Cisco to Cut Staff; EMC Speculation Vanishes

Gleacher & Co. analyst Brian Marshall drew some notice earlier today when he wrote that Cisco could slash as many as 5,000 positions, about seven percent of its workforce, next month. Marshall estimated that the cull “could incrementally reduce Cisco’s pro forma operating expenses by about $1 billion annually.”

Cisco Confirms Cuts

Marshall said the estimates were his own, based on what he believed Cisco needs to do to meet its meet its $1-billion objective for reduced annual expenses. Cisco later confirmed that job cuts are coming in August, though it did not indicate how many employees would be affected. Previously, Cisco had been encouraging employees to take early-retirement packages.

At the same time he made his projections about how many workers Cisco might need to jettison, Marshall also speculated that Cisco should seek a “transformative merger” with EMC. On that theme, Marshall apparently opined that a combination with EMC would give Cisco “better exposure to enterprise storage trends, ownership of the VMware asset for virtualization, a more robust security offering and a better collection of IT service professionals.”

I included the qualifier “apparently” in the preceding sentence because it seems Bloomberg and BusinessWeek, which both earlier today published a report including references to Marshall’s musings regarding a Cisco takeout of EMC, have excised any mention of EMC from subsequent iterations of the coverage.

Marshall’s M&A Advice Disappears

It’s hard to tell what that means, if anything. All I know is that the earliest version of the story included reference to Marshall’s advice that Cisco buy EMC, and later iterations of the story made no mention of EMC. It’s odd, but strange things happen when news is published in realtime.

Presuming I did not hallucinate — and a report by Jim Duffy over at NetworkWorld suggests I did not — what are we to make of Marshall’s recommendation? Well, it wouldn’t the first time somebody has suggested that Cisco acquire EMC, and it probably won’t be the last. The conjecture or rumor (or whatever else you want to call it) has had more comebacks than Brett Favre. It’s an old chestnut that gets repeated plays on analysts’ virtual jukeboxes.

Given its current valuation, though, EMC probably isn’t going anywhere. At the conclusion of stock-market trading today, EMC had a market capitalization of more than $56.1 billion, whereas Cisco had a market capitalization of $84.8 billion. Cisco has made a few sizable acquisitions in its time — though it established its wheeler-dealer bones on smaller, bite-size technology buys — but it never has done a deal on the gargantuan scale that would be required to land EMC.

Cisco’s Repatriation Holiday

What’s more, Cisco still has most of its cash overseas, It’s lobbying the U.S. government assiduously for a repatriation tax holiday, but that break hans’t been accorded yet. Even if Cisco were desperate enough to abandon its old acquisition playbook and splash out obscene amounts of cash and stock for EMC — and, for the record, I think Cisco is teetering on the cusp of becoming seriously desperate — it is not in a position to make the move until its overseas cash hoard (of approximately $31.6 billion) has been repatriated.

Even then, does EMC want to sell? Like every other vendor out there, EMC faces daunting challenges as the ascent of cloud computing realigns the data-center landscape. Still, one could make a compelling case that EMC, with its storage leadership and its 80-percent-plus ownership of VMware, is better placed than most vendors, including Cisco, to survive and even thrive in that brave new world. Does it really want to take Cisco stock — any deal would have to involve Cisco shares as well as cash — as part of a potential transaction? I don’t see it happening.

Dividing the Spoils

Cisco might have concerns regarding its share of the spoils from its Virtual Computing Environment (VCE) joint venture with EMC, which perhaps partly explains why it has partnered increasingly aggressively with NetApp on the FlexPod converged infrastructure architecture. Nonetheless, Cisco isn’t in a position to buy EMC, and EMC isn’t willing to part with its majority-owned VMware, so even a more modest deal is off the table.

Could Cisco buy NetApp? It could, but such a move would entail a different set of consequences, risks, and rewards, all of which we will save for another post.

Cloud Buyers Put Vendors on Notice

No matter where you look in the vendor community, cloud-computing strategies proliferate. It doesn’t matter whether the vendors sell servers, storage, networking gear, management software, or professional services, they are united in their fervor to spin compelling private, public, and hybrid cloud narratives.

Secret Sauce or Sticky Glue?

At the same time, of course, many of these vendors seek competitive differentiation that features a proprietary secret sauce that ultimately serves more as glue than comestible, binding paying customers to them indefinitely.

Customers, many of which are familiar with the history of information technology, are cognizant of the vendor maneuvering. They’ve seen similar shows in the past, and they know how those productions usually end — with customers typically bound to technology investments they may not want to perpetuate while enmeshed in unhealthy relationships with vendors that delivered dependency disguised as liberation.

Ideally, vendors and customers should enjoy mutually beneficial relationships, with each side deriving value from the engagements. Unfortunately, vendors seek not only to deliver value to customers, but also to differentiate themselves from their competitors, often by finding a way of locking the latter out of their customer base. Proprietary technologies — not so interoperable with the those offered by other vendors — often serve the purpose.

Won’t Get Fooled Again

In the realm of cloud computing, customers are trying not to get fooled again. They’re banding together on multiple fronts to ensure that their requirements are fully acknowledged in the development and realization of cloud-computing industry standards covering data portability, cloud interoperability, and cloud security. What they obviously fear is that big vendors, without customer oversight and constant vigilance, will find ways to gerrymander the standards process in their favor, perhaps to the long-term disadvantage of cloud-computing clientele.

With that in mind, organizations such as the Cloud Standards Customer Council (CSCC), announced by OMG in April, and the Open Data Center Alliance, launched last fall, have formed.

The Open Data Center Alliance bills itself as an independent IT consortium led by global IT organizations – including BMW, China Life, Deutsche Bank. JPMorgan Chase, Lockheed Martin, Marriott International, Inc. and other well-known corporate entities — that is committed to provide a unified vision for long-term data center and cloud infrastructure requirements. It pursues that objective through the development of a vendor-agnostic usage-model roadmap. Intel Corporation serves as a technical advisor to the alliance, which suggests that it is not without vendor representation.

For its part, the Cloud Standards Customer Council also is infused with vendor blood. Among its founding enterprise members are IBM, Kaavo, CA Technologies, Rackspace, and Software AG.  Organizations (and major IT buyers) that have joined the council include Lockheed Martin, Citigroup, State Street, and North Carolina State University.

It’s interesting that Lockheed Martin is involved with both the Open Data Center Alliance and the Cloud Standards Customer Council. That indicates that, while overlap between the two bodies might exist, Lockheed Martin believes each satisfies — at least for it needs and from its perspective — a distinct purpose.

Activist Language

The Cloud Standards Customer Council says it is an “end user advocacy group dedicated to accelerating cloud’s successful adoption, and drilling down into the standards, security, and interoperability issues surrounding the transition to the cloud.” It says it will do the following:

• Drive customer requirements into the development process to gain acceptance by the Global 2000
• Deliver customer-focused content in the form of best practices, patterns, case studies, use cases, and standards roadmaps.
• Influence the standards development process for new cloud standards.
• Facilitate the exchange of real-world stories, practices, lessons and insights.

Its tone, despite the presence of vendors among its founding members, is relatively activist regarding the urgent need for customer requirements and real-world insights as essential ingredients in the standards-making process.

It remains to be seen how the Cloud Standards Customer Council and the Open Data Center Alliance will evolve, separately and together, and it’s also too early to say whether customers will be entirely successful in their efforts to get what they want and need from cloud-computing standards bodies.

Nonetheless, there’s already a tension, if not a distrust, between buyers and sellers of cloud-computing technology and services. The vendors are on notice.