Daily Archives: September 13, 2011

Intel-Microsoft Mobile Split All Business

In an announcement today, Google and Intel said they would work together to optimize future versions of the  Android operating system for smartphones and other mobile devices powered by Intel chips.

It makes good business sense.

Pursuit of Mobile Growth

Much has been made of alleged strains in the relationship between the progenitors of Wintel — Microsoft’s Windows operating system and Intel’s microprocessors — but business partnerships are not affairs of the heart; they’re always pragmatic and results oriented. In this case, each company is seeking growth and pursuing its respective interests.

I don’t believe there’s any malice between Intel and Microsoft. The two companies will combine on the desktop again in early 2012, when Microsoft’s Windows 8 reaches market on PCs powered by Intel’s chips as well as on systems running the ARM architecture.

Put simply, Intel must pursue growth in mobile markets and data centers. Microsoft must similarly find partners that advance its interests.  Where their interests converge, they’ll work together; where their interests diverge, they’ll go in other directions.

Just Business

In PCs, the Wintel tandem was and remains a powerful industry standard. In mobile devices, Intel is well behind ARM in processors, while Microsoft is well behind Google and Apple in mobile operating systems. It makes sense that Intel would want to align with a mobile industry leader in Google, and that Microsoft would want to do likewise with ARM. A combination of Microsoft and Intel in mobile computing would amount to two also-rans combining to form . . . well, two also-rans in mobile computing.

So, with Intel and Microsoft, as with all alliances in the technology industry, it’s always helpful to remember the words of Don Lucchesi in The Godfather: Part III: “It’s not personal, it’s just business.”

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Talk of CEO Succession at Cisco

As Cisco has struggled to adapt to the protracted global market downturn and the “recoveryless” recovery — it’s been going on so long, perhaps we should just call it the Information-Age Depression — the company’s CEO, John Chambers, has been subject to unfamiliar criticism from investors and industry observers alike.

Then again, Cisco’s shares have stagnated for much of the last decade, leading some to contend that Chambers and his thinning bench of executive talent were long overdue for reproach.  Indeed, it’s a measure of Cisco’s great success under Chambers, especially during the hypergrowth 90s, that he was spared the scrutiny that other executives would have received under similar circumstances. Cisco’s blazing growth and industry dominance in its earlier incarnation gave Chambers and crew protective cover from criticism — until now.

Glory Days Fade

One can only feast on the glory deals for so long. Cisco still dominates enterprise networking, but its market share is receding gradually. The company hasn’t been able to find the growth it expected from Chambers’ “market adjacencies,” and it was forced to abort an ill-considered foray into the consumer space, shutting down Pure Digital Technologies and its Flip video camcorders earlier this year.

What’s more, the company’s inorganic growth-by-acquisition model, which served it so well in the 1990s and into the last decade, seems to be sputtering, with Cisco making fewer acquisitions and not batting its formerly exalted average on the ones it does make. Cisco executives who directed and executed some of its most successful acquisitions — Charlie Giancarlo and Mike Volpe among them — no longer are with the company, which might partly explain Cisco’s faltering M&A pace.

Hoisted on Its Own Petard

However, Cisco also has put itself into a box of its own devising, having parked most of cash overseas to avoid US taxation. Until that money is repatriated, whether through a “tax holiday” or otherwise, Cisco will be forced to evaluate acquisitions partly on where its money resides rather than exclusively on the basis of strategic requirements. It’s a perverse dilemma, but ultimately Cisco was the author of its own misfortune.

That’s been doubly unfortunate because Cisco had become dependent on acquisitions to provide its innovation. Years ago, competitors alleged that Cisco couldn’t innovate organically, and I also felt that accusation was harsh and unfair. Now, though, it’s difficult to contend that Cisco is providing enough value-bestowing innovation to drive top-line growth or to support its traditionally robust profit margins.

Finally, Cisco has seen scores of talented executives, and their intellectual capital, leave the company in recent years. This summer thousands of employees were shown the door. Others, some with reserves of institutional memory and hard-won experience, took early retirement.

Chambers Reportedly Leaving

Cisco has seen better days, and it’s no wonder that shareholders are demanding a change of leadership. A Reuters news item reports that John Chambers might be about to relinquish the big chair, with discussion inside and outside the company intensifying about Cisco’s CEO succession plans.

Some sources say Chambers might announce his departure imminently while others say he’ll want to leave on a high note, perhaps after an expectation-smashing quarter. Timing aside, it seems all but certain that Chambers will be gone before long.

Reviewing the Field of Candidates

That has occasioned rampant speculation about who will succeed him. Candidates have been proposed from inside and outside Cisco, and some apparently are campaigning for the job, lobbying shareholders and board members for support.

The current consensus is that Cisco will look externally for its next CEO rather than promote from within.  That view implicitly questions the depth of the executive bench strength currently at Cisco.

Potential external candidates mentioned by Reuters include former Hewlett-Packard CEO Mark Hurd and former Cisco executives Charles Giancarlo, Mike Volpi, Gary Daichendt, and James Richardson. Other industry executives cited as possible contenders include Juniper Networks Inc CEO Kevin Johnson, former McAfee CEO Dave DeWalt, and HP executive David Donatelli.

Hurd Worst Fit

Some dark-horse candidates undoubtedly will surface, too, but of those mooted by Reuters, I think Mark Hurd perhaps is the worst fit. Hurd’s specialty is operational efficiency and relentless cost-cutting. As Cisco’s latest layoffs and austerity attest, operational discipline isn’t necessarily the company’s most urgent requirement.

What Cisco really needs is somebody who knows how to identify, nurture, and lead the next wave of growth. I respectfully submit that Mark Hurd is not that candidate. It’s probably a moot point, because Hurd has a pretty cushy sinecure as co-president at Oracle.

Of the others, one or more of the former Cisco executives might be good candidates, including Daichendt and Richardson. Presuming Cisco can repatriate its mountain of overseas cash, Volpi or Giancarlo might be able to resuscitate Cisco’s growth-by-acquisition model.

Casting an eye at those who’ve never been at Cisco,  I question whether Donatelli is the right fit, and I suspect that Kevin Johnson will remain at Juniper. Former McAfee CEO Dave DeWalt is an interesting possibility. He has a mix of operational, sales, and M&A aptitude that Cisco’s board might find compelling.

Perhaps the good folks at Betfair should establish a “market” on the next Cisco CEO.