarter. HP, especially now that it owns 3Com, wants to commoditize the network. Intelligence, management, and orchestration are necessary in the data center — providing support virtualization and cloud services — but HP, I suspect, wants the network to play a relatively modest role in the endeavor, at least for the time being. In networking, HP will lead with price and seek to bash its competitors’ margins in a war of attrition.

Understandably, that’s not a game Juniper or Cisco wants to play. What’s important for Juniper is not what HP thinks, not even what Cisco thinks, but what its customers and partners think. To the extent that Juniper can satisfy customers, it ill retain the loyalties its channel and OEM partners.

The whole 3-2-1 message, and Juniper’s march toward Project Status, makes sense. It’s surprisingly consistent and lucid for a company that came of age in the carrier space and was noted, at least until recently, for hard-core network-engineering esoterica.

Back to Smaller Buys for HP?

I read earlier today that HP will take another 18 months to digest its 3Com acquisition. At the same time, HP must figure out how best to leverage the assets it acquired from Palm.

3Com was a bigger purchase, and one that is integral to HP’s desire to topple Cisco from its networking throne. Still, Mark Hurd’s HP doesn’t act on capricious whims, so I suspect an abundance of resources and thought will go into trying to ensure that Palm doesn’t become HP’s mobile white elephant. Even so, Palm might come to naught — or simply not enough.

The point is, HP has considerable integration work to do on two major fronts. While I don’t expect the computing conglomerate to stop fishing M&A waters, I think it will look to hook smaller deals rather than anything more ambitious, at least for the time being.

An article by David Goldman at CNNMoney.com covers similar ground. In discussing how HP’s colossal size inhibits fast-paced growth, Goldman suggests that HP might continue to seek growth inorganically, through strategic purchases. The problem is, HP is constrained by a diminished pool of cash reserves ($14 billion), competitive engagements on multiple fronts, and the need to properly integrate and assimilate its non-trivial 3Com and Palm acquisitions.

Regarding a potential acquisition of Teradata to fill a database hole in HP’s product portfolio, Goldman quotes Mark Kelleher, analyst at Brigantine Advisors:

“HP really has its hands full with integrating 3Com and Palm. I don’t see them pivoting towards a fight with Oracle, especially since HP has really made a concerted effort to take on Cisco.”

There’s a lot of logic in that argument. Unless HP has gone mad with hubris, it probably will pursue tuck-in acquisitions rather than costlier, ambitious ones that open major new competitive fronts.

A logical question is, what — besides obvious criteria — demarcates a tuck-in acquisition from a larger purchase? Part of the answer is valuation, I think, and part of it relates to target market.

If the market capitalization of a target acquisition is more than $5 billion, now is probably not a great time for HP to make the move. Similarly, if HP is buying into a space that is established but new to HP —  and, as a result, would involve protracted competitive warfare against well-entrenched players — now probably is not the best time for that sort of challenge. HP needs to fully digest 3Com and Palm, and it needs to ensure that those acquisitions serve their strategic purposes.

Still, that leaves HP with enough room to play the market, and to bolster and extend its capabilities in areas where it’s already active.

HP Dumps Cold Water on Smart Grid

If the nascent smart-grid market is afire with hype, HP Is doing its utmost to throw cold water on the blaze.

Speaking at HP’s annual Executive Energy Conference in Dubai this week, Ian Mitton, HP’s utilities industry director and global lead on smart grid technology, said smart-grid security has been an “afterthought” in early deployments and that “projects are not happening fast enough,” according to a report in eWeek Europe.

When it comes to HP and the smart grid, we can go one of two ways with our interpretation. We can conclude that HP is right, that security has been overlooked and that market adoption has been tepid; or we can conclude that HP is denigrating smart-grid security and the overall market because it is late to an increasingly festive party.

Then again, maybe both conclusions are valid. They aren’t mutually exclusive, after all. In some parts of the world, such as Asia and North America, the smart-grid market is exhibiting relatively strong growth, whereas market vitality is less in evidence in many European jurisdictions.

What’s interesting, though, is that 3Com’s H3C, which HP now owns, is said to be well positioned to benefit from booming smart-grid expenditures in China. As the 3Com integration proceeds, HP’s tune on the smart grid might change.

Examining Analogies Between Internet and Smart Grid

In the summary paragraph of a perspective piece he wrote for Greentech Grid, John Steinberg, the CEO of EcoFactor, makes the following claim:

The Internet, the growing importance of the user experience, and the entrance of large tech companies should all be seen as good omens for the future of the smart grid.  These trends will lead to better products and services, which will in turn drive consumer adoption. And consumer adoption will be the key to fulfilling the environmental and economic potential of the smart grid.

For the most part, I agree with Steinberg, though, as the CEO of a software-as-a-service (SaaS) platform vendor offering consumer-oriented smart-grid solutions, he admittedly has a vested interest in promoting his argument.

I am perhaps not as sanguine as Steinberg on two points. In his commentary, he compares the early Internet service providers and their walled gardens — the likes of CompuServe, Prodigy, and AOL — with today’s utilities. His argument is that just as the Internet occasioned the demise of walled gardens and their purveyors, Internet-based technologies providing the communications infrastructure for the smart grid will bring about a similar fate for utilities that resist demands to provide consumers with third-party, energy- and money-saving applications and services.

To a point, I accept that argument. That said, I’m not entirely certain that the aforementioned service providers are completely analogous to today’s utilities. The utility sector is probably the most highly regulated of any industry in the Western world. Any change that comes to the industry will not happen overnight. While I agree that Internet technology will unleash tremendous innovation and valuable services for energy consumers, I suspect the pace of change in the utility sector will be significantly slower than what we experienced in the Internet ecosystem.

In a similar vein, Steinberg asserts that incursions into the smart grid by information-technlogy giants Google, Cisco, and Microsoft represent both validation of the smart-grid market opportunity and a sign that said market has reached a critical phase of maturation. I accept the first premise, but I am skeptical of the second.

Cisco, for example, recognizes the vast growth potential of the smart grid, but it has yet to find a means of tapping into it meaningfully.  Cisco will figure it out, I’m sure, but the company is still learning about the energy business and utilities. It’s a radically different space than anything Cisco has tacked previously, and I think the leadership is Cisco is realizing that it must listen and learn before it prescribes nostrums.

Meanwhile, Google and Microsoft are making similarly measured moves.

There’s real promise in the smart grid, and liberating change will come to the utility industry. However, as Gartner might say, technology vendors seeking fortune in the space should expect to travel through a trough of disillusionment before ascending a slope of enlightenment.