Fear and Loathing in 3PAR Bidding War

Fear walks tall, wears steel-toe boots, and carries a baseball bat in the showdown between HP and Dell for ownership of 3PAR.

Keeping tabs on the escalating bidding war isn’t easy, but as of this morning HP assumed the pole position, with a counterbid that values 3PAR at $30 per share,or a whopping $2 billion. If Dell follows its established form in this saga, it will match HP’s bid and regain the upper hand. What happens after that is anybody’s guess.

By this point, talk of price-to-revenue or price-to-earnings multiples is beside the point. The winning bidder, even if does reduce 3PAR’s production costs and increase its sales footprint significantly, will have a difficult time justifying the transaction on the basis of quantifiable business metrics. This has become a strategic play, as much about keeping 3PAR away from the other guy as about its intrinsic business value.

3PAR as Chess Piece

That’s not say 3PAR doesn’t have business value. Clearly it does. A stable of high-profile enterprise and service-provider customers have adopted its technology, and the company is seen as the best entrant in a limited filed of high-end storage players that are available for acquisition.

Still, as a chess piece on the data-center convergence board, how valuable is 3PAR? Does it, in and of itself, reinvent or change the game? Is it a unique asset that confers long-term account control and sustainable competitive advantage for years to come?

There’s probably some of that value to be had here, yes, but not on the scale of, let’s say, Cisco’s $95-million acquisition of Crescendo in 1993, which begot the ever-growing line of Catalyst switches, enterprise-networking market dominance, billions of dollars in annual revenue, and seemingly endless tributaries of profitability.

Then There’s Fear

I just don’t see 3PAR on that scale. So, if sunny optimism and visions of bright tomorrows aren’t driving Dell and HP to engage in this duel, what is? Well, there’s greed and then there’s fear. This feels a lot like fear.

Both vendors are afraid of being squeezed in high-end storage. They’re afraid of each other, and they’re afraid of other parties not directly involved in the transaction. There’s no question, for example, that Cisco and EMC are haunting these proceedings.

In expressing their covetousness for 3PAR so publicly, Dell and HP are exposed, their desires and discontents disclosed for all to see. They’ve sent some clear signals to the market that will not be misconstrued by current — perhaps soon to be erstwhile — partners.

Desires and Discontents

Let’s start with Dell. It can say all it wants about how its relationship with EMC is perfectly fine, but anybody with eyes can see that Dell is building a storage portfolio that will be arrayed (pardon the pun) against EMC across the known universe, from SMBs all the way up to the largest enterprise accounts. The fact is, Dell’s relationship with EMC has been strained for a while, and it will get worse. Another fact is that even though Dell doesn’t carry EMC’s Symmetrix, it will be selling a competing product if it wins its battle against HP for 3PAR. I’m sure EMC is paying attention.

As for HP, it’s clearly not content with the foundering performance of its midrange EVA platform or with its arrangement as a reseller of Hitachi Data Systems’ Universal Storage Platform (USP). There are probably at least a couple reasons for HP’s dissatisfaction with the Hitachi relationship, but it’s apparent that the marriage is in serious trouble. Dave Donatelli — HP’s head of enterprise servers, storage and networking (ESSN) — has a wandering eye for hot high-end storage, and he’s doing more than looking in his amorous pursuit of 3PAR.

Again, I’m sure Hitachi has noticed these developments. If it were smart, it would make contingency plans to account for a potential loss of HP’s business. Even if that doesn’t happen now, as a result of HP’s acquisition of 3PAR, it’’s bound to happen later. It’s just a matter of time.

Fear is a stern taskmaster, He’ll continue to drive his fair share of vendor combinations and machinations in the converged data center.

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Pondering an Information-Age Depression

I have been busy lately. That’s good, because when I have had lulls in the action recently, I’ve been assailed by dark visions of a dystopian economy. These gloomy presentiments have been sufficiently jarring to induce hyperventilation and panic attacks.

Then again, I’m probably neurotic . . . and I use the word “probably” as a weak qualifier.

Still, the economic outlook is tenebrous. The difference between best- and worst-case scenarios isn’t pronounced, with the best-case scenario an extended period of stagnant or low growth. The worst-case scenario? If one gives credence to the ruminations of Gluskin Sheff economist David Rosenberg, we’re looking at an information-age, 1930s-style Depression (Big D).

Prone to Optimism

As Rosenberg notes, human beings are prone to economic optimism. We’re hardwired to perceive every evanescent blip as a sign of recovery. That keeps our hopes up, but it doesn’t change the fundamental economic reality, which reasserts itself like a marauding interloper at a dinner party.

So, I got to thinking — as I am inclined to do — about what this means for the technology industry, particularly for enterprise and data-center spending. If we’re about to scuffle along the floor of the Valley of Despond for a lengthy period, what is it likely to mean for IT budgets?

Obviously, they will be severely constrained, under the unrelenting jackboot of austerity. Nonetheless, a plausible case can be made that enterprises will be looking at technology investments as vehicles that can help them ride out the storm. The focus, in IT as in much else, will be on mechanisms and tools that help reduce, or at least contain, capital and operating expenditures.

Mumbo-Jumbo Won’t Work

Virtualization, in its many guises, can help with the former, but it will need to be assisted by improved data-center automation and centralized management if it is to have anything meaningful to contribute to the latter. As for cloud computing, it should gain favor gradually, but it will meet strong resistance from enterprises concerned about security and privacy issues. As for the private cloud, it’s like a twisted Rorschach test: each vendor sees it differently and tries to persuade their customers to see it the same way. Customers, as always, need to focus on business benefits and not get distracted by the marketing mumbo-jumbo.

That sort of thing, by the way, is less likely to work than it has in the past. Somewhere along the enterprise chain of command, somebody holding the purse strings will be asking tough questions about value, investment protection, and ROI. Vendors that hide behind buzzwords, and can’t provide specific answers to direct questions, won’t get their share of what business there is to be had.

I’m spending some time really thinking about how a prolonged period of economic turbulence and uncertainty will affect the industry. If vendors haven’t made the adjustment already, they’ll have to adapt to a new normal that doesn’t feel like anything we’ve experienced before.

Sweet and High: The Bidding War for 3PAR

All signs suggest that Dell will fire a return volley in the bidding war between it and HP for ownership of 3PAR. Recent evidence can be found in a Bloomberg article that cites a person “familiar with the matter” who says Dell is preparing a sweetened offer for the apparently sough-after vendor of high-end storage.
A  sweetened offer? If the offers for 3PAR get any sweeter, investment bankers involved in the deal will suffer from diabetic shock.

$2 Billion?

Meanwhile, the market sends its own compelling signals that Dell isn’t done with 3PAR. On a down day, 3PAR shares are up, trading at a level that assigns the company a current market capitalization (as of 12:53 pm EDT) of $1.68 billion. HP’s proposal for 3PAR values the company at about $1.6 billion, so market sentiment suggests the tug of war will continue.

Could Dell go as high as $2 billion in its pursuit of 3PAR? It seems like madness, but that’s what some market watchers and Dell aficionados believe will happen.

Let’s say Dell does decide to trump HP’s counteroffer. What will HP do? Opinion on that question is split, with some saying HP will go even higher and others suggesting that HP would back away from the table, content to see Dell overpay spectacularly to win the duel.

Sincerity or Duplicity?

The thinking from one camp, in fact, is that HP is angling for that very outcome. If, after putting 3PAR on its corporate mantelpiece, Dell were to want to add, let’s say, network infrastructure to its data-center solution stack, its options would be restricted by what it spent to acquire and integrate 3PAR. Indeed, after closing a $2-billion deal for 3PAR,  Dell would be on notice to show investors that the gambit was more than a vanity purchase.

But I doubt that HP is playing a maniacally devious game of M&A brinkmanship. If one considers what HP spent to acquire 3Com and Palm, it’s a company that isn’t afraid of paying top dollar to obtain assets it wants to buy. My thinking is that HP is in the race for 3PAR because it wants to own the company, not because it’s trying to drain Dell’s piggy bank.

That said, would HP go above $2 billion to claim the prize from Dell? Don’t ask me. I thought we’d hit nosebleed altitude on this transaction long before now.

Sometimes a Deal is Just a Deal

What I think we see today at The New Times is an instance of a writer and his editors trying to find a pattern where none might exist.

The muddled result is reflected in the headline: “Are Mergers Back? Well, Sort Of.” The writers tries a variety of hypotheses, but his main thrust is to find confidence and optimism among an alleged tumult of M&A activity during the month of August.
However, as comments from prominent investment bankers quoted in the body of the story make clear, sometimes a deal is just a deal. Each one happens for its own reasons, and sometimes its significance doesn’t extend further than its own narrow specificity and frame of reference.

Seeing What We Want to See

As humans, we all like to see associations and patterns in what happens around us, whether we’re observing events in business, economics, politics, or technology. Occasionally, however, we see what we want to see, not what’s really there. I think that’s what happened in the New York Times today.

The writer wanted to see a new wave of market confidence in a putative surge of M&A activity.  There are two problems, though: The supposed surge might be nothing more than an uncoordinated spasm, and the confidence might not exist.

Reading the comments of the industry luminaries cited in the story, one could make a case that many of the latest mergers are driven as much by considerations of efficiency and savings as by any anticipation of robust market growth.

Market Wants a Bidding War, but Should Dell Raise Stakes?

As 3PAR’s stock price ascended for much of today, it became obvious that the market, in its abstract and aggregate wisdom, had determined that Dell would not shrink from a showdown with HP over ownership of the virtualized-storage vendor.

HP and Dell both have their reasons for wanting to take 3PAR off the market.

Dell is thought to be desperate to have its own high-end storage offerings rather than have to sustain an increasingly strained reseller relationship with EMC. In addition, Dell wants to burnish its bonafides as a legitimate big-money datacenter player, moving beyond its traditional business market among the SMB set. The margins that could be derived from 3PAR’s storage business are attractive to Dell, which believes it could significantly expand 3PAR’s market presence.

Meanwhile, HP is considering its own options — it sells Hitachi storage gear at the high end of the market — and it has strategic reasons for cutting Dell off at the pass.

EMC Disapproves

None of the other major players, including Oracle and IBM, is thought to have interest in entering a bidding war. For its part, EMC is tut-tutting censoriously from the sidelines, publicly deriding Dell and HP for their showy extravagance.

So, it’s up to Dell to raise the stakes or fold. After hours tonight, the market is unsure which way Dell will go.

Whatever Dell chooses to do, it must not lose its head. Business decisions are supposed to make business sense. As a Computerworld article today noted, 3Par reported $194.3 million in revenue for the fiscal year that ended March 31.  The HP bid that topped Dell’s original proposal represents a valuation more than eight times greater than 3PAR’s fiscal year revenues. (3PAR has had trouble making money, so let’s dispense with a discussion of earnings.)

Reason over Passion

Dell, even though it has nearly as much cash on hand as does — $10.88 billion to HP’s  has $14.17 billion — can’t afford to get crazy. It must spend its cash wisely if it its to fill enterprise gaps and compete across the data center. Spending madly for 3PAR would come back to haunt Dell at a later date.

If Dell truly believes 3PAR is a rocket ship destined for supercharged revenue liftoff, then it can justify an escalation in its bidding war against HP. But can it do that? Or would it just be a case of Dell trying to save face, attempting to win a pissing match against its bigger rival? It sure feels like testosterone might be getting the better of reason at the moment down in Round Rock.

Meanwhile, there’s some debate as to whether Dell and HP have other options. Some say they do, and point to Isilon and Compellent as purveyors of highly virtualized storage systems. Others argue that 3PAR is the best of the bunch, deserving the special attention it has received.

Either way, Dell should weight its next move carefully. It it ups the ante, it just might have to pay the price.

3PAR Shareholders Dance Jig of Joy

3PAR shareholders must be doing a vigorous jig of joy.

Even if Dell’s previously announced acquisition of the company, for approximately $1.15 billion in cash, had gone ahead, 3PAR would have achieved a rich premium on its pre-buyout valuation. Now, though, with HP belatedly rushing back to the negotiating table — apparently HP had discussed acquiring 3PAR before Mark Hurd’s alleged indiscretions came to light — 3PAR’s backers stand to make out like highway bandits. (Actually, they’ll make out like highway bandits on a poorly policed, well-traveled thoroughfare used by affluent commuters in luxury vehicles.)

Indeed, news hit the wire this morning that HP has proposed to acquire the cloud-centric virtualized-storage vendor for $24.00 per share in cash, or an enterprise value of $1.6 billion. That amounts to approximately 33 percent more than Dell had proposed to pay, which represented a whopping 85-percent premium on 3PAR’s closing price immediately before that apparently short-lived deal was announced.

HP Waives Termination-Fee Provision

HP is proposing acquisition terms that are identical to those Dell specified save for one exception: HP dropped a provision for a termination fee. Speaking of which, now that it appears HP has waylaid Dell on the way to the altar, the latter will qualify for special dispensation of $53.5 million from 3PAR for refusing to consummate the corporate union.

Effectively, that breakup fee will transferred from HP to 3PAR to Dell. Some 3PAR shareholders might be upset at seeing their mountain of lucre slightly diminished as a result of the payout, but I’m fairly confident they’ll get over it.

Pondering Intel’s Grand Design for McAfee

Befuddlement and buzz jointly greeted Intel’s announcement today regarding its pending acquisition of security-software vendor McAfee for $7.68 billion in cash.

Intel was not among the vendors I expected to take an acquisitive run at McAfee. It appears I was not alone in that line of thinking, because the widespread reaction to the news today involved equal measures of incredulity and confusion. That was partly because Intel was McAfee’s buyer, of course, but also because Intel had agreed to pay such a rich premium, $48 per McAfee share, 60 percent above McAfee’s closing price of $29.93 on Wednesday.

What was Intel Thinking?

That Intel paid such a price tells us a couple things. First, that Intel really felt it had to make this acquisition; and, second, that Intel probably had competition for the deal. Who that competition might have been is anybody’s guess, but check my earlier posts on potential McAfee acquirers for a list of suspects.

One question that came to many observers’ minds today was a simple one: What the hell was Intel thinking? Put another way, just what does Intel hope to derive from ownership of McAfee that it couldn’t have gotten from a less-expensive partnership with the company?

Many attempting to answer this question have pointed to smartphones and other mobile devices, such as slates and tablets, as the true motivations for Intel’s purchase of McAfee. There’s a certain logic to that line of thinking, to the idea that Intel would want to embed as much of McAfee’s security software as possible into chips that it heretofore has had a difficult time selling to mobile-device vendors, who instead have gravitated to  designs from ARM.

Embedded M2M Applications

In the big picture, that’s part of Intel’s plan, no doubt. But I also think other motivations were at play.  An important market for Intel, for instance, is the machine-to-machine (M2M) space.

That M2M space is where nearly everything that can be assigned an IP address and managed or monitored remotely — from devices attached to the smart grid (smart meters, hardened switches in substations, power-distribution gear) to medical equipment, to building-control systems, to televisions and set-top boxes  — is being connected to a communications network. As Intel’s customers sell systems into those markets, downstream buyers have expressed concerns about potential security vulnerabilities. Intel could help its embedded-systems customers ship more units and generate more revenue for Intel by assuaging the security fears of downstream buyers.

Still, that roadmap, if it exists, will take years to reach fruition. In the meantime, Intel will be left with slideware and a necessarily loose coupling of its microprocessors with McAfee’s security software. As Nathan Brookwood, principal analyst at Insight 64 suggested, Intel could start off by designing its hardware to work better with McAfee software, but it’s likely to take a few years, and new processor product cycles, for McAfee technology to get fully baked into Intel’s chips.

Will Take Time

So, for a while, Intel won’t be able to fully realize the value of McAfee as a asset. What’s more, there are parts of McAfee that probably don’t fit into Intel’s chip-centric view of the world. I’m not sure, for example, what this transaction portends for McAfee’s line of Internet-security products obtained through its acquisition of Secure Computing. Given that McAfee will find its new home inside Intel’s Software and Service division, as Richard Stiennon notes, the prospects for the Secure Computing product line aren’t bright.

I know Intel wouldn’t do this deal just because it flipped a coin or lost a bet, but Intel has a spotty track record, at best, when it comes to M&A activity. Media observers sometimes assume that technology executives are like masters of the universe, omniscient beings with superior intellects and brilliant strategic designs. That’s rarely true, though. Usually, they’re just better-paid, reasonably intelligent human beings, doing their best, with limited information and through hazy visibility, to make the right business decisions. They make mistakes, sometimes big ones.

M&A Road Full of Potholes

Don’t take it from me; consult the business-school professors. A Wharton course on mergers and acquisitions spotlights this quote from Robert W. Holthausen, Nomura Securities Company Professor, Professor of Accounting and Finance and Management:

“Various studies have shown that mergers have failure rates of more than 50 percent. One recent study found that 83 percent of all mergers fail to create value and half actually destroy value. This is an abysmal record. What is particularly amazing is that in polling the boards of the companies involved in those same mergers, over 80 percent of the board members thought their acquisitions had created value.”

I suppose I’m trying to say is that just because Intel thinks it has a plan for McAfee, that doesn’t mean the plan is a a good one or, even presuming it is a good plan, that it will be executed successfully. There are many potholes and unwanted detours along M&A road.

Dell and HP Face Direction, Leadership Questions

Quarterly earnings results are on tap later today from Dell and HP. While the two companies would never be confused for twins, they have much in common. Not only do they sell similar products into similar markets, serving similar types of customers in the process, but both are bedeviled by serious questions about direction and leadership.

At HP, of course, the strange circumstances surrounding the sudden departure of former CEO Mark Hurd continue to generate more questions than answers. The details and machinations behind Hurd’s ouster might never be known. That presents a problem for a public company, because shareholders don’t usually like the firms in which they invest to be enveloped in a fog of murk, mystery, and intrigue.

For HP, the game of Clue will have to end. Whatever Mr. Hurd might have done, and how and where he might have done it, will have to take a decisive back seat to issues pertaining to HP’s direction, focus, strategies, and tactics. Investors and market watchers will be looking for clear indications tonight, when the company conducts its conference call with analysts, that HP has a firm hand on the tiller and is heading in the right direction. Given what’s transpired in the last couple weeks, HP will have to place particular emphasis on candor and clarity in its communications this evening. The substance of the message is always important, but tone now is critical for HP, too.

Nobody is Indispensable

My own view is that CEOs are like quarterbacks on football teams. They tend to get too much credit for corporate successes and too much blame for setbacks. Honest CEOs who’ve enjoyed success will tell you that they’ve been surrounded by excellent teams that contribute to the plans and bring the execution to fruition. The business media, though, likes to personalize and simplify, so it tends to focus on the CEO as the apotheosis of corporate culture. That’s not really how or why technology companies are successful, but it makes for good copy. The truth is, nobody is indispensable.

On Cisco earnings calls recently, I’ve noticed that CEO John Chambers has been giving prominent credit to his bench strength, noting the contributions of specific executives who run various parts of the company.

As much as it might pain it to do so, HP should follow Cisco’s lead and correct the ridiculous media misconception that the company’s wheels will fall off now that Mark Hurd isn’t sitting at the front of the bus. Considering that too much Mark Hurd might well have been a bad prescription for what had begun to ail HP, I think HP should be confident in showing that it knows how to correct its course.

No More Frankentablets

As for Dell, leadership issues also are on the front burner. About a quarter of votes cast at Dell’s recent shareholder meeting withheld support for Michael Dell’s re-election to the company’s board. The company’s shares are down a staggering 50 percent from where they stood in August 2008, and Dell recently paid $100 million to settle a government probe into questionable accounting practices.

Alleged accounting shenanigans aside, I think the primary problem for Dell is one of focus. It tries to have the breadth of an HP, but it doesn’t have the resources to pull it off. LIke a lot of other market watchers, I’d like to see Dell show more solution focus and market discipline.

The company is going nowhere in consumer markets. The Streak, for example, looks like something hatched by a committee that couldn’t decide whether it wanted to devise a smartphone or a tablet. Consequently, it wound up producing a Frankentablet with a five-inch display.  I have a feeling it came as much from Dell’s ODM partners as from its own design labs.

I know it won’t happen on this call — certainly not with the current composition of Dell’s board of directors — but I’d like to see the company recognize, for once and for all, that it’s out of its depth in the consumer space. I’d like to see it turn its attention, focus, and resources to the SMB and enterprise markets, and to further enhancing its evolving virtualization and cloud strategies.

It won’t happen, but it should.

Dell’s 3PAR Buy Like a Blast from the Past

The storage space received a jolt today when Dell announced it would pay a whopping $1.15 billion in cash to acquire 3PAR, whose data-center storage technology competes against offerings from EMC, IBM, and HP.

There are several interesting aspects to this deal, and I’ll touch on a few of them briefly.

First off, Dell is paying dearly, quite literally, for 3PAR. The acquisition price represents an 87-percent premium on 3PAR’s closing stock price last Friday. That sort of acquisition premium is a blast from the past, taking us back to the days of wine and roses in Silicon Valley, when slick spivs cut wild M&A deals with blistering frequency and reckless abandon. It harkens back to a time when men such as Frank Quattrone bestrode the Valley like mythical colossi.

Party Like It’s 1999

Wait, what’s that? Frank Quattrone was on the sell-side of the Dell-3PAR deal, ensuring that his client got fair value for its technological wares? Then I suppose it’s deja vu all over again. For one day, at least, Quattrone and his merry band of investment bankers can pretend that we’ve gone back to a more salubrious time, when the next big transaction was, in more ways than one, right around the corner.

Let’s give Mr. Quattrone his due, though. If he got aboard the time-travel machine and went back to the late 90s, he got his Dell counterparts to make the journey with him. They certainly whipped out their rolls of cash like drunken brokers . . . well, never mind. Let’s not go there.

All things considered, however, I’m surprised Dell paid such a rich price for 3PAR. Dell must have thought it was a necessary measure, for whatever reason. Perhaps Dell was convinced that another company — HP, for instance — was competing for the deal. It would be good know what precipitated the preemptive strike. (Even though the deal seems rich by today’s standards, not everybody associated with 3PAR is pleased with it, much to the delight of litigious lawyers — are there any other kind? — everywhere.)

Dell and EMC Part Ways

My second observation is that the 3PAR deal, no matter what Dell says publicly, suggests that its reseller relationship with EMC is in serious trouble. It’s been a fraught relationship for a while now, and Dell  must have concluded that the prognosis wasn’t good. Rather than wait for the inevitable acrimonious divorce, Dell decided to throw down the gauntlet and start the recriminations early. If you’re going to go to war you might as well fire the first salvo.

In the end, I suspect Dell felt it could not compete with Cisco for EMC’s affections. That probably was an accurate assessment. With EMC about to be kicked into touch, Dell needed an alternative for its high-end storage customers — something it could control and own — and 3PAR was an obvious choice.

Dell’s Valley Presence

Finally, as 3PAR’s Marc Farley wrote on his StorageRap blog, Dell apparently will leverage 3PAR’s location as well as its technology. The thinking is that Dell will expand both the business and the engineering teams at 3PAR’s headquarters in Fremont, California. Many, including Farley, believe it’s long past time for Dell to raise its profile in Silicon Valley.

I understand the reasoning behind Dell’s 3PAR acquisition. I see how it fills a hole in Dell’s product portfolio while also providing an integral element in Dell’s vision for data-center storage and cloud computing. That said, I’m still feeling a bit of sticker shock looking at that price tag, and I’m not even a Dell shareholder.

Riverbed CEO Confident of Maintaining Competitive Edge over Cisco

As interviews with CEOs go, the one Network World offers with Riverbed’s Jerry Kennelly makes good reading.

At times, like any CEO pitching to the press, Kennelly shucks, jives, spins, and postures. He’s selling his company, delivering a marketing message, and trying to accomplish his media mission. Like other CEOs, he wouldn’t be doing the interview unless he and his company thought it could serve a practical purpose.

Bright Prospects

The overall message Kennelly delivers is that business is good for Riverbed, that it has a defensible leadership position over Cisco in WAN optimization, and that it foresees robust growth and bright prospects for years to come. Kennelly supports his optimistic outlook with carefully reasoned arguments, pointing to technology and business trends, such as data-center consolidation and virtualization, that play to Riverbed’s strengths.

I think he does particularly well explaining how and why Riverbed has been able to outperform Cisco at the upper reaches of the OSI protocol stack. At one point, he mentions that Riverbed is not alone in that regard. He notes that just as F5 Networks gave Cisco a beating at Layer 4-7 application traffic management, Riverbed did likewise in WAN optimization. It’s a an accurate observation, and it makes one wonder about what Riverbed and F5 might be able to accomplish together as technology and economic trends continue to furnish each company with growth opportunities.

Wall Street’s Built-In Protection

But the two companies are unlikely to get together, for reasons Kennelly cites late in the interview. As he says, not only is Riverbed not seeking to be acquired, but it’s also a company that the market has afforded with built-in protection against acquisition.

We’re actually somewhat protected by Wall Street because Wall Street shares the vision of Riverbed and has awarded us a strong earnings multiple on our stock price. It’s one of the top multiples. The type of people who would acquire you are the larger, slow growth companies, big technical companies. We’re a high-growth, high-multiple company. They’re all lower growth, low-multiple companies. It’s actually dilutive for them to try to do an acquisition of us. So we have some protection on that front of things. We desire to be a standalone, independent company for a long time, and I think we’re best served by that.

Indeed, Riverbed has a market capitalization of approximately $2.5 billion. It’s board would insist on a rich acquisition premium, so any buyer probably would have to part with a minimum of $4 billion to complete the deal. Some big, slower-growth, lower-multiple companies — and I could think of one or two — might be willing to consider such an arrangement, but growing, high-multiple F5, with its market capitalization of $6.8 billion, probably wouldn’t attempt to digest a meal that rich.

No Need for Private-Cloud Garnish

Where Kennelly slips in the interview, and it isn’t a fatal indiscretion by any means, is when he tries to invoke the ambiguous private cloud where it doesn’t belong. He explains, correctly, that Riverbed’s growth is being driven by data-center consolidation. Then, however, he suggests that data-center consolidation is a proxy for the private cloud, which, in Kennelly’s reasoning, leads ineluctably to the public cloud. Here’s the relevant excerpt:

Again, these data center consolidations are a proxy for private cloud computing and then public cloud computing. The genie’s out of the bottle on that. It’s not going back. The ability to connect at the application layer across networks is going to be a permanent requirement of everyone.

The interviewer rightly questions this doubtful syllogism, and Kennelly immediately retreats, waving the whole thing off with the following comment:

Either way, we get their business, whether they do it in the cloud format or in a very traditional corporate data center format. But yeah, I take your point. I’m not trying to push the cloud by the way.

Okay, maybe he wasn’t trying to push the cloud, but it definitely seemed that he was willing to take it for a marketing spin. From the tone and substance of the interview, it appears Riverbed’s marketing mavens must have pressed their CEO to cite the buzzy private cloud at every conceivable opportunity. His heart clearly wasn’t in the puffery, as the remark quoted above demonstrates.

Riverbed doesn’t need to gild the lily. It’s doing well enough without having to resort to buzzword legerdemain.

Why I’ve Been Quiet

What happened? Where did I go?

Some of you were asking those questions, and some of you weren’t. For those inquisitive souls who were curious, if only fleetingly, about my active status and whereabouts, I can report that a combination of professional workload and personal injury has kept me away from the blogging keyboard these last few days.

Although my synapses are firing and many thoughts — some of more merit and value than others — have arisen in the caverns of my mind, I haven’t had enough time to commit them to this forum.

Regrettably, I don’t know when the situation will change. Commerce calls, obligations impinge, and time is always an enemy. I don’t have enough time. I wish I could manufacture more of it. If I had a functioning time-generation machine — or even an applicable patent on the invention that I could defend successfully in an East Texas courtroom — I’d be a less-anxious man.

Instead, I am anxious, harried, pressed for time. I provide paid consulting services, of course,  but most of you aren’t in the market for that sort of thing, and I sympathize. I wish I could write here as often as I’d like.

So, for now, I’ll have to put off an analysis of Cisco’s latest financial results and the riddles they contain. I’ll have to refrain from writing about what might or might not be occurring in the post-acquisition landscape of HP Networking. I’ll have to defer commentary on how the persisting global economic malaise will impact virtualization and cloud computing.

I’ll keep thinking about the big questions — and many smaller ones, too — but I won’t be able to write about them with the frequency to which I have become accustomed. For that, I apologize.

Final Thoughts on Hurd Affair

Unless somebody on HP’s board of directors gets drunk at a party or has a nervous breakdown, I don’t think we’ll learn anything else of significance about why, exactly, Mark Hurd was ousted from his big chair at the company he led since the boardroom putsch that dethroned Carly Fiorina in 2005.

Larry Ellison has leaped, presumably over a tennis net, to his buddy Hurd’s defense. That was to be expected. The men are friends, after all, and they were both CEOs with colorful pasts, though of different hues. Ellison, of course, remains a CEO, but not so Hurd.

Now that the story seemingly is winding down, much to the relief of the HP board, we can only wonder at what it was all about. I’m not the only one who thinks HP’s official story isn’t the real or whole story. Still, it’s the one the company is sticking with, and nobody on the outside can produce factual evidence to refute it.

Skepticism Required

That doesn’t mean we have to believe it, though. Consumers, whether of information or goods and services, should always inoculate themselves with a healthy dose of skepticism, especially when they’re being sold something that seems of questionable authenticity.

Of all the theories about what led to Hurd’s walking of the plank, the one put forward by PC World’s Tony Bradley strikes me as closest to the mark, if you’ll pardon the pun. I invite you to read it, and to consider other scenarios that have been advanced elsewhere.

In my view, HP’s board must have had compelling reasons, other than those they’ve cited, for dumping the company’s president, CEO, and chairman. In an ideal world, a corporate chieftain might be brought low by the ethical transgression of filing inaccurate expense reports. Alas, this is not an ideal world, and we know companies will go to great lengths to protect those they deem of great value.

That HP chose not to go to those lengths to protect Hurd tells us something. It tells us that Hurd might have done something far worse than what he’s been charged with doing by the HP board of directors; or that the HP board no longer valued him, and was looking for a pretext or rationale to part company with him.

Too Much of a Harsh Thing?

The second explanation seems the simplest, and therefore the most likely. As I noted in an earlier post, the feeling from some within HP — and from within certain high-value customers — seems to have been that the company had gone overboard with its operational austerity measures, slashing muscle and bone as well as fat.  HP had eschewed innovation in favor of cost controls and relentless commoditization. That goes so far, but no farther — and it fails to create the next big thing.

Hurd wasn’t the CTO, so perhaps it wasn’t his job to be creative or to nurture innovations. But his lean, mean regimen, according to some, made it difficult for anybody else to do that job.

Perhaps the HP board believed that Hurd had done all that he could do for the company, that it was time for a cultural shift toward a corporate glasnost that might revive some of the creativity and innovation that Hurd had left behind. As a theory, it’s at least as convincing as the case HP has made for its decision to push its chief executive overboard with his pockets full of cash.