Monthly Archives: July 2011

On Further Review, the Cius Still Looks Doomed

I’m returning to the topic of the Cisco Cius, but I promise I won’t make it an obsession.

My view of the commercial prospects for the Cius has shifted significantly during the past year, from when Cisco first announced the pseudo-tablet to now, as it prepares to ship the device, presumably in something approximating volumes. Back in the summer of 2010, I thought the Cisco Cius might have a fighting chance of currying favor within the company’s installed base, playing to IT decision makers with a practical and broad-based extension of its video-collaboration strategy.

Changing Landscape

Some things have changed since then. The Apple iPad franchise, as we all know, has gone from strength to strength. iPads now proliferate in small businesses and enterprises as well as in homes. They’ve crossed the computing rubicon from the consumer realm to the business world. They, like iPhones and other smartphones, also have helped to engender the much-discussed “consumerization of IT,” whereby consumers have insisted on bringing their favorite devices to the office, where they have been gradually and grudgingly accepted by enterprise IT departments under imperatives from CFOs to bring down IT-related capital and operating expenses.

That has cut into Cisco’s appeal. Cisco, as a big old-school enterprise player, didn’t count on consumerist employees having any appreciable say in the navigation of the enterprise IT ship. Cisco, as the Flip debacle, made obvious, is not exactly a popular consumer brand, notwithstanding the barrage of television commercials it has unleashed on couch potatoes during the last several years.

One could also argue that the commoditization of a broad swathe of enterprise-networking equipment, led by Cisco competitors, also is slashing into the giant’s dominance as well as its margins. Moreover, it remains to be seen how the inexorable march of virtualization and cloud computing will redefine the networking universe and Cisco’s role as the brightest star in that firmament.

 Penny-Pinching as New Normal

Then there are macroeconomic factors. Everywhere in the developed world, IT buyers at SMBs and large enterprises alike are trying to save hard-earned money. Cisco can wave cost-of-ownership studies all it wants, but most network and technology buyers do not perceive Cisco products as money savers. Consequently, there’s a big push from buyers, as perhaps never before, for open, standards-based, interoperable solutions that are — you guessed it — cheaper to buy than the proprietary solutions of yore.

So, it all amounts to a perfect storm driving right through the heart of John Chambers’ once-peaceful neighborhood. This is true for Cisco’s entire product portfolio, not just the Cius, but I’m writing about the Cius today — not that I’m obsessed with it, you understand — so let me pull things back into tighter focus now.

 Trying to Stop the Phones from Bleeding 

With the Cius, Cisco still seems to the think that the old rules, the old market dynamics, and its old customer control still apply. I thought more about this yesterday when I received an email message from a regular reader (imagine that!) who pointed out to me that Cisco is right about one thing: The Cius isn’t a tablet.

I’ll quote directly from his message:

The Cius isn’t a tablet  — it only looks like one.  It’s a desktop and video phone.  Cisco is in this business because PCs and wireless handsets are subsuming the function of the enterprise desktop phone (thanks to Microsoft Lync, Apple iPhone, Android, etc.).  Their phone business is a multi-billion dollar per year business.  I agree — the Cius is a distraction, but they have to do *something* to protect that desktop phone revenue stream.  Tough spot.

These are perceptive comments, and they’re borne out by recent articles and analysis on Cisco’s Cius push. All of which makes me feel, even more than when I wrote my Cius post of earlier this week, that the product is doomed to, as Mike Tyson said in one of his best malapropisms, “fade into Bolivian.” 

Gambit Won’t Work

Cisco has made a lot of money selling desktop IP phones, but that gravy train, like so many others, is drawing fewer passengers at each station. The trends I mentioned above — stronger consumer-oriented offerings from competitors in smartphone and tablets, the consumerization of IT, the enterprise focus on cutting IT costs wherever possible, and a concomitant pull away from premium proprietary technologies — are threatening to eviscerate Cisco’s IP phone franchise.

Hence, the Cius. But, even as a defensive bulwark, it doesn’t work. At the end of the day, CIsco might see an IP phone replacement when it looks at the Cius through its rose-colored glasses, but customers will see it for what it is — a relatively high-priced, seven-inch tablet running a smarphone-version of Android, and tied to proprietary video, voice, and collaboration solutions. Both the Cius and the AppHQ go strongly against the tide of IT consumerization and mobile-platform heterogeneity. That’s not a tide Cisco can reverse.

With sublime brevity, my reader-correspondent said it best: Tough spot.

Dell Might Announce Networking Acquisition Next Week

As those of you who regularly visit this dusty outpost of the blogosphere will know, I recently took a shot at handicapping which networking company Dell might acquire. I assembled a field of nine entries, considered the likelihood that Dell would pursue a transaction with each of them, and assigned odds to each scenario.

Before writing that post, I had read and heard mounting speculation about the increasing likelihood of Dell buying its way into networking to consummate and round out integrated data-center solutions (servers, storage, networking) and to compete more effectively against competitors HP and Cisco.

The drumbeat for a networking acquisition by Dell has only gotten louder and more insistent since then. Now the word on the street — and in the pubs, in the cafes, on the patios, at the gyms, and on the fairways — is that Dell might announce its networking buy as early as next week.

Furthermore, multiple sources, spanning the gamut of reliability, tell me that the company Dell will buy is the one I listed as the 5-2 favorite in my mildly diverting handicapping exercise.  (The candidate I listed at 7-2 was alleged to have been in the running, too.)

Nothing is a given, of course, until the announcement goes out over the wires, but the word is that Dell has made its choice, going with the favorite, and will tell the world all about it imminently.

Maybe I should shorten the odds accordingly.

Chambers’ Disconcerting Cius Pitch

In his keynote presentation to Cisco Live in Las Vegas earlier today, Cisco CEO John Chambers repented for his earlier sins against stakeholder value and vowed to make amends.

Devalued Credibility

A few short years ago, Chambers’ word would have been his bond, and his bonds would have traded at high value on any market. These days, Chambers’ words are met with skepticism.

If John Chambers has lost some luster, so has his company.  Cisco had been the worst-performing Dow stock this year until it staged a mild rally and edged past Bank of America earlier today. Even Ralph Nader, who is a Cisco shareholder as well a consumer activist, is unhappy with the company’s stock and the stewardship of its CEO.

Cisco customers, partners, suppliers, and investors now know that the networking giant and its braintrust aren’t infallible. That’s okay, of course. We all make mistakes. What’s important is that we learn from the mistakes we make, avoid repeating the same ones, and work diligently to be right more often than we are wrong. When we slip up, we want the miscues to be minor, the successes to be big.

Lessons Learned?

That’s what Cisco and Chambers will try to do now, but one wonders whether they’ve learned the lessons administered during the company’s humbling time in market purgatory.

It wasn’t long ago, just two years back to be exact, that John Chambers was lavishing praise upon the Flip video camera. Chambers proclaimed that the Flip, which came to Cisco through the acquisition of Pure Digital, was — along the video in general — the future of both consumer and enterprise communication.

We all know now that the Flip won’t play a part in Cisco’s future or the in the future of video communication. Cisco killed the Flip, realizing that it was destined to fail against smartphones that increasingly came equipped with video capabilities approximating those of the video-only Flip.

Chambers Says Cius is Hot, but it’s Not

If Chambers had learned from the Flip debacle, one could let him take the mulligan and move on. But I’m so sure the Flip was an aberration. Today, Chambers said the following about an overpriced Android tablet that appears to have much dimmer prospects than the Flip had back in 2009:

 “You’re beginning to see it (the Cius) launch in volume. I believe this product is going to be really hot.” 

I realize that the success or failure of the Cius will not seal Cisco’s fate. The Cius could go the way of the dinosaur, or the Flip, and Cisco would still endure. Cisco’s destiny will turn on how well it defends its core markets while finding and sustaining growth in, yes, those much-maligned market adjacencies. All the while, Cisco will have to outmaneuver competitors in adjusting to ongoing virtualization, cloud computing, increased mobility, and the growing cost-consciousness of enterprise and service-provider technology buyers in developed markets. It’s a daunting challenge.

Unnecessary Distraction

Cisco doesn’t need doomed distractions like the Cius. What’s more, what Cisco is trying to do with Cius — selling tablets to corporate IT departments to foist on their employees — goes against everything that we’re seeing today in the marketplace. The Cius lacks consumer appeal, does not run the latest tablet-optimized version of Android, is overpriced, has a less-than-optimal seven-inch display, and isn’t really designed to be anything more than a mobile access point, or adjunct, for Cisco’s proprietary collaboration and Telepresence technologies. It goes completely against the grain of the seemingly inexorable wave of IT consumerization.

It feels, well, outdated, like something an out-of-touch legacy vendor would try to force down the throats of its customers, failing to recognize that the rules and the game have changed.

Maybe Chambers was just switched to autopilot cheerleader mode and he was giving everything, including the Cius, the pitchman’s hard sell. In this case, one hopes he isn’t buying his own bluster.

Handicapping Dell Networking Acquisition Candidates

There’s a strong possibility that Dell will make a networking acquisition in the near future. In the spirit of fun, I thought it would be mildly entertaining, and perhaps edifying — though I don’t want to push it — to handicap the field of potential candidates, providing morning-line odds for each vendor.

Brocade 5-2

I addressed the Dell-Brocade scenario in a previous post.

Even though there are reasons Dell might not pursue Brocade, the company is a logical candidate and should be considered the favorite. As any gambler can tell you, however, favorites don’t always win, and there’s a chance Dell will look elsewhere in the field for its networking play.

Juniper Networks 7-1

Dell resells Juniper’s enterprise switches and security boxes under its own PowerConnect brand, but a lot of what Juniper offers, particularly routers to carriers and service providers, isn’t a Dell priority.  What’s more, Juniper would prefer to remain independent, has other major partnerships (especially with IBM), and believes it is well placed to take share from Cisco at carriers and service providers as virtualization proliferates and cloud computing takes hold.

Last, but probably not least, Juniper’s market capitalization, at more than $16 billion, makes it prohibitively expensive. Dell’s cash hoard amounts to more than $14 billion, but I doubt it wants to break the bank  on a single transaction.

Aruba Networks 10-1

Dell sells Aruba’s wireless networking solutions under the Dell PowerConnect W-Series. Aruba is seen to benefit from continued growth in enterprise wireless networking. Still, Dell is probably happy to leave the relationship as it stands.

Enterasys 12-1

The two companies were active partners several years back, but not much is happening today. Not likely.

 Arista Networks 7-1

Michael Dell is enthusiastic about the prospects for 10GbE and cloud computing. Arista probably isn’t willing to sell, but my guess is that Dell — seeing Arista’s gains against Cisco in financial services, with more possibly to come in other verticals — would be interested.

That said, Arista seems destined for an IPO. The company’s CEO Jayshree Ullal has said she is asked often by customers about Arista’s exit strategy, and she replies that the company’s plan is to remain independent.

Extreme Networks 6-1

Extreme and Dell have an existing partnerships, with the former’s switches supporting Dell’s EqualLogic iSCSI SAN arrays. Extreme also has the 10GbE  switching of which Michael Dell is so enamored.

Extreme isn’t an industry leader, and it’s still struggling for traction in a competitive marketplace, but it’s active in many verticals where Dell is strong — including healthcare — and Dell might feel it could do relatively well with such a cost-effective purchase. (Extreme’s market capitalization is $314 million.) It could be a good way Dell to make a modest entry into networking, though it would create complications with existing partners.

 Force10 Networks  7-2

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.

 F5 Networks 8-1

Dell is the largest reseller of F5 products, and the relationship clearly is working for both companies. Dell resells not only F5’s flagship BIG-IP application-traffic controller, but also the company’s ARX file-virtualization appliance.

Dell and F5 have a great partnership, but I think Dell believes F5 isn’t going anywhere — it will likely remain independent, despite the perennial rumors that it could be acquired — and will agree to leave well enough alone.

Riverbed Technology 8-1

Riverbed and Dell are partners, with Riverbed’s Steelhead WAN-optimization appliances and Dell EqualLogic PS Series iSCSI SAN arrays deployed together in disaster-recovery and centralized data-backup applications.

The relationship works, Dell has other near-term priorities, and an acquisition of Riverbed would be relatively pricy and still leave Dell with networking gaps.

Any Others? 

It’s possible Dell will look elsewhere, perhaps at an emerging niche player, so I’ll leave the field open for late entrants. If you think any should be included, let me know.

How Cisco Arrived at the Crossroads

As reports of Cisco’s impending layoffs intensify and spread, I started thinking about how the networking giant got into its current predicament and whether it can escape from it.

One major problem for the company is that the challenges it faces aren’t entirely attributable to its own mistakes. If Cisco’s own bumbling was wholly responsible for the company’s middle-life crisis, one might think it could stop engaging in self-harm, right the ship, and chart a course to renewed prosperity.

Internal Missteps Exacerbated by External Factors

But, even though Cisco has contributed significantly to its own decline — with a byzantine bureaucratic management structure replete with a multitude of executive councils, half-baked forays into consumer markets about which it knew next to nothing, imperial overstretch into too many markets with too many diluted products, and the loss of far too many talented leaders — external factors also played a meaningful role in bringing the company to this crossroads.

Those external factors comprise market dynamics and increasingly effective incursions by competitors into Cisco’s core business of switching and routing, not just in the telco space but increasingly — and more significantly — in enterprise markets, where Cisco heretofore has maintained hegemonic dominance.

If we look into the recent past, we can see that Cisco saw one threat coming well before it actually arrived. Before cloud computing crashed the networking party and threatened to rearrange data-center infrastructure worldwide, Cisco faced the threat of network-gear commoditization from a number of vendors, including the “China-out” 3Com, which had completely remade itself into a Chinese company with an American name through its now-defunct H3C joint venture with Huawei.

Now, of course, 3Com is part of HP Networking, and a big draw for HP when it acquired 3Com was represented by the cost-effective products and low-priced engineering talent that H3C offered. HP reasoned that if Cisco wanted to come after its server market with Unified Computing System (UCS), HP would fight back by attacking the relatively robust margins in Cisco’s bread-and-butter business with aggressively priced networking gear.

Cisco Prescience

HP’s strategy, especially in a baleful macroeconomic world where cost-cutting in enterprises and governments is now an imperative rather than a prerogative, is beginning to bear fruit, as recent market-share gains attest.

Meanwhile, Cisco knew that Huawei, gradually eating into its telecommunications market share in markets outside North America, would eventually seek future growth in the enterprise. It was inevitable, and Cisco had to prepare for the same low-priced, value-based onslaught that Huawei waged so successfully against it in overseas carrier accounts. In the enterprise, Huawei would follow the same telco script, focusing first on overseas markets — in its home market, China, as well as in Asia, the Middle East, Europe, and South America — before making its push into a less-receptive North American market.

That is happening now, as I write this post, but Cisco had the prescience to see it on the horizon years before it actually occurred.

Explaining Drive for Diversification

What do you think that hit-and-miss diversification strategy — into consumer markets, into home networking, into enterprise collaboration with WebEx, into telepresence, into smart grids, into so much else besides — was all about? Cisco was looking to escape getting hit by the bullet train of network commoditization, aimed straight at its core business.

That Cisco has not excelled in its diversification strategy into new markets and technologies shouldn’t come as a surprise. Well before it make those moves, it had failed in diversification efforts much closer to home, in areas such as WAN optimization, where it had been largely unsuccessful against Riverbed, and in load balancing/application traffic management, where F5 had throughly beaten back the giant. The truth is, Cisco has a spotty record in truly adjacent or contiguous markets, so it’s no wonder that it has struggled to dominate markets that are further afield.

Game Gets More Complicated

Still, the salient point is that Cisco went into all those markets because it felt it needed to do so, for revenue growth, for margin support, for account control, for stakeholder benefit.

Now, cloud computing, with all its many implications for networking, is roiling the telco, service provider, and enterprise markets. It’s not certain that Cisco can respond successfully to cloud-centric threats posed by data-center networking vendors such Juniper Networks as Arista Networks or by technologies such as software-defined networking (as represented by the OpenFlow protocol).

Cisco was already fighting one battle, against the commoditizing Huaweis and 3Coms of the world, and now another front has opened.

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.

Dell: Brocade and CommVault Rumors Redux

 
Dell is sitting on more than $15 billion in cash and investments, and we should expect that the diversifying computer mainstay will tap that money in pursuit of further acquisitions in 2011.

Brocade: A Reasonable Target for Dell

I have heard repeatedly that Dell wants to make a networking acquisition. The most logical target, given Dell’s increased storage profile in recent years, is Brocade Communications. Dell already resells Brocade’s Fiber Channel SAN switches, and Brocade’s technology plays well with Dell’s earlier acquisition of Compellent Technologies. An acquisition of Brocade would boost Dell’s margins, allowing it to become a vendor, rather than a reseller, of SAN switches.

There’s considerable logic supporting a Dell acquisition of Brocade, but there are some reasons to think it won’t happen, too. Brocade has a current market capitalization of about $3.15 billion, and it’s not unthinkable Dell would have to offer at least $4 billion to seal a deal.

Big Deal, Big Risks

The larger the deal, the bigger the risk that integration and assimilation won’t go smoothly. Dell would prefer smaller, digestible deals, and Brocade could result in acquisitive indigestion. Additionally, even though there’s technological logic underlying a potential Dell bid for Brocade, the market and channel profiles of the two companies are not perfectly aligned and could result in post-merger complications.

Furthermore, recent indications within Brocade suggest a sale of the company isn’t necessarily imminent. Its now-former CFO, Richard Deranleau, left the company recently to “pursue other interests.”  Seemingly knowledgeable observers believe Deranleau would have stuck around if a deal for the company had been in the works.

Let’s also remember that Brocade isn’t exactly a new focus of takeout rumors. Every few months, if not more frequently, Brocade is said to be on the block or on the cusp of an impending acquisition. Those deals did not develop, and it’s possible the latest flurry of Dell rumors will fall into the same uneventful bucket.

OEM Entanglements

One reason Brocade might have remained on the shelf, to speak, might involve the nature of its OEM agreements with vendors that include not only Dell but also IBM, HP, EMC, Oracle, Hitachi, Fujitsu, among others. It’s top three OEM resellers — HP, IBM, and EMC — account for about half the company’s revenue.

It’s reasonable to assume that those companies might have included language in their OEM contracts with Brocade that protect themselves and their customers from potentially injurious consequences resulting from Brocade being merged with or acquired by another vendor. Citi analyst John Slack is among those who have contended that Brocade’s existing OEM agreements might cause difficulties for a buyer of the company.

That said, as mentioned above, Brocade would be a reasonable addition to Dell’s storage-centric strategic buildout. It makes sense technologically, and could happen, but that doesn’t mean it will.

CommVault Rumors Return

Meanwhile, CommVault has been perennially rumored to be a Dell acquisition target. Again, it’s a plausible scenario. Dell is a major reseller of CommVault’s Simpana data-management software, accounting for 23 percent of the company’s revenue. Just as in the case of Brocade, Dell could improve its margins significantly by directly selling those products to its channel partners and customers rather than functioning as a reseller.

But the rumor about Dell acquiring CommVault has circulated, quite literally, for years. If Dell wanted to lock up CommVault, it could have done so before now, at a price more favorable than CommVault’s current market capitalization of more than $2 billion. (And, in any deal that might transpire, CommVault would negotiate a significant premium over its current market cap.)

Unless, of course, CommVault wasn’t open to acquisition proposals. Some contend CommVault will be even less amenable to acquisition now that it has struck a potentially lucrative OEM deal with NetApp. If Dell finally wishes to consummate a deal with CommVault, it might be forced to pay a relatively hefty price.

HP’s TouchPad: Ground to Make Up, but Still in Race

After I wrote my last post about the limited commercial horizons of Cisco’s Cius tablet, I was asked to comment on the prospects for HP’s webOS-based TouchPad.

A Tale of Two Tablets

Like Cisco’s Cius, the TouchPad made its market debut this month, a few weeks ahead of its Cisco counterpart. The two tablets also have an enterprise orientation in common. Moreover, like Cisco’s Cius, the TouchPad was greeted with ambivalent early reviews. Actually, I suppose the early reviews for the TouchPad, while not glowing, were warmer than the tepid-to-icy responses occasioned by Cisco’s Cius.

There are other differences between the two tablets. For one, HP’s TouchPad sports its own mobile operating system, whereas Cisco has chosen to ride Google’s Android. There’s nothing wrong with Cisco’s choice, per se, but HP, in buying Palm and its webOS, has a deeper commitment to making its mobile-device strategy work.

As we’ve learned, Cisco is casting the Cius as an entry point — just one more conduit and access device — to its collaboration ecosystem as represented by the likes of WebEx and its Telepresence offerings.

Different Aspirations and Objectives

Put another way, HP clearly sees itself as a player in the tablet wars, while, for Cisco, tablets are incidental, a tactical means to a strategic end, represented by greater adoption of bandwidth-sucking collaboration suites and videoconferencing systems by enterprises worldwide. Consequently, it would come as no surprise to see Cisco bail on the tablet market before the end of this year, but it would come as a genuine shock if HP threw in the towel on webOS (and its associated devices) during the same timeframe.

That won’t happen, of course. HP believes it can carve out a niche for itself as a mobile-device purveyor for enterprise customers. To accomplish that goal, HP will port webOS to PCs and printers as well as to a growing family of tablets and smartphones. It also will license webOS to other vendors of tablets and smartphones — and perhaps to other vendors of PCs, too, presuming such demand materializes. Cisco doesn’t have an OS in the mobile race, so it doesn’t have those sorts of aspirations.

Multiple Devices, Bundling, and Services

Another difference is that HP actually knows how to make money selling client devices with more than a modicum of consumer appeal. That’s still uncharted territory for Cisco. In a period in which “consumerization of IT” is much more than a buzz phrase, it helps that HP has some consumer chops, just as it hurts that Cisco does not. Presuming that HP can generate demand from end users — maybe that’s why it is using the decidedly non-corporate Russell Brand as its TouchPad pitchman — it can then use bundling of webOS-based tablets, smartphones, printers, and PCs to captivate enterprise IT departments.

To top it all off, HP can wrap up the whole package with extensive consulting and integration services.

I’m not saying HP is destined for greatness in the tablet derby — the company will have to persevere and work hard to address perceived weaknesses and to amass application support from the developer community — but I’d wager that HP is better constituted than Cisco to stay the course.

Limited Horizons for Cisco Cius

Cisco’s Cius Android-based tablet will be available for purchase later this month, but it’s difficult to envision how or why it would be bought by anybody other than hardcore Cisco shops that have made substantial investments in Cisco’s enterprise collaboration and telepresence technologies.

With the Cius, and much else lately, Cisco seems to be predicating its strategy and tactics on an antiquated playbook (pardon the pun). While the world moves toward cost-effective, multivendor technologies and embraces consumerization of IT, Cisco still stubbornly pushes to be a one-stop shop for network infrastructure and much else besides. What’s more, the company is completely disregarding the consumerization wave, failing to recognize that corporate IT bosses and their departments are compelled to find ways to embrace the trend to cut enterprise costs and boost productivity.

It’s Not a Tablet

To make matters worse, Cisco’s Cius runs Android 2.2, not the tablet-optimized Android 2.3. It’s as if Cisco, perhaps under the assumption that its installed base of enterprise collaboration and telepresence customers will follow its lead obediently, couldn’t even be roused to deliver a competitive product. The price, at $750 per unit, also suggests that Cisco thinks its loyal customers will pay a sticker-shock premium for anything that ships with the company logo stamped on the box.

Cisco, for its part, has persuaded some analysts to believe that, appearances to the contrary, it’s not really a tablet vendor, even though it’s about to start shipping what is unquestionably a tablet at the end of July. The Cius, you see, is just, an entry point into Cisco’s collaboration ecosystem.

Counting on the Fans

I suppose that’s as good a way as any for Cisco to attempt to avoid direct comparisons between the price and performance of the seven-inch Cius and those of competing devices, including a new crop of ten-inch Android-based tablets that are about to hit the market as well as the ubiquitous Apple iPads that C-level executives have brought into their enterprises.

Cisco is hoping to use an enterprise app store, AppHQ, and security as hooks that will keep current customers in the fold and bring new ones into its tent. However, in an era of heterogeneous mobile-device management (MDM) suites and equally heterogeneous mobile-security suites — which seem to offer cost and flexibility advantages over the proprietary Cisco alternative in the vast majority of deployment scenarios — Cisco’s Cius market adoption will be limited to the vendor’s most zealous enterprise fan base.