HP’s Extreme Rumor

There’s a rumor making the rounds that HP might be interested in acquiring Extreme Networks.

It’s easy to understand why Extreme would be willing to sell, but it’s less obvious as to why HP would want to buy. Still, this rumor has intensified recently, and one would be remiss not to at least deal with it.

Unless something is wrong at HP Networking, I don’t see HP making this deal. While there are differing interpretations as to why HP acquired 3Com (H3C) back in 2009, the fact remains that HP now offers a relatively extensive array of networking gear from its 3Com acquisition and from its preexisting HP ProCurve product portfolio. The combined offerings now run the gamut, from branch-office and campus offerings to data-center switches.

At least nominally, HP has the networking bases covered, though some could contend (and have done so) that HP Networking might want to consider unifying its product portfolio under a single network operating system, most likely Comware.

Considering that HP arguably hasn’t finished integrating its networking operations, and also taking into account that HP already has an extensive networking portfolio, what could be the motivation, if any, for a rumored acquisition of Extreme Networks?

Maybe there’s nothing to this rumor, and HP has no motivation to acquire Extreme. If so, that puts the story to bed. If HP does make an Extreme move, though, questions will be asked, and rightly so.

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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.

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.

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.

With Release of Chassis Switch, Arista Makes Smooth Progress

Earlier this week, Arista Networks announced its first chassis switch, the Arista 7500, a modular 10-GbE box that the company says provides greater price-performance, higher port density, and better energy efficiency than competing products from Cisco, Extreme Networks, and others.

As you’d expect from a company teeming with savvy industry veterans, the product announcement was executed with exceptional aplomb, drawing press and analyst coverage that was extensive and, for the past, favorable. The product’s data sheet is impressive, and Arista’s marketing claims regarding the switch’s performance metrics and specifications are supported by benchmark tests conducted by EANTC.

Arista’s flagship switch, the 7500 will have to live up to its considerable promise. Self-funded by the company’s accomplished and illustrious founders, whom I have written about at length previously, Arista needs to grow its customer base and to continue to scale its revenue if it is to justify an eye-popping IPO or similarly majestic strategic exit. One of those outcomes must be the end game, because the principals at Arista would not be content with half measures.

According to CEO Jayshree Ullal, the company has 300 customers in more than 25 countries. As reported by HPCwire, about 30 percent of Arista’s customers are financial institutions involved in high-frequency trading. Other customers can be found in the oil-and-gas industry, universities, the US government (energy and defense), Web 2.0 data centers, and at hosting/cloud-computing providers.

The first customers for the 7500 are said to include the Howard Hughes Medical Institute, the San Diego Super Computer Center (SDSC), and an unnamed U.S. Department of Energy (DOE) laboratory.

If the the performance of 10-GbE chip vendors is a reliable barometer, the 10-GbE switching space has yet to fire on all cylinders. That could change, particularly as the industry shifts from the client-server, corporate-IT model to one emphasizing the merits of virtualization and cloud computing. Arista, from the hardware design of its products to the EOS network operating system that powers them, is purpose built to capitalize on the transition to cloud computing.

What Arista is doing today is analogous to what Cisco did in the early days of enterprise switching. One can perceive essentially the same strategic blueprint, marketing game plan, and emphasis on a few key points of competitive differentiation that Cisco exploited successfully back in the 1990s. But Cisco is not as nimble now as it was then, and Arista is counting on Cisco to demonstrate battleship-slow agility in responding to shifting market dynamics, changing technical requirements, and looming competitive threats.

Cisco, of course, has a lot distractions, chasing countless market adjacencies horizontally, vertically, and geographically.

Arista has bought the right groceries, is working from a proven recipe, and has star chefs in its kitchen. If customers buy what it’s serving, the company will be well on the way to achieving its goals.

Might Huawei Consider Extreme Acquisition?

It’s Friday, and I’m in an expansive mood. Speculation is in the air.

Extreme Networks is going through some difficult times, with executive overhauls, layoffs (reportedly still continuing), and stiff competition that figures to intensify now that HP is bringing 3Com under its corporate roof.

Fortunately for Extreme and its shareholders, the company’s acting CEO, Bob Corey, has an interesting track record. When he’s at a company, it tends to be acquired. Here’s some of Mr. Corey’s history, as recounted late last fall by Eric Savitz at Tech Trader Daily:

*Corey was CFO at Thor Technologies when it was acquired by Oracle in 2005.

*Corey was chairman of Interwoven when it was acquired by Autonomy in March 2009

*Corey was CFO at Forte Software at the time it was acquired by Sun Microsystems in October 1999.

*Corey was CFO of Documentum, until about a year before it was acquired by EMC.

Moreover, according to a Schedule 13D SEC filing last month, the Cowen Group’s Ramius LLC and its subsidiaries obtained significant stakes in Extreme. Not much has been written or said about this transaction, but it warrants attention.

Finally, we know Huawei would like to make acquisitions in the U.S. Recently, Huawei is said to have expressed interest in acquiring Motorola’s network-infrastructure unit. In connection with that bid, and perhaps others, Huawei reportedly has broached a “mitigation agreement” with the U.S. government, similar to the pact Alcatel signed when it acquired Lucent. The objective of the agreement would be to allay American concerns relating to national security.

In the past, Huawei’s acquisitive ambitions in the U.S. have been thwarted on national-security grounds. The Chinese networking company, alleged to have close ties with China’s defense and intelligence agencies, saw its bid for minority ownership of 3Com frustrated a few years ago when Bain Capital was discouraged from pursuing the deal by the U.S. government.

If Huawei can satisfactorily address the national-security concerns of the Obama Administration, it would be able to pursue not only an acquisition of Motorola’s network-infrastructure unit, but of other U.S.-based networking vendors, too.

Extreme might be a logical candidate. The company is available, it has a product portfolio of interest to Huawei (which wants to strengthen its enterprise offerings to counter HP/3Com and Cisco in China and elsewhere), and it has intellectual property (patents) that Huawei might find attractive.

Sure, Extreme has lost a lot of engineering talent in Silicon Valley during its recent struggles. But Huawei doesn’t need engineers. It has plenty of those in China.

While this post is entirely speculative, I would not be surprised to see Huawei make an enterprise acquisition. Extreme wouldn’t be the only option available to Huawei, but it would probably be the easiest to execute in terms of regulatory constraints and integration challenges.

Cisco Counts on Smart Grid for Growth in Mature Markets

Information technology and communications (ITC) companies are looking to play a valuable and lucrative role in furnishing the two-way communications infrastructure that will be integral to the smart grid.

Cisco Systems, for example, sees the smart grid as $100-billion opportunity

Ned Hooper, a chief strategy officer and senior vice president in Cisco’s consumer business, touched on the smart grid today while speaking at the Morgan Stanley Technology Media & Telecom Conference about his company’s transition from legacy business models to new growth-oriented strategies.

The reference to the smart grid arose as Hooper addressed a question regarding growth opportunities in mature geographic markets (such as North America), where market saturation limits the incremental gains Cisco can achieve among enterprise and service-provider customers.

In answering the question, Hooper pointed to the smart grid as having considerable potential for growth.

Quoting from a post by Sam Diaz at ZDNet’s Between the Lines blog:

The energy infrastructure has gone decades without an update. But through Cisco’s technology, the utilities can build information and knowledge into the power distribution network so they can not only operate more efficiently but also help their customers to better manage their own power consumption. For example, the company is working on launching some pilots this summer that basically puts a router-like device into a home so that the energy consumption data networks with other information databases so the consumer knows, for example, how much he is spending per hour by running the air conditioner on a hot summer day – in real-time, not just when the bill arrives.

Remember that Hooper’s purview is the consumer space. Cisco’s role in the smart grid will extend throughout the communications and transport layers of the entire ecosystem. The company also could emerge as a meaningful player in some aspects of the smart-grid application layer.

Latest Market Data Prompts Questions on Cisco Dominance

New data on the state of the Ethernet-switching market surfaced yesterday and today.

First, Dell’Oro Group reported that the Ethernet-switching market grew sequentially at a 20-percent clip in the fourth quarter of 2009. As a result, Cisco, HP, and Juniper were said to have added $600 million in incremental revenue.

Said Alan Weckel, director of research at Dell’Oro:

“Year-end budget spending and supply constraints from the previous quarter helped propel market growth in the fourth quarter. We expect the market to continue to expand in 2010, especially as 10-Gigabit Ethernet continues to grow not only as a server connectivity technology but also as an aggregation technology within the data center.”

Indeed, growth in the Ethernet-switch market is being driven exclusively by adoption of 10-GbE in data centers.

The next piece of market data came from Nikos Theodosopoulos, research analyst with UBS Research. Om Malik reports that Theodosopoulos combed through the Dell’Oro data, did some analysis, and made a few observations of his own. Salient among them is that Cisco is suffering market-share erosion — albeit not of the vertiginous sort — across many of its core switching and routing product groups, among both carrier and enterprise customers.

As reported by Jim Duffy of Network World, Theodosopoulos found that, while Cisco lost share in 2009, vendors such as HP, 3Com, Juniper, Brocade gained ground in the market for Layer 2 and 3 switches. Higher up the stack, F5 Networks and Citrix captured share in the Layer 4-7 segment.

On the routing side of house, Alcatel-Lucent and Juniper advanced relative to Cisco in carrier edge routing. In core routing, Huawei increased its share by nearly two percent while Cisco lost a touch of ground. Meanwhile, Cisco’s share was unchanged in 2009 in enterprise routing.

So, is this the beginning of a steady decline in Cisco’s mainstay businesses? It’s far too early to say. It could be nothing more than a short-term anomaly conditioned by severe recessionary conditions (though Cisco has gained share in previous downturns). Besides, Cisco’s switching and routing franchises are so entrenched that meaningful deterioration in the company’s business fundamentals would be unlikely to occur for some time.

Steady commoditization is the biggest threat CIsco faces in its switching and routing redoubts, and the company saw that threat coming long before now. Confronting low-priced, good-quality, standardized gear from Huawei and 3Com (among others), Cisco knew it had to diversity its product portfolio, not just into higher-end hardware — where it hasn’t done as well against F5, for example, as it might like — but also into software and services.

Just take a look at all the emerging market adjacencies Cisco has entered, including (but not limited to) forays into home networks and home-network management; telepresence, videoconferencing, and video-based collaboration; web-based collaboration and unified communications; mobile video cameras (the Flip); networked digital signage and video-based surveillance; and smart-grid infrastructure. Cisco isn’t stopping there, either. It will continue to push into other markets where data networking confers a feasible mandate.

The challenge for Cisco comes in growing these emerging markets, with their sustainable margins, while coming under mounting commodity pricing pressure in its established switch and router markets. Analysts should closely monitor how quickly these emerging spaces gain substantive traction for Cisco.

Now, you might reasonably ask, where does Cisco’s Unified Computing System (USC) fit? Some people think it was a mistake for Cisco to move into blade servers, that the networking giant made an ill-considered move when it encroached on the territory of erstwhile partner HP and others, such as IBM and Dell.

However, I think Cisco felt it had no choice. The future vendor value in data centers will derive from convergence and integration, which means software and services will be essential to success. The hardware, whether represented by servers or switches, will become commoditized.

Today, that hardware still provides revenue and some margin, but it can also serve as a platform for account consolidation. Fist, though, it’s essential to consolidate the hardware, which is exactly what Cisco and HP are doing. They’re using consolidated hardware to create integrated data-center solution stacks, effectively trying to lock out other players and manage account presence. They’re using hardware for initial leverage, but that’s not the end game.

IBM is taking a different tack, having made the transition to relatively sophisticated data-center software and accompanying services well before its two big rivals altered their courses. Some think IBM will buy a networking vendor, such as Juniper, but I’m not so sure. I think IBM views the underlying hardware as an interchangeable commodity, just the underlying plumbing above which orchestration and management software will run the show.

This battle is just beginning, though, so the vendors — and this humble observer — reserve the right to change tack.

Avaya Must Avoid Distractions in Nortel Integration

If all goes according to plan, Avaya will take possession of insolvent Nortel’s enterprise assets, won at auction for approximately $900 million in September.

It’s at that point that Avaya will face some difficult decisions and daunting challenges. As it integrates and assimilates Nortel products and employees — not to mention its channel partners — Avaya will contend with multiple overlaps and redundancies. In most cases, those overlaps will be resolved in favor of products within Avaya’s portfolio. Nonetheless, as an article at Network World suggests, Nortel products might prevail in rare exceptions.

Avaya will have to decide whether it wishes to prolong the lives of Nortel’s switch and security portfolio. These are the products — minus Alteon load balancers, small-office/home-office gear, and blade switches, which now belong to Radware, Netgear, and Blade Network Technologies, respectively — that Nortel inherited when it acquired Bay Networks for $9.1 billion in 1998, back when the Internet seemed a limitless, gurgling fountain of obscene wealth.

There’s not much of Bay Networks left standing within Nortel. What remains really isn’t worth Avaya’s bother of keeping it alive. The cost to Avaya wouldn’t just be manifest in the bills associated with maintaining, supporting and extending the product portfolio. Additional “opportunity costs” would be incurred in the form of lost partnerships with vendors that sell networking products similar to those, but (in most cases) better than, the Nortel switches and security boxes. (Current Avaya enterprise-networking partners include HP ProCurve, Extreme Networks, and Brocade/Foundry.)

Besides, the Nortel switches would be a distraction, a once-shiny, now-irredeemably tarnished bouncy ball that Avaya executives would be remiss to chase. They’ll get some useful things from the Nortel acquisition, but the ex-Bay stuff isn’t among them.

Avaya would be wise to keep its eye on its core enterprise-communications business. Whether those communications involve VoIP alone, or unified communications, it will face tough competition from Cisco. Avaya has neither the scale nor the resources to compete with Cisco right across the enterprise board.

Accordingly, the company should strive to keep Cisco’s enterprise-networking enemies among its allies as it wades into battle.

Implications of HP’s 3Com Buy for Other Networking Players

As I mentioned yesterday, HP didn’t get revolutionary, game-changing products and technologies from its $2.7-billion acquisition of 3Com, a company that has gone through more reinventions and market repositionings than Madonna.

In 3Com’s long and eventful history, it has gone from providing the original Ethernet adapters and hubs for enterprises and small businesses, to an acquisition of Chipcom for its chassis-based hubs and switches, to deserting the enterprise market entirely — even directing its jilted corporate customers into the outstretched arms of Extreme Networks.

Subsequently, after a dalliance with consumer markets, 3Com focused on the SMB space before coming back to enterprise markets in its H3C joint venture with Huawei.

That joint venture is now deceased, with 3Com having bought out Huawei’s interest. It now competes against its former partner for the patronage of customers in China and elsewhere. (This is an important point that some people have gotten entirely wrong. 3Com and Huawei no longer are partners in H3C. The loss of Huawei-related business in China represented a serious drag on H3C revenue and necessitated the “China Out” strategy that 3Com pursued.)

Nevertheless, 3Com was reborn on the foundation of cost-effective Chinese engineering, which I believe was a big draw for HP.

Putting all that aside, what does HP’s buy of 3Com mean for smaller vendors in the marketplace, those left out of this latest installment of industry consolidation?

Let’s start with Juniper, one of the bigger independent networking vendors still on the board. As long as it continues to build on its data-center strategy, and to strengthen its partnerships with IBM and Dell, it should survive HP’s onslaught.

Recently, Juniper underwent a rebranding and repositioning of its own, albeit not as dramatic or radical as some of 3Com’s transformations. Juniper overriding message is that it presents a flexible, intelligent, and open alternative to the closed, proprietary systems offered by data-center behemoths Cisco and HP.

To get that message across, Juniper has introduced open, programmable capabilities in its flagship JUNOS software. It also announced new JUNOS chips and systems, including the JUNOS One line of processors and JUNOS Trio chipset with “3D Scaling,” a technology that provides dynamic support for additional subscribers, services, and bandwidth.

Juniper also unveiled new JUNOS-based cloud-networking and security products, including enhancements to Juniper’s SRX Services Gateway as well as modules, implementation guides, and best practices for building a “Cloud Ready Data Center.”

You can see what Juniper is attempting to do.

As much as its server-vendor partners, especially IBM, would like networking hardware to be interchangeable, standards-based commodities managed by an intelligent layer of data-center orchestration software, Juniper is seeking to make itself indispensable by providing its own layer of software intelligence riding atop the network fabric. If it can sell IBM and Dell on the necessity and value of that software, and it can develop and expose interfaces to complementary software its partners are promoting, all should be well and no nasty divorces will ensue.

To survive and perhaps to prosper, Juniper has to execute on its plan and maintain its partnerships.

Now let’s consider Brocade. Reports indicated that HP considered Brocade as an alternative to 3Com. Obviously, HP chose the latter, and I think the decision turned on the lower cost of goods and margin flexibility that 3Com’s enterprise-switching products offered relative to Brocade’s Foundry enterprise-networking gear.

There have been rumors that Dell might buy Brocade, but I think you can discount, if not dismiss, such speculation. Dell is content, for now, to stay with its partnering approach in filling out its data-center strategy. It seems to be mimicking IBM, following a similar plan and establishing similar technology alliances and partnerships. Dell has priorities other than big-ticket computer-networking acquisitions, and I can see it buying storage- and virtualization-software companies well before it gives consideration to a networking buy.

So, despite its best efforts to flog itself, Brocade appears orphaned.

The same story applies to Extreme Networks, which is left without a bigger corporate home to move into. Like Juniper, Extreme seems to have had a good indication where the industry — and perhaps HP — was heading, because it recently restructured and retrenched to significantly reduce its operating expenditures.

Extreme will suffer from the broader consolidation in the industry. Its first priority is to defend its installed base from competitive incursions.

What about WAN-optimization vendor Riverbed and application-delivery-networking (ADN) leader F5 Networks?

F5 probably isn’t for sale — it has been dogged by takeover rumors for years — but neither 3Com nor HP competes meaningfully on F5’s specialized turf. This deal means nothing to F5, which probably will maintain its long-running partnership with HP. If you liked F5 before this deal was announced, you have no reason to dislike the company today.

The story is similar, though not identical, for Riverbed, whose WAN-optimization products also have no direct competitor in the ProCurve or 3Com product portfolio.

So, there you have it.

HP’s acquisition of 3Com is only slightly damaging to Juniper, whose fate will turn on the success of its strategic direction with JUNOS and its partnerships with IBM and Dell.

For different reasons, the deal will have significant negative implications for Brocade and Extreme Networks. Finally, the deal is neutral for, and really doesn’t affect, F5 and Riverbed.

Some of you might be wondering about how this deal affects Cisco. I don’t think it really adds anything lethal to HP’s product portfolio, especially in relation to data-center convergence, but the lower-cost networking products likely to flow from 3Com’s Chinese engineering operations will put price pressure on Cisco’s margins.

At the end of the day, though, Cisco — which is pursuing a large number of “market adjacencies” and is suffering from attenuated focus in its legacy markets — might well become its own worst enemy over the long haul.

Dell’s OEM Deal with Juniper Likely to Spark Further Action

In announcing their OEM agreement today, Dell and Juniper Networks potentially have triggered an interesting sequence of events among vendors of enterprise servers and networking gear.

The deal itself will see Dell rebrand Juniper’s MX Series routers, EX Series Ethernet switches, and SRX Series services gateways as Dell PowerConnect products.

In many respects, the deal is similar to one IBM struck with Juniper to sell many of the same products. There are differences between the deals, though, which have more to do with the respective strengths of Dell and IBM than with the Juniper products involved.

As David Helfer, vice president of OEM at Juniper, told InternetNews.com:

“Our relationship with Dell is complementary to our partnership with IBM. Our go-to-market model and the presence that Dell has in the market, both in small and medium-sized business as well as in public sector, are strengths of Dell and we look forward to partnering with Dell out in the field.”

Simply put, Juniper sees IBM as its pathway into the largest of enterprise accounts and it sees Dell as its conduit into SMB and government customers.

Of course, Dell and IBM also share an OEM relationship with Brocade Communications. In many respects, at least in relation to its networking partnerships, Dell seems to be following IBM’s lead.

Like IBM, Dell perceives a difference between what Juniper’s networking products offer customers and what Brocade’s gear brings to the party, even though there is an overlap in data-center switching between Juniper’s EX Series switches and Brocade’s Foundry switches.

Speaking with InternetNews.com, Larry Hart, senior manager of networking at Dell, explained:

“Both of these partners come at the solution from slightly different perspectives. Brocade is largely coming at it from a storage perspective and has a very healthy business in Ethernet LAN switching, while Juniper is a recognized leader in WAN and security solutions and they bring expertise in that space.”

“By having this type of choice for our customers, we’re giving them the variety and option to deliver on the promise of the efficient enterprise.”

Dell is correct in arguing that Juniper’s products offer distinct advantages in Layer 3 routing, WAN connectivity and security. Nonetheless, the folks at Brocade can’t be pleased, particularly because this deal — and what it portends about Dell’s approach toward data-center networking — would seem to put at least a temporary kibosh on a rumored (by some, anyway) Dell acquisition of Brocade.

More than ever, Dell seems to be following IBM’s playbook.

Like IBM, Dell has chosen not only the same OEM networking partners, but also the same integrative services-led approach to putting together converged data-center solutions atop standards-based hardware infrastructure. With Perot, Dell now has a services team — albeit a smaller one than IBM’s — that can execute on the plan, though it lacks the software depth and breadth that IBM possesses. My guess is that Dell will pursue storage- and virtualization-software acquisitions in the months ahead to bolster its data-center credibility.

For Juniper, this is a good deal. It places it in the center of the action, working both with IBM in the largest enterprise accounts and with Dell in SMB markets and government and healthcare.

While many observers have noted that the deal intensifies competition between Cisco and Juniper, it also deepens competitive antagonisms between Juniper and HP, which has a similar data-center strategy to Cisco’s, except that HP started from servers and extended outward to network infrastructure whereas Cisco started in networking and has branched out to servers. Both vendors want to be soup-to-nuts, one-stop solution providers in the converged data center.

In cutting OEM deals with IBM and now with Dell, Juniper is furthering the strategic objectives of HP”s data-center-server competitors.

What will be interesting now is HP’s reaction. It could go it alone, continuing to build out its homegrown networking and storage infrastructure. That’s the conservative option, and it’s probably the one HP will take.

However, if HP really wanted to be a big cat among the pigeons, if it wanted to throw its server-vendor rivals into convulsions of data-center confusion, it would consider acquiring Juniper.

Not only would HP benefit from Juniper’s core data-center switching and routing technologies, but it would strike a devastating strategic blow at two major competitors. That’s just my mischievous mind at work, and I have no idea whether HP would make such a move. Still, the idea must be tempting for Mark Hurd and the HP ProCurve Networking bosses.

There would be overlap, though, between ProCurve and Juniper, and that’s the aspect of the deal that HP would have to consider carefully before pulling the trigger.

This deal also has consequences for smaller networking players. As data-center convergence takes hold, smaller players such as Extreme Networks, Enterasys, and 3Com are left in dire straits competitively. They could reposition in niche markets and the SMB space, but Dell and others will find them there, too.

As Yankee Group’s Zeus Kerravala bluntly stated in comments to Network World:

“The Seven Dwarfs are dead. This is a whole different landscape. It’s not just networking; it’s networking and computing combined.”

The vertically challenged vendors to which Kerravala alluded are Cisco’s seven adversaries in Ethernet enterprise switching, all of which battle for the 75% of the market not controlled by the networking giant.

Those players, no doubt, will be rooting for an HP acquisition of Juniper, which would give them a scintilla of hope that they might play a meaningful role — or serve as acquisition bait — for Dell and IBM.

Today’s announcement is sure to trigger further moves on the data-center chessboard. All eyes now turn toward HP, which is likely to reply in one way or another.

Extreme Tightens Belt in Bid to Endure

After warning that it wouldn’t meet expectations for its fiscal first quarter, Extreme Networks didn’t offer any surprises when it reported its financial results yesterday.

With an interim CEO and 70 fewer employees than it had a week ago, Extreme will attempt to restructure so that it can break even on revenue of about $70 million in future quarters.

Network World’s Tim Greene reported that, as part of the restructuring, the company also eliminated the job of chief counsel, getting rid of Robert Schlossman and replacing him with Vice President Diane Honda. After reviewing the company’s website, Greene deduced that Extreme’s head of human resources and head software developer also have departed the company.

In its second fiscal quarter, Extreme expects revenue between $76 and $78 million. On average, analysts are expecting the company to report revenue of $75 million, according to estimates from Reuters. We’ll see whether Extreme can hit the numbers.

The company said it fell short of its targets in the first quarter because of supply-chain issues, but market watchers say Extreme suffered at least as much from its own poor execution as well as from intensifying competition.

Skepticism regarding the company is strong. Many analysts and investors think Extreme is battening down the hatches and just trying to survive until it can find a buyer.

Said Zeus Kerravala, Yankee Group analyst:

“They’re in a tough spot. This is a company that’s truly having a hard time finding its way. . . .

When you look at all the network vendors out there, what problem is it that Extreme is trying to solve that isn’t being solved by somebody else? If you look at data centers, all the emphasis is on converged fabric, and they just don’t have a roadmap to get there. I think they’ll go the route of Enterasys. They’ll get smaller and smaller and continue to exist off their installed base until their assets get acquired by somebody else.”

That increasingly seems to be Extreme’s ultimate fate.