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.

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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.

Nortel Plays Its Last Hand as it Solicits Bids for LTE Patents

I’m trying to make sense of the latest strategic leaks form the cratered, smoking compound once known as Nortel Networks.

Dow Jones Newswires reported last week that, “according to people familiar with the matter,” Nortel has yet to decide whether it will sell its remaining patent portfolio, which includes a large number of potentially valuable LTE patents, or to license them as part of the newfangled lawyer-driven business model that is all the rage in the courtrooms of East Texas.

Here’s an excerpt from the Dow article, as published online by the Wall Street Journal:

Nortel, which is being advised by Lazard and Global IP Law Group, is divided internally over whether to sell some or all its patents or whether to retain ownership and monetize the portfolio through a licensing program, according to people familiar with the matter. “There are still people at the company that want to license (the patents),” said a person familiar with the matter, adding that the portfolio consists of about 4,000 issued patents worldwide.

The solicitation of bids is aimed at determining how much the patents might fetch in an outright sale, the person added. “If they don’t get much interest,” the company will push for a licensing strategy, the person said. Ultimately, the fate of the portfolio rests with creditors.

But there’s the key to understanding what is likely to happen. If you were a Nortel creditor — and, for all I know, some of you might actually be Nortel creditors — which option would you prefer? Would you rather sell the patent portfolio, perhaps for somewhere in the vicinity of $1 billion (a nice neighborhood, by all accounts) to somebody like Research In Motion; or would you take your chances on a licensing business that will defer your financial gratification and realize diminishing returns on assets that will depreciate over time?

All things considered, you smart folks would want to pursue the sale, presuming you can attract a sufficiently attractive bid for the patent portfolio. That’s what I suspect all this talk about going into the licensing business is intended to achieve.

Nortel’s advisors at Lazard and Global IP Law Group aren’t saddling up for their first rodeo, and they want to set the stage for a bidding war that will ensure Nortel’s creditors get full value for what remains of the once-formidable company’s remaining intellectual property. They’re already soliciting bids, employing a stringent NDA that insists upon confidentiality regarding signing of the NDA itself as well as of the talks it facilitates.

Nortel and its creditors will be hoping an attractive offer precludes the company from having to become an IP-licensing outfit.

Palm’s Review of Merger Talks Warrants Skepticism

In its preliminary merger proxy, a recent filing to the SEC, Palm and its investment-banking agents try to make it seem as though there had been frenzied competition to buy Palm right up until HP finally made its successful final bid.

I think you should treat these claims with a healthy dose of skepticism. Allow me to explain my reasoning.

First, it is in Palm’s fiduciary interest to demonstrate that it left no stone unturned in pursuit of the best possible deal for its shareholders. Palm wants to avoid lawsuits from aggrieved shareholders, and it wants to make the case that it did everything within its power to identify and negotiate the best outcome.

For the record, I think Palm did right by its shareholders, but I realize the company still feels compelled to gild the lily in making its case.

Second, Palm suggests that all companies with which is spoke were potential acquirers. However, if you parse the language, my friends, you will discover, in the phraseology of a passe bit of vernacular, that it wasn’t all that.

Here’s a direct excerpt from the SEC filing:

From February 25 to April 1, Palm management, Goldman Sachs and Qatalyst Partners were in contact with a total of 16 companies including HP. Of these, six companies, including HP, entered into nondisclosure agreements and participated in meetings with Palm and its advisors to review non-public information concerning Palm regarding a strategic transaction. . . .

At least 11 of those 16 companies were never seriously in the running for Palm. They could not even be bothered signing non-disclosure agreements (NDAs), which are hardly signifiers of impending M&A transactions.

Even those companies that signed NDAs were indicating merely that they wanted to do deeper dives, to see what was under Palm’s kimono. In signing NDAs, they were not committing to bids. They were just gathering information to see whether Palm might be attractive for any one of a number of commercial arrangements, including strategic partnership, licensing pact, or — potentially, if everything looked good and the stars aligned — an acquisition.

But, as anybody who’s done any degree of business development will tell you, an NDA is just an NDA. It facilitates disclosure and potentially deeper discourse, but that’s all it does.

The way I read the Palm sale, several companies were willing to look at Palm, but only three had any meaningful interest in an outright acquisition of Palm. The others were kicking tires, trying to gain market intelligence, or were interested, at least superficially,  in a partnership or a licensing arrangement.

When push came to shove, HP was alone, despite a belated acquisition bid from a company that initially had been interested in licensing intellectual property from Palm.

So, while HP was not alone in the starting gate of the Palm Derby, it quickly established a widening lead position. Other parties had varying degrees of interest in Palm, but I don’t think HP was ever in serious danger of being overtaken.