Mazzola’s Next Move

I’ve written previously about Mario Mazzola, Luca Cafiero, and Prem Jain, Cisco’s triumvirate of engineering maestros. My last post in which they figured prominently dealt with Cisco’s seeming retirement of its spin-in move.

Explaining the Spin-In

For those not familiar with the spin-in concept, I will now quote from my earlier post:

 “Such deals typically involve a parent company, such as Cisco, allowing a team of engineers and business managers to leave the corporate nest to create breakthrough products and technologies. These arm’s-length ventures are funded by the parent company exclusively or sometimes by the parent company and other investors, such as VCs. The parent company’s ownership ratio of the venture increases as technology milestones and business objectives are reached, until eventually the venture is spun, in its entirely, back into the mothership. Hence, the term “spin in.”

Cisco executed a number of spin-in arrangements, but its best-known examples involved storage-networking startup Andiamo Systems, which Cisco officially acquired in the summer of 2002, and Nuova Systems, which Cisco finally acquired in full in the spring of 2008.

The companies had more than their spin-in natures in common. Both were led by Mario Mazzola, Cisco’s on-again-off-again chief development officer (CDO). What’s more, the teams at both companies included many of the same players, namely Luca Cafiero, Prem Jain, and Soni Jiandani.”

Startup Rumor

I wrote that post last summer, and, while Soni Jiandani remains in a prominent executive position at Cisco, serving as senior vice president for server access and virtualization, the other three — Mazzola, Cafiero, and Jain — are the subject of rumors.

According to unconfirmed reports, Mazzola is leading another startup effort. Cafiero and Jain might be joining him. I don’t know what this alleged startup might do, but some say it initially might function as an incubator/VC operation, on its own or perhaps in league with another Silicon Valley VC outfit.

Spin-In Unlikely

It is not thought to be another Cisco spin-in. Given the substantial layoffs John Chambers is overseeing currently at Cisco, it would be difficult for him to sell investors, analysts, and — last but not least — employees on the merits of a high-priced spin-in maneuver that would make a few people richer than Croesus while  others are being escorted to the door and entire business operations within Cisco are facing extinction.

That’s not to say it won’t happen — Cisco and Chambers could argue that a particular spin-in initiative is absolutely essential to the company’s renovated strategic vision — but the odds are not in its favor.

Regardless of whether Mazzola is fronting a standalone startup or yet another Cisco spin-in venture, it will be interesting to see what he does next.

Advertisement

ONF Board Members Call OpenFlow Tune

The concept of software-defined networking (SDN) has generated considerable interest during the last several months.  Although SDNs can be realized in more than one way, the OpenFlow protocol seems to have drawn a critical mass of prospective customers (mainly cloud-service providers with vast data centers) and solicitous vendors.

If you aren’t up to speed with the basics of software-defined networking and OpenFlow, I suggest you visit the Open Networking Foundation (ONF) and OpenFlow websites to familiarize yourself the underlying ideas.  Others have written some excellent articles on the technology, its perceived value, and its potential implications.

In a recent piece he wrote originally for GigaOm, Kyle Forster of Big Switch Networks offers this concise definition:

Concisely Defined

“At its most basic level, OpenFlow is a protocol for server software (a “controller”) to send instructions to OpenFlow-enabled switches, where these instructions give direct control over how those switches forward traffic through the network.

I think of OpenFlow like an x86 instruction set for the network – it’s low-level, but it’s very powerful. Continuing that analogy, if you read the x86 instruction set for the first time, you might walk away thinking it could be useful if you need to build a fancy calculator, but using it to build Linux, Apache, Microsoft Word or World of Warcraft wouldn’t exactly be obvious. Ditto for OpenFlow. It isn’t the protocol that is interesting by itself, but rather all of the layers of software that are starting to emerge on top of it, similar to the emergence of operating systems, development environments, middleware and applications on top of x86.”

Increased Network Functionality, Lower Network Operating Costs

The Open Networking Foundation’s charter summarizes its objectives and the value proposition that advocates of SDN and OpenFlow believe they can deliver:

 “The Open Networking Foundation is a nonprofit organization dedicated to promoting a new approach to networking called Software-Defined Networking (SDN). SDN allows owners and operators of networks to control and manage their networks to best serve their users’ needs. ONF’s first priority is to develop and use the OpenFlow protocol. Through simplified hardware and network management, OpenFlow seeks to increase network functionality while lowering the cost associated with operating networks.”

That last part is the key to understanding the composition of ONF’s board of directors, which includes Deutsche Telecom, Facebook, Google, Microsoft, Verizon, and Yahoo. All of these companies are major cloud-service providers with multiple, sizable data centers. (Yes, Microsoft also is a cloud-technology purveyor, but what it has in common with the other board members is its status as a cloud-service provider that owns and runs data centers.)

Underneath the board of directors are member companies. Most of these are vendors seeking to serve the needs of the ONF board members and similar cloud-service providers that share their business objective: boosting network functionality while reducing the costs associated with network operations.

Who’s Who of Networking

Among the vendor members are a veritable who’s who of the networking industry: Cisco, HP, Juniper, Brocade, Dell/Force10, IBM, Huawei, Nokia Siemens Networks, Riverbed, Extreme, and others. Also members, not surprisingly, are virtualization vendors such as VMware and Citrix, as well as the aforementioned Microsoft. There’s a smattering of SDN/OpenFlow startups, too, such as Big Switch Networks and Nicira Networks.

Of course, membership does not necessarily entail avid participation. Some vendors, including Cisco, likley would not be thrilled at any near-term prospect of OpenFlow’s widespread market adoption. Cisco would be pleased to see the networking status quo persist for as long as possible, and its involvement in ONF probably is more that of vigilant observer than of fervent proponent. In fact, many vendors are taking a wait-and-see approach to OpenFlow. Some members, including Force10, are bearish and have suggested that the protocol is a long way from delivering the maturity and scalability that would satisfy enterprise customers.

Vendors Not In Charge

Still, the board members are steering the ONF ship, not the vendors. Regardless of when OpenFlow or something like it comes of age, the rise of software-defined networking seems inevitable. Servers and storage gear have been virtualized and have become more application-driven, but networks haven’t changed much in the last several years. They’re faster, yes, but they’re still provisioned in the traditional manner, configured rather than programmed. That takes time, consumes resources, and costs money.

Major cloud-service providers, such as those on the ONF board, want network infrastructure to become more elastic, flexible, and dynamic. Vendors will have to respond accordingly, whether with OpenFlow or with some other approach that delivers similar operational outcomes and business benefits.

I’ll be following these developments closely, watching to see how the business concerns of the cloud providers and the business interests of the networking-vendor community ultimately reconcile.

Cisco and RIM: Hard Times, Different Situations

A morbid debate has ensued as to whether Cisco or RIM is in worse shape. It’s an unseemly discourse, but it seems obvious to me that Cisco, regardless of its current woes, remains in a better, stronger position than RIM, both today and well into the future.

That said, let me be absolutely clear that I believe Cisco has entered a period of decline, perhaps of the irrevocable sort. The broad industry trends — commoditized wiring-closet switches, stiff competition in the data center and the network core, the rise of cloud computing, and so forth — are not its friends. To make matters worse, Cisco is suffering from its own imperial overstretch, and from a cultural malaise that afflicts and challenges all big corporations that reach a certain stage of maturity.

Not the Same

This Cisco, the one you see today, is not the one that ruled the networking industry late in the last century and early in this one. That beast, which seemed so unstoppable on its path to dominance — capturing and keeping customers, charming partners,  drawing prospective suppliers, and dazzling industry analysts — seems to have left the building. It has the same head, figuratively and literally, but it’s uncoordinated now and tends to get in its own way at least as often as it bulldozes the competition.

Even so, Cisco is a long way from dead. It has a prodigious installed base of customers, some major partnerships that still matter, and a chance to step back, reflect on what’s happening in the market, and alter course accordingly. It won’t be easy — some believe Cisco’s leadership is better at building than fixing  — but Cisco need not slide into an industry abyss.

RIM, too, has an opportunity for renewal, but its situation is far more daunting. As with Cisco, the trends — an app-driven market dynamic; consumerization of IT and “bring your own device” (BYOD) to work; the strength of Apple at the high end of the smartphone market, Google Android nearly everywhere else, and low-cost competitors in the developing world; the rise of mobile-device-management (MDM) suites that can support heterogeneous mobile platforms — are not in its favor. Also like Cisco, RIM has lost its way, failing to recognize foreboding trends and lethal competitors until serious damage had been done.

Bigger Challenges, Fewer Resources

Still, RIM is worse off in many respects. First, it’s no longer an industry leader. It’s been usurped by Google’s Android and by Apple in smartphones, and there’s a danger that Microsoft, and perhaps even HP, could knock it further down the charts. Cisco, notwithstanding its current hardships, doesn’t have that problem; it’s still number one in enterprise networking (switching and routing), though competitors are chipping away at its market share and it has lost ground in other important, faster-growing markets, such as the application delivery controller (ADC) space, where F5 leads.

Furthermore, Cisco still has customers that will buy into the brand and the higher prices that accompany it. That could change — nearly everything can change — but Cisco retains that benefit today. There might fewer of those customers than there were a couple years ago, but the population of Ciscotown remains considerable. Unfortunately for RIM, the brand-equity die has been cast, and it has suffered a decline not only in the eyes of consumers but in many enterprises as well. Apple iPhones and iPads are proliferating in enterprise settings and vertical markets, often supplanting BlackBerry devices, at a rate few predicted.

RIM also has fewer resources than Cisco. True, it’s fighting competitive battles on fewer fronts than the networking giant, but Cisco has the option of reining in its aspirations and allocating its ample resources with greater strategic focus. RIM can only do so much.

Mitigate Risk or Roll Dice?

It’s ironic that, just a short time ago, some analysts and pundits were suggesting that Cisco buy RIM. My point is not to mock them — this industry will humble anybody who tries to predict its course — but to illustrate just how much a combination of strategic missteps and the vagaries of fate can change the game in relatively short order.

The best anybody out there can do is to find a balance between risk mitigation and success probability, which often (but not always) are closely interrelated. Sometimes, though, you need to take a big risk to qualify for a big reward.

Cisco can still play some risk-mitigation cards, while RIM needs to roll the dice.

Muglia’s Move to Juniper

Juniper Networks announced yesterday that Bob Muglia, who spent 23 years at Microsoft and was president of that company’s Server and Tools Business (STB) until January, will be joining the networking vendor to oversee its end-to-end software strategy and lead its just-created Software Solutions Division.

Back at Microsoft, Muglia and CEO Steve Ballmer appeared to hold diverging views on strategy for the STB. Those views apparently were not reconciled, so Ballmer ousted Muglia and sought “new leadership” — but only for the STB, not for the company as a whole.

Big Mandates

Until he left Microsoft, Muglia’s group was responsible for a remit that encompassed infrastructure software, developer tools, and cloud-computing platforms, including products such as Windows Server, SQL Server, Visual Studio, System Center, and the Windows Azure Platform. It was a big mandate, and Muglia will have a similarly ambitious charge at Juniper. As Jim Duffy notes at NetworkWorld:

“Juniper is centralizing its software business to further position it as a company differentiator and growth engine. Included in it will be software for Juniper’s SRX Series and vGW Series security platforms, MobileNext packet core offering for mobile operators, Junos Pulse mobile security suite for managing devices, and the Junos Space platform for developing and deploying network applications.”

Muglia, quoted below, seems eager for the challenge:

 “The emergence of cloud, heterogeneous devices connecting, and applications (executing) in a much more automated state creates an opportunity to bring software into the network and connect to all devices. Networks are configured and managed by manual processes, people with mice and keyboards, and separate from the application infrastructure. There is no way to deal with the scale of the amount of configuration changes in the network to ensure the reliability and consistency of the environment. Networks will be applications driven; applications are at the center of intelligence and business value. The infrastructure as a whole is being driven by the applications. Juniper is very well positioned to take this on with QFabric for cloud, and a single operating system platform. There’s not a lot of legacy mess to clean up.”

Raising the Software Quotient

Except for the last sentence, where Muglia offers an enthusiastic plug for QFabric, those words could have come from an executive at F5 Networks, or from those at other networking vendors trying to adjust to an application-centric data-center overhaul that already has virtualized and transmogrified the server and storage spheres, and is beginning to do likewise to the realm of network infrastructure.

From what I have seen, Juniper needed a further infusion of software bloodlines. Muglia could be an excellent addition to the leadership team, able to bring a heightened software sensibility to what remains a hardware-centric corporate culture. In some ways, though they are radically different companies in many respects, Juniper and Dell are both struggling to get away from a hardware-oriented culture. Yes, there’s a lot of software that goes Juniper networking equipment, but some within the company still are struggling, quite literally, to think “outside the box.”

The effort is there, though, and the spirit is willing, which is why I think Muglia was brought aboard. There’s tremendous potential in the entire Junos-based strategy and its software portfolio, including Pulse for mobile security and device management and the Space platform.

That’s why I see the Muglia move as a potentially significant and positive development for Juniper.

New Place, Familiar Faces

Muglia shouldn’t take long to acclimate to his new corporate home. As Mary Jo Foley wrote, it is well populated with former Microsoft executives. Heading that list is Juniper CEO Kevin Johnson, but he’s joined by a number of others, including Gerri Elliott, chief sales Officer; Brad Brooks, VP of worldwide enterprise marketing; Eddie Amos, VP of developer marketing; and Lauren Cooney, director of developer evangelism.

Reporting directly to Johnson and starting at Juniper after he leaves Microsoft in September, Muglia should have immediate rapport with his new boss.

Wondering About HP Networking’s Dualism

At Network Computing, Greg Ferro writes an intriguing piece about HP Networking’s split personality.

After HP acquired 3Com (H3C), the conventional wisdom, with which I concurred, was that the ProCurve product line was living on borrowed time. I didn’t expect ProCurve to disappear overnight — there was an installed base of customers to take into account, after all — but I did think the development pendulum would swing overwhelmingly to China and the 3Com/H3C team.

To a large extent, that has happened, but the ProCurve product portfolio is proving surprisingly tenacious. As Ferro notes, HP’s E Series switches continue to sport ProCurve’s in-house ASICs and ProCurve software. Meanwhile, HP  Networking’s A Series switches feature merchant silicon and 3Com/H3C’s Comware network OS. Finally, HP has the S Series, which also sports merchant silicon.

HP’s Rationale

So, what’s with the continuing split in HP Networking’s product portfolio? In his article at Network Computing, Ferro quotes Dan Montesanto, an HP switch product manager, who asserts that custom ASICs “make a lot of sense in the ‘middle of the market,’” but apparently not as much sense at the low end or the high end of the market. You can read the rationalization over at Network Computing, and you can decide whether you buy it.

I must admit, I’m skeptical of the official reasoning. I don’t want to go all “conspiracy theory” on you — in fact, I don’t have a conspiracy theory to proffer on this matter — but I just question whether HP is giving us the whole truth and nothing but the truth.

Something just doesn’t ring true about it. Yes, I note HP’s claims that it can make cheaper and better chips than merchant-silicon purveyors for certain product price points in the market. Perhaps those claims are true. I can’t disprove them.

Still, why continue to offer the different network operating systems? Wouldn’t it make sense to run the same software across all HP’s switches? Silicon issues notwithstanding, why wouldn’t HP unify its networking portfolio under Comware?

Market Expects Comware Migration

The market thinks that will happen eventually. Ferro writes:

 “One thing seems clear: HP Networking hasn’t convinced the wider market that both Comware and ProCurve operating systems are necessary, and most network architects expect HP to migrate its product line to Comware.”

Again, I’m not trying to sell you an extraterrestrial in the desert or persuade you that I saw Elvis outside a Burger King, but I wonder what’s happening behind the scenes at HP. It’s almost as if HP Networking is keeping the ProCurve ASICs and software going as an insurance policy.

But, if that’s true, why?

F5 Bids to Strengthen Data-Center Grip

Acquisitions always qualify as big news because they’re dramatic transactions. They are sudden, sometimes surprising, and they can have significant commercial, financial, industrial, and technological implications. They roil industry waters, ultimately leaving some vendors capsized and others navigating toward bold horizons.

Product announcements can be overshadowed amid periods of M&A ferment, so it’s important that we pay sufficient attention to product launches that have potentially far-reaching consequences.

Toward the Dynamic Data Center

One such announcement occurred today as F5 Networks, the leader in the application delivery controller (ADC) space, announced its BIG-IP v11 software release, scheduled to reach market in the third quarter. F5 is emphasizing two major aspects of the release: the realization of its vision of a “dynamic data center,” in which service provisioning is expedited through an application-centric view of network infrastructure and resource availability; and enhanced, dynamic security services that are intended to prevent attacks on networks, applications, and data.

Over at F5’s DevCentral, Lori MacVittie has been setting the stage for today’s announcement for a while, discussing various intractable operational and technological challenges — all of which, perhaps not surprisingly, can be addressed by the new release of BIG-IP. No wonder, then, that she was eager to provide her perspective on what today’s announcement means.

Piecing IT Together

In her view, the “game changing” pieces of the new BIG-IP are iApp, which moves the focus of BIG-IP configuration from network-oriented objects to application-centric views; ScaleN, which introduces the concept of “Device Service Clusters” and facilitates targeted fail-over of application instances, allowing customers to scale out across CPUs or devices, managing them as one pool; and Virtual Clustered Multiprocessing (vCMP), which makes ScaleN possible.

When you consider those three components together, she contends, “you now have capabilities in the application delivery infrastructure with similar benefits and abilities as those found previously only in the server / application virtualization infrastructure: automated, repeatable, manageable, scalable infrastructure services.”

Strengthening Data-Center Claims

What it means from a business standpoint for customers is increased cost savings from greater IT efficiency, improved application-centric resource utilization, and automated (thus faster and less costly) application provisioning.

From an industry and vendor perspective, what is means is that F5 bolsters its case for BIG-IP as an essential element in data-center management. If this release of BIG-IP and its underlying strategy are successful, F5 not only takes greater command of the ADC space, but also will strengthen its claims on some critical real estate in enterprise and service-provider data centers.

Reviewing Dell’s Acquisition of Force10

Now seems a good time to review Dell’s announcement last week regarding its acquisition of Force10 Networks. We knew a deal was coming, and now that the move finally has been made, we can can consider the implications.

It was big news on a couple fronts. First, it showcased Dell’s continued metamorphosis from being a PC vendor and box pusher into becoming a comprehensive provider of enterprise and cloud solutions. At the same time, and in a related vein, it gave Dell the sort of converged infrastructure that allows it to compete more effectively against Cisco, HP, and IBM.

The transaction price of Dell’s Force10 acquisition was not disclosed, but “people familiar with the matter” allege that Dell paid about $700 million to seal the deal. Another person apparently privy to what happened behind the scenes says that Dell considered buying Brocade before opting for Force10. That seems about right.

Rationale for Acquisition

As you’ll recall (or perhaps not), I listed Force10 as the second favorite, at 7-2, in my Dell Networking Derby, my attempt to forecast which networking company Dell would buy. Here’s what I said about the rationale for a Dell acquisition of Force10:

 “Dell partners with Force10 for Layer 3 backbone switches and for Layer 2 aggregation switches. Customers that have deployed Dell/Force10 networks include eHarmony, Salesforce.com, Yahoo, and F5 Networks.

Again, Michael Dell has expressed an interest in 10GbE and Force10 fits the bill. The company has struggled to break out of its relatively narrow HPC niche, placing increasing emphasis on its horizontal enterprise and data-center capabilities. Dell and Force10 have a history together and have deployed networks in real-word accounts. That could set the stage for a deepening of the relationship, presuming Force10 is realistic about its market valuation.”

While not a cheap buy, Force10 went for a lot less than an acquisition of Brocade, at a market capitalization of $2.83 billion, would have entailed. Of course, bigger acquisitions always are harder to integrate and assimilate than smaller ones. Dell has found a targeted acquisition model that seems to work, and a buy the size of Brocade would have been difficult for the company to digest culturally and operationally. In hindsight, which usually gives one a chance to be 100% correct, Dell made a safer play in opting for Force10.

IPO Plans Shelved

Although Force10 operates nominally in 60 countries worldwide, it derived 80 percent of its $200 million in revenue last year from US customers, primarily data-center implementations. Initially, at least, Dell will focus its sales efforts on cross-pollination between its and Force10’s customers in North America. It will expand from there.

Force10 has about 750 employees, most of whom work at its company headquarters in San Jose, California, and at a research facility in Chennai, India. Force10 doesn’t turn Dell into an overnight networking giant; the acquired vendor had just two percent market share in data-center networking during the first half of 2011, according to IDC. Numbers from Dell’Oro suggest that Force10 owned less than one percent of the overall Ethernet switch market.

Once upon a time, Force10 had wanted to fulfill its exit strategy via an IPO. Those plans obviously were not realized. The scuttlebutt on the street is that, prior to being acquired by Dell, Force10 had been slashing prices aggressively to maintain market share against bigger players.

Channel Considerations

Force10 has about 1,400 customers, getting half its revenue and the other half from channel sales. Dell doesn’t see an immediate change in the sales mix.

Dell will work to avoid channel conflict, but I foresee an increasing shift toward direct sales, not only with the Force10’s data-center networking gear, but also with any converged data-center-in-a-box offerings Dell might assemble.

Converged Infrastructure (AKA Integrated Solution Stack) 

Strategically, Dell and its major rivals are increasingly concerned with provision of converged infrastructure, otherwise known as as an integrated technology stack (servers, storage, networking, associated management and services) for data centers. The ultimate goal is to offer comprehensive automation of tightly integrated data-center infrastructure. These things probably will never run themselves — though one never knows — but there’s customer value (and vendor revenue) in pushing them as far along that continuum as possible.

For some time,  Dell has been on a targeted acquisition trail, assembling all the requisite pieces of the converged-infrastructure puzzle. Key acquisitions included Perot Systems for services, EqualLogic and Compellent for storage, Kace for systems management, and SecureWorks for security capabilities. At the same time, Dell has been constructing data centers worldwide to host cloud applications.

Dell’s converged-infrastructure strategy is called Virtual Network Services Architecture (VNSI), and the company claims Force10’s Open Cloud Networking (OCN) strategy, which stresses automation and virtualization based on open standards, is perfectly aligned with its plans. Dario Zamarian, VP and GM of Dell Networking, said last week that VNSI is predicated on three pillars: “managing from the edge,” where servers and storage are attached to the network; “flattening the network,” which is all the rage these days; and “scaling virtualization.”

For its part, Force10 has been promoting the concept of flatter and more scalable networks comprising its interconnected Z9000 switches in distributed data-center cores.

 The Network OS Question

I don’t really see Dell worrying unduly about gaining greater direct involvement in wiring-closet switches. It has its own PowerConnect switches already, and it could probably equip those to run Force10’s FTOS on those boxes. It seems FTOS, which Dell is positioning as an open networking OS, could play a prominent role in Dell’s competitive positioning against Cisco, HP, Juniper, IBM, and perhaps even Huawei Symantec.

Then again, Dell’s customers might have a say in the matter. At least two big Dell customers, Facebook and Yahoo, are on the board of directors of the Open Networking Foundation (ONF), a nonprofit organization dedicated to promoting software-defined networking (SDN) using the OpenFlow protocol. Dell and Force10 are members of ONF.

It’s possible that Dell and Force10 might look to keep those big customers, and pursue others within the ONF’s orbit, by fully embracing OpenFlow. The ONF’s current customer membership is skewed toward high-performance computing and massive cloud environments, both of which seem destined to be aggressive early adopters of SDN and, by extension, the OpenFlow protocol.  (I won’t go into my thoughts on OpenFlow here — I’ve already written a veritable tome in this missive — but I will cover it in a forthcoming post.)

Notwithstanding its membership in the Open Networking Foundation, Force10 is perceived as relatively bearish on OpenFlow. Earlier this year, Arpit Joshipura, Force10’s chief marketing officer, indicated his company would wait for OpenFlow to mature and become more scalable before offering it on its switches. He said “big network users” — presumably including major cloud providers — are more interested in OpenFlow today than are enterprise customers. Then again, the cloud ultimately is one of the destinations where Dell wants to go.

Still, Dell and Force10 might see whether FTOS can fit the bill, at least for now. As Cindy Borovick, research vice president for IDC’s enterprise communications and data center networks, has suggested, Dell could see Force10‘s FTOS as something that can be easily customized for a wide range of deployment environments. Dell could adapt FTOS to deliver prepackaged products to customers, which then could further customize the network OS depending on their particular requirements.

It’ll be interesting to see how Dell proceeds with FTOS and with OpenFlow.

 Implications for Others

You can be sure that Dell’s acquisition of Force10 will have significant implications for its OEM partners, namely Juniper Networks and Brocade Communications. From what I have heard, not much has developed commercially from Dell’s rebranding of Juniper switches, so any damage to Juniper figures to be relatively modest.

It’s Brocade that appears destined to suffer a more meaningful hit. Sure, Dell will continue to carry and sell its Fiber Channel SAN switches, but it won’t be offering Brocade’s Foundry-derived Ethernet switches, and one would have to think that the relationship, even on the Fiber Channel front, has seen its best days.

As for whether Dell will pursue other networking acquisitions in the near team, I seriously doubt it. Zeus Kerravala advises Dell to buy Extreme Networks, but I don’t see the point. As mentioned earlier, Dell already has its PowerConnect line, and the margins are in the data-center, not out in the wiring closets. Besides, as Dario Zamarian has noted, data-center networking is expected to grow at a compound annual growth rate of 21 percent through 2015, much faster than the three-percent growth forecast for the rest of the industry.

The old Dell would have single-mindedly chased the network box volumes, but the new Dell aspires to something grander.

Huawei Tries Not to Get Fooled Again

The evolution of the joint venture between Huawei and Symantec — called, perhaps not surprisingly, Huawei Symantec — has taken an interesting turn recently. Originally established in China with a remit covering storage and security products, Huawei Symantec has been expanding geographically, beyond China to other markets globally, and technologically, into networking infrastructure and servers from its original offerings of storage and security boxes.

As a joint venture, Huawei Symantec has some familiar elements. It’s based on a “China-out” strategy, which we’ve all seen before, and it’s only now hitting American shores after revving up its engines overseas. In some ways, it’s deja vu all over again for Huawei. We’ve seen this show before, though perhaps the ending will be different this time.

Trip Down Memory Lane

Before returning to the present, let’s take a quick excursion down Memory Lane, shall we?

In March 2003, when Huawei and 3Com Corporation formed a joint venture company, called Huawei-3Com (H3C), Huawei owned the majority stake, 51 percent, with 3Com holding the other 49 percent. The joint venture focused on research and development, production, and sales of data-networking products, with Huawei retaining territorial sales rights for “greater” China and Japan, and 3Com, through its own brand, having sales jurisdiction for the rest of the world. The JV agreement also accorded 3Com the right to buy two percent of the joint entity’s stock from Huawei during a two-year period, thus giving 3Com the option to take a controlling interest.

3Com provided financial support for the joint venture, whereas Huawei provided technology, products, and the H3C workforce in China.

Eventually, Huawei sold two percent of its take in the joint venture to 3Com, which then assumed a controlling interest of 51 percent. Subsequently, in 2006, Huawei divested its remaining 49 percent in H3C to 3Com for $880 million.

Thwarted Ambitions

China-based H3C came to represent the most valuable asset in 3Com’s possession. When Bain Capital and Huawei later tried to buy 3Com for approximately $2.2 billion — the acquisition ultimately was thwarted on national-security grounds by the US government — the H3C component was valued at about $1.8 billion, the legacy 3Com business at just $400 million.

If the Bain-Huawei acquisition of had been consummated, Bain would have owned 83.5 percent of 3Com, Huawei 16.5 percent. As we all know, 100 percent of 3Com is now owned by HP, where it forms a growing proportion of HP Networking.

Anyway, having taken that contextual excursion, let’s amble back to Huawei and Symantec and their joint venture. The point is, I’m sure Huawei learned some extremely valuable lessons from its entanglement with 3Com and from H3C, the JV love child they had together.

Origins of Huawei Symantec

In May 2007, as reported by ZDNet, Huawei Technologies and Symantec announced plans to establish a joint venture to develop and distribute security and storage appliances to telecommunications carriers and enterprises worldwide.

Headquartered in Chengdu, China, the joint venture was 51-percent owned by Huawei, with Symantec holding the remaining 49 percent stake.

Huawei contributed its telecommunications storage and security businesses, including its integrated supply chain and product-development practices. Symantec contribute $150 million toward the joint venture’s growth and expansion, as well as some of its enterprise storage and security software licenses, working capital and management resources. In addition, the joint venture had access to Huawei’s intellectual property (IP) licenses, research and development capabilities, manufacturing expertise and engineering resources, including more than 750 China-based employees.

A Symantec filing with the SEC indicated that the he joint venture lost $63 million on revenue of $224 million in 2009.

Reviewing Options

Recently, Symantec CEO Enrique Salem said that his company is reviewing its options regarding its joint venture with Huawei. Just as 3Com had before, Symantec has the right to buy an additional two percent of the joint venture for about $28 million. Salem said that Symantec and Huawei are discussing whether Symantec will exercise that right, or whether the two companies will sell a stake in the venture through an initial public offering. According to Salem, a decision, one way or the other, will be reached by the end of the year.

As I said earlier, in some respects, it’s like deja vu all over again, a reprise of the Huawei-3Com saga.

What’s different, though, is that, through Huawei Symantec, China’s $28-billion telecommunications-equipment titan already has gained entry to the US market. With its 3Com joint venture, 3Com retained sales rights outside greater China and Japan. This time, Huawei retains, as of today, 51-percent ownership in a joint venture that has a worldwide marketing and sales mandate. That’s an important distinction.

Bigger Canvas, Cloud Ambitions 

Now, let’s consider what this joint venture is selling. Whereas H3C was all about data-networking boxes, Huawei Symantec is painting on a much bigger canvas. It’s got the networking gear, check, but it also has storage, servers, security appliances, and it has plans to provide data-center management software, too. Like so many others — Cisco, HP, Dell, Oracle, IBM — it’s heading for the cloud.

And, as Ovum suggested in May, Huawei has major cloud ambitions:

“Huawei’s cloud strategy, comprising hardware (compute, storage), software (virtualization, distributed file system, database management), and services (“cloud in a box”), was a well-kept secret. Huawei’s overwhelming barrage of claimed cloud capabilities included a platform, “SingleCloud,” integrated content distribution networking and caching, and policy and charging control. Huawei highlighted the use of cloud-based storage and computing for its 10,000-person Shanghai R&D operation as early proof of its capabilities, noting energy savings, better data security, and faster inclusion of new employees as benefits it has accrued.”

Some, if not most, of that technology will find its way into the Huawei Symantec data-center offerings. If you look at the Huawei Symantec website, some of the hardware is there now — storage, servers, some networking gear, security appliances.

Cue The Who

At the very least, Huawei, on its own and through this joint venture with Symantec, can add to Cisco’s problems by further contributing to the commoditization of switches and routers and by putting a margin squeeze on converged data-center solutions. As if Cisco doesn’t have enough problems, now this threat looms on the horizon.

In the past, I had dismissed the possibility of a Cisco acquisition of Symantec, but — given the fear, loathing, and increasing desperation on Tasman Drive these days — I’m wondering whether Cisco is looking at Symantec in a different light now, especially within the context of Big Yellow’s expanding relationship with Huawei.

If Symantec could buy that controlling two-percent share from Huawei, well . . . .

Then again, Huawei must  have learned from its trials and tribulations with H3C. It’s surely looking for a different outcome this time.

Cue The Who’s “Won’t Get Fooled Again.”

Riverbed’s World-Spanning Acquisitions

Despite some time-constrained, desultory, and ultimately fruitless investigations by your intrepid correspondent, I was unable to determine whether Riverbed Technology’s just-announced acquisitions of virtual application delivery controller (vADC) specialist Zeus Technology and Web-content optimization vendor Aptimize Limited were conditioned by its having most of its available cash outside the USA.

Looks Good on Paper

Don’t misunderstand. I’m not saying these were bad acquisitions. In fact, on paper, these buys look relatively good. Much depends, as it always does, on execution — on how well Riverbed integrates, assimilates, and monetizes its new properties — but strategically there’s not much to dislike about these moves.

Still, it’s interesting that Riverbed bought two companies half a world apart from one another, and another half world away from Riverbed itself. The company’s executives must have racked up prodigious air miles during their due diligence.

There’s nothing wrong with that, of course. The airline industry could use the support. More to the point, these acquisitions could come together to fulfill a strategic vision that will see Riverbed deliver integrated WAN optimization, Web-app optimization, and application traffic management for virtualized and cloud customers worldwide. Riverbed calls the concept “asymmetric optimization” — just one box is required, sitting in a data center — and it believes it can become more than a lucrative niche.

The bigger of the two acquisitions involved UK-based Zeus Technology. Riverbed will pay $110 million upfront for Zeus, and perhaps another $30 million in performance-based bonuses. Zeus, which took a long and winding road toward its ultimate raison d’être in application delivery and load balancing, is highly regarded by knowledgeable market watchers and a growing stable of customers, Rackspace among them.

Zeus Takes Riverbed Into New Battle

Zeus’ virtual traffic manager, which runs on all the major hypervisors, has been installed by about 15,000 customers worldwide. The company apparently generated $15 million in revenue this year, and Riverbed, perhaps underpromising so that it can overdeliver, projects that Zeus’ offerings will account for about $20 million in revenue during their first year under Riverbed’s expanding corporate tent.

In my view, though, the Zeus acquisition isn’t only the bigger of the two, but it’s also more fraught with risk. Yes, it makes sense, presuming the aforementioned plan comes together without a hitch, but it also takes Riverbed into intensive competition with ADC kingpin F5 Networks.

Until now, Riverbed has stayed clear of F5’s core market, which it leads with considerable aplomb. Now Riverbed, already fighting a tough battle against a number of WAN-optimization players, must go up against a strong leader in the ADC space. How well can it fight on two major fronts simultaneously? Part of the answer, I suspect, hinges on how quickly customers begin to perceive the two fronts (or is it three?) as one. If or when that happens, Riverbed’s three-pronged value proposition — WAN optimization, Web-app optimization, and application delivery — will give it the edge it craves.

Mind you, F5 won’t be standing still. It will be interesting to see how this battle plays out in customer accounts.

Kiwis on the Move

The other Riverbed acquisition, of New Zealand-based Aptimize, looks a safer bet. According to reports, Riverbed paid less than $20 million for Aptimize, but the acquired company’s backers could collect more than $30 million if an “earn-out clause” in the deal is fulfilled.

Aptimize’s Website Accelerator, according to Riverbed, “reorders, merges and resizes content, essentially transforming it in real time . . . to deliver the application up to four times faster.” It’s closer conceptually and practically to what Riverbed does today than is the Zeus technology, making it easier to integrate, package, and sell to the company’s existing customers.

While the Zeus team will remain in England, the Aptimize team, comprising co-founder Edward Robinson and ten engineers, will relocate from New Zealand to the Bay Area.

As an aside, though not to investors, Riverbed stock plunged vertiginously on the markets today after the high-flying company, whose shares had soared during the past year, missed its revenue number, disappointing punters and analysts who tend to be unforgiving about such things.

Intel’s Fulcrum Buy Validates Merchant Silicon, Rise of Cloud

When I wrote my post earlier today on Cisco’s merchant-silicon dilemma, I had yet to read about Intel’s acquisition of Fulcrum Microsystems, purveyor of silicon for 10GbE and 40GbE switches.

While the timing of my post was fortuitous, today’s news suggests that Intel has been thinking about the data-center merchant silicon for some time. Acquisitions typically don’t come together overnight, and Intel doubtless has been taking careful note of the same trends many of us have witnessed.

Data Center on a Chip

In announcing the deal today, Intel has been straightforward about its motivations and objectives. As Intel officials explained to eWeek, Fulcrum’s chip technology will not only allow network-equipment vendors to satisfy demand for high-performance, low-latency 10GbE and 40GbE gear, but it also will put Intel in position to fulfill silicon requirements for all aspects of converged data centers. With that in mind, Intel has stated that it is working to integrate a portfolio of comprehensive data-center components — covering servers, storage, and networking — based on its Xeon processors.

With converged data centers all the rage at Cisco, HP, Dell, IBM, (and many other vendors besides), Intel wants to put itself in position to meet the burgeoning need.

Intel did not disclose financial details of the acquisition, which is expected to close in the third quarter, but analysts generally believe the deal will have only modest impact on Intel’s bottom line.

Strategically, though, the consensus is that it offers considerable upside. Intel apparently has told Deutsche Bank analysts that it now captures only about two percent of overall expenditures dedicated to data-center technology. Fulcrum is seen as a key ingredient in helping Intel substantially boost its data-center take.

Unlikely to Repeat Past Mistakes

The deal puts Intel into direct competition with other merchant-silicon vendors in the networking market, including Broadcom and Marvell. Perhaps a bigger concern, as pointed out by Insight64 analyst Nathan Brookwood, is that Intel failed in its previous acquisitions of network-chip suppliers. Those acquisitions, executed during the late 90s, included the $2.2-billion purchase of Level One.

Much has changed since then, of course — in the market in general as well as in Intel’s product portfolio — and Brookwood concedes that the Fulcrum buy seems a better fit strategically and technologically than Intel’s earlier forays into the networking space. Obviously, data-center convergence was not on the cards back then.

Aligned with March to Merchant Silicon, Rise of Cloud

To be sure, the acquisition is perfectly aligned with the networking community’s shift to merchant silicon and with the evolution of highly virtualized converged data centers, including cloud computing.

One vendor that’s enthusiastic about the deal is Arista Networks. In email correspondence after the deal was announced, Arista CEO Jayshree Ullal explained why she and her team are so excited at today’s news.

Arista Thrilled 

First off, Ullal noted that Arista is one of Fulcrum’s top customers. Intel’s acquisition of Fulcrum, Ullal said, “validates the enterprise-to-cloud networking migration.” What’s also validated, Ullal said, is merchant silicon, as opposed to “outdated clunky ASICs.” Now there are three major merchant chip vendors serving the networking industry: Intel, Broadcom, and Marvell.

Ullal also echoed others in saying that the deal is great for Intel because it moves the chip kingpin into networking/switch silicon and cloud computing. Finally, she said Fulcrum benefits because, with the full backing of Intel, it can leverage the parent company’s “processes and keep innovating now and beyond for big data, cloud, and virtualization.”

Even though, monetarily, there have been bigger acquisitions, today’s deal seems to have a strategic resonance that will be felt for a long time. Intel could play a significant role in expediting the already-quickening commoditization of networking hardware — in switches and in the converged data center — thereby putting even more pressure on networking and data-center vendors to compensate with the development and delivery of value-add software.

Set-Top Box Logic Doesn’t Hold

I’m not that close to the cable market — though, once upon a DOCSIS moon, I worked for a company that sold transceivers to cable-device vendors — so perhaps I am missing a nuance or subtlety that might have tempered the opinion I am about the express.

Still, I feel relatively confident asserting that Cisco’s acquisition of Scientific Atlanta ranks among the worst buys the networking giant has ever done.

Misstep Followed by Tumble

Yes, the acquisition of Pure Digital Technologies and its Flip video camcorders must rate at the top (or is that bottom?) of the charts. Whereas Cisco paid $6.9 billion for Scientific Atlanta and only $590 million in stock — plus about $15 million in retention-based compensation — for Pure Digital, the former is still lumbering along a wayward path while the latter has been shuttered outright. When an acquired company is shut down with prejudice, as opposed to sold to a third party, a little more than two years after the purchase was announced, well, you have to count it as a misstep — perhaps followed by a severe tumble down a long staircase.

That said, Scientific Atlanta also has fallen well short of the winning mark for Cisco, and its future as a going concern is murky. While Cisco yesterday announced that it has sold a Scientific Atlanta manufacturing facility in Juarez, Mexico, to Foxconn Technology Group, Cisco apparently will remain in the consumer-facing cable set-top business, at least for now.

Puzzling Decision

That’s a puzzler for at least a couple reasons. First, commercial prospects for the cable set-top box in developed markets are uncertain at best, as the devices increasingly are rendered less valuable — and potentially obsolete — by the proliferation of Internet-connected televisions and mobile devices such as smartphones and tablets, all of which detract from the consumer-controlling power of the cable box. In developing markets, moreover, other vendors, including a number of Chinese and Asian players, are getting more than their share of the cable set-top market in jurisdictions where it’s still a growing business.

Even Cisco itself has voiced ambivalence about the future of the set-top box.

Oh, there’s no question cable MSOs want to keep the boxes in subscribers’ homes for as long as possible. There’s also no doubt that vendors, such as Cisco, will try to adapt the boxes for new purposes and applications. Still, consumers ultimately will call the tune, and many MSOs seem to acknowledge that reality, looking to jack up the price of bandwidth to compensate for any loss of control as media-content gatekeepers.

Zeus Kerravala, an analyst with Yankee Group Research Inc., has put forth the following argument in favor of Cisco keeping Scientific Atlanta:

 “Everybody looks at set-top boxes and says Cisco should cut the set-top box. But that’s often part of a bigger sale to a cable company, with switches and routers. It would be detrimental to their relationships.”

Questioning the Logic

I question that line of reasoning. Several years ago, it might have had some merit, but circumstances have changed. I don’t think Cisco needs to be in the consumer-facing part of the cable business to succeed as a vendor of switches and routers to MSOs.

An appropriate analogy, though somewhat inverted, is to Nokia and its Nokia Siemens telecommunications-equipment joint venture. Once upon a time, Nokia realized value, through mutual reinforcement, in selling both networking gear and handsets to its carrier customers. Now, well, not so much. Ever since the advent of the iPhone, consumers rather than carriers drive handset selection. Tossing a bunch of handsets that nobody wants into a telecommunications-equipment deal isn’t going to seal the bargain.

Sell . . . Before It’s Too Late

I would argue that the same separation will occur, if it already hasn’t, in the cable world. Increasingly, as consumers resist set-top boxes and choose to consume their content through other devices, it won’t matter that Cisco can offer both network infrastructure and set-top boxes. The value propositions will have to stand on their own.

So, I will offer Cisco some admittedly unsolicited but free advice: Get out of the cable set-top box business. It’s more pain that it’s worth, it’s not your forte, and you need to focus your efforts and resources on bolstering other parts of your business.

Besides, Huawei might take the business off your hands for a pretty penny. You just have to persuade the US government to let them have it.

Cisco: The Merchant-Silicon Question

As reported by MarketWatch yesterday, Lazard Capital analyst Daniel Amir has written a note suggesting that Cisco Systems, “long a proponent of in-house solutions, has begun the shift to off-the-shelf Broadcom parts.”

Amir added that he expects Broadcom and, to a lesser extent, Marvell to benefit from Cisco’s move to merchant silicon, as well as from an intensification of an industrywide trend toward off-the-shelf parts.

Staying the ASIC Course

Many of Cisco’s networking rivals already have made the switch to merchant silicon. Cisco, along with Brocade Communications, has stayed the course with custom ASICs, believing that the in-house chip designs confer meaningful proprietary differentiation and attendant competitive advantage.

It’s getting harder for Cisco to make that case, though, as the company suffers market-share losses and margin erosion at the low end of the switching market, which is being inexorably commoditized, and as it also meets increasingly strong competitive headwinds from vendors such as Juniper Networks and Arista Networks in the some of the largest and most demanding data-center environments.

As Cisco’s recently announced layoffs attest, the company is under unprecedented pressure from shareholders to reduce costs. It’s also under the gun to raise its top line, but that’s a tougher problem that could take a while to remedy.

Need to Cut Costs

On the cost front, though, Cisco clearly cannot jettison employees indefinitely. It needs to look at other ways to reduce capital and operating expenditures without compromising its ability to get back on a sustainable growth trajectory.

Given the success of its competitors with off-the-shelf networking chips, one would think Cisco would stop swimming against the merchant-silicon tide. It’s likely that merchant silicon would help reduce Cisco’s development costs, allowing it to at least mitigate the margin carnage it’s suffering at the hands of HP and others in an increasingly price-sensitive networking world.

But even though Amir suggests that Cisco’s apparent dalliance with merchant silicon might not be a “one-time experiment,” it’s not a given that Cisco will ardently transition from home-brewed ASICs to off-the-shelf chips.

Mixed Signals

Just last month, Rob Soderbery, senior vice president and general manager of Cisco’s Unified Access business unit, contended that Cisco’s profits and market share in switching revenue might be taking a hit, but that it was holding its own it port-based market share. What’s more, Soderbery made the following statement regarding whether Cisco was considering adoption of merchant silicon over its custom ASICs:

 “There’s tremendous scale in our portfolio. We have competitive ASIC development. We always evaluate a make/buy decision. ASIC development is a core part of our strategy.”

Maybe Cisco, upon further review, has decided to change course, or perhaps Amir has misread the situation.

Next Setting Sun?

Nonetheless, EtherealMind.com’s Greg Ferro argued persuasively earlier this year that merchant silicon will dominate the networking-hardware market. If you haven’t read it, I advise you to read the whole piece, but here’s a money-shot excerpt:

 “I have the view that Merchant Silicon will dominate eventually, and physical networking products will become commodities that differentiate by software features and accessories – not unlike the “Intel server” industry (you should get the irony in that statement). As a result, any argument between “which is better – merchant or custom” is just matter of when you ask the question.

One interesting feature is that John Chambers continue to publicly state that custom silicon is their future. The are parallels with Sun Microsystems who continued to make their own processors in the face of an entire market shift, and that doesn’t appear to have worked out very well. In this another wrong footed innovation from Cisco? Time will tell.”

Besieged now by its shareholders as well as by its competitors, Cisco CEO John Chambers and his executive team are finding that time does not appear to be on their side.