Category Archives: M&A

Cisco Puts ACE in the Hole (or Maybe Not)

Although Cisco reportedly confirmed that it will discontinue further development of its Application Control Engine (ACE), a Cisco representative now says that it isn’t the case, and that ACE will be developed further.

Regardless of what Cisco eventually does with ACE, we have not seen the last of the company in the application-delivery controller (ADC) market. In fact, the latest indications, as published in articles at SearchNetworking and The Register, suggest that Cisco, like Arnold Schwarzenegger in The Terminator, will be back.

The salient question is whether Cisco’s next foray into the ADC market, regardless of the form it takes, will produce results any different from its previous efforts, which were catalogued by yours truly about two years ago. Indeed, Cisco has been beaten consistently and repeatedly by F5 Networks in load balancing. Cisco’s losing streak goes back more than a decade, and it is likely to continue if the company stumbles back into the market halfheartedly.

While there is no question that F5 has gotten the better of Cisco continually in load balancing, a more interesting question relates to why Cisco has failed. One line of reasoning suggests that Cisco neither understands nor appreciates Layer 4-7 network services, including load balancing and WAN optimization. Cisco, this argument asserts, is a switching and routing company, proficient at layers 2 and 3, but woefully out of its comfort zone higher up the stack.

Bigger Picture

There’s some legitimacy to that argument, but it doesn’t provide a complete picture. More often than not, Cisco’s load-balancing products and technologies were predicated on the fruits of acquisitions rather than on organic innovation. That is true going all the way back to the long-dead LocalDirector, which was based on technology Cisco obtained through the acquisition of Network Translation Inc. in 1996. Subsequent to that, Cisco acquired former F5 competitor ArrowPoint Communications for $5.7 billion in 2000.  The personnel in these load-balancing companies clearly understood network services, even if the old-guard switching and routing stalwarts at Cisco did not.

So, we’re left with two possibilities. Cisco made bad acquisition choices, effectively acquiring the wrong load-balancing companies, or Cisco failed to execute properly in taking the products and technologies of the acquired companies to market. I’m leaning toward the latter scenario.

Cisco’s primary problem in areas such as load balancing and WAN optimization, as it has been expressed to me by former Cisco executives, is that the company strategically understands that it needs to play in these markets, but that it invariably fails to make the commitment necessary to success. Why is that?

A Matter of Focus and Priority

It comes down to market sizes and business priorities. Switching and routing always ruled the roost, and the resources, at Cisco. That’s still true today, perhaps even to a greater extent now that the company is coming under renewed attack in its core markets after failing to break new ground in many of what CEO John Chambers called the company’s market adjacencies. (Flip, anyone?)

Fundamentally, nothing seems to have changed. Cisco might take another run at ADCs, but there’s no reason to suppose that it would end differently this time unless Cisco makes a sustained and uncompromising commitment to the market and the technologies. Nothing less will do.

Cisco can be sure that is ADC competitors, as in the past, will not give it any breaks.

Amazon-RIM: Summer Reunion?

Think back to last December, just before the holidays. You might recall a Reuters report, quoting “people with knowledge of the situation,” claiming that Research in Motion (RIM) rejected takeover propositions from Amazon.com and others.

The report wasn’t clear on whether the informal discussions resulted in any talk of price between Amazon and RIM, but apparently no formal offer was made. RIM, then still under the stewardship of former co-CEOs Jim Balsillie and Mike Lazaridis, reportedly preferred to remain independent and to address its challenges alone.

I Know What You Discussed Last Summer

Since then, a lot has happened. When the Reuters report was published — on December 20, 2011 — RIM’s market value had plunged 77 percent during the previous year, sitting then at about $6.8 billion. Today, RIM’s market capitalization is $3.7 billion. What’s more, the company now has Thorsten Heins as its CEO, not Balsillie and Lazardis, who were adamantly opposed to selling the company. We also have seen recent reports that IBM approached RIM regarding a potential acquisition of the Waterloo, Ontario-based company’s enterprise business, and rumors have surfaced that RIM might sell its handset business to Amazon or Facebook.

Meanwhile, RIM’s prospects for long-term success aren’t any brighter than they were last winter, and activist shareholders, not interested in a protracted turnaround effort, continue to lobby for a sale of the company.

As for Amazon, it is said to be on the cusp of entering the smartphone market, presumably using a forked version of Android, which is what it runs on the Kindle tablet.  From the vantage point of the boardroom at Amazon, that might not be a sustainable long-term plan. Google is looking more like an Amazon competitor, and the future trajectory of Android is clouded by Google’s strategic considerations and by legal imbroglios relating to patents. Those presumably were among the reasons Amazon approached RIM last December.

Uneasy Bedfellows

It’s no secret that Amazon and Google are uneasy Android bedfellows. As Eric Jackson wrote just after the Reuters story hit the wires:

Amazon has never been a big supporter of Google’s Android OS for its Kindle. And Google’s never been keen on promoting Amazon as part of the Android ecosystem. It seems that both companies know this is just a matter of time before each leaves the other.

Yes, there’s some question as to how much value inheres in RIM’s patents. Estimates on their worth are all over the map. Nevertheless, RIM’s QNX mobile-operating system could look compelling to Amazon. With QNX and with RIM’s patents, Amazon would have something more than a contingency plan against any strategic machinations by Google or any potential litigiousness by Apple (or others).  The foregoing case, of course, rests on the assumption that QNX, rechristened BlackBerry 10, is as far along as RIM claims. It also rests on the assumption that Amazon wants a mobile platform all its own.

It was last summer when Amazon reportedly made its informal approach to RIM. It would not be surprising to learn that a reprise of discussions occurred this summer. RIM might be more disposed to consider a formal offer this time around.

Between What Is and What Will Be

I have refrained from writing about recent developments in software-defined networking (SDN) and in the larger realm of what VMware, now hosting VMworld in San Francisco, calls the  “software-defined data center” (SDDC).

My reticence hasn’t resulted from indifference or from hype fatigue — in fact, these technologies do not possess the jaundiced connotations of “hype” — but from a realization that we’ve entered a period of confusion, deception, misdirection, and murk.  Amidst the tumult, my single, independent voice — though resplendent in its dulcet tones — would be overwhelmed or forgotten.

Choppy Transition

We’re in the midst of a choppy transitional period. Where we’ve been is behind us, where we’re going is ahead of us, and where we find ourselves today is between the two. So-called legacy vendors, in both networking and compute hardware, are trying to slow progress toward the future, which will involve the primacy of software and services and related business models. There will be virtualized infrastructure, but not necessarily converged infrastructure, which is predicated on the development and sale of proprietary hardware by a single vendor or by an exclusive club of vendors.

Obviously, there still will be hardware. You can’t run software without server hardware, and you can’t run a network without physical infrastructure. But the purpose and role of that hardware will change. The closed box will be replaced by an open one, not because of any idealism or panglossian optimism, but because of economic, operational, and technological imperatives that first are remaking the largest of public-cloud data centers and soon will stretch into private clouds at large enterprises.

No Wishful Thinking

After all, the driving purpose of the Open Networking Foundation (ONF) involved shifting the balance of power into the hands of customers, who had their own business and operational priorities to address. Where legacy networking failed them, SDN provided a way forward, saving money on capital expenditures and operational costs while also providing flexibility and responsiveness to changing business and technology requirements.

The same is true for the software-defined data center, where SDN will play a role in creating a fluid pool of virtualized infrastructure that can be utilized to optimal business benefit. What’s important to note is that this development will not be restricted to the public cloud-service providers, including all the big names at the top of the ONF power structure. VMware, which coined software-defined data center, is aiming directly for the private cloud, as Greg Ferro mentioned in his analysis of VMware’s acquisition of Nicira Networks.

Fighting Inevitability

Still, it hasn’t happened yet, even though it will happen. Senior staff and executives at the incumbent vendors know what’s happening, they know that they’re fighting against an inevitability, but fight it they must. Their organizations aren’t built to go with this flow, so they will resist it.

That’s where we find ourselves. The signal-to-noise ratio isn’t great. It’s a time marked by disruption and turmoil. The dust and smoke will clear, though. We can see which way the wind is blowing.

Chinese Merchant-Silicon Vendor Joins ONF, Enters SDN Picture

Switching-silicon ODM/OEM Centec Networks last week became the latest company to join the Open Networking Foundation (ONF).

According to a press release, Centec is “committed to contributing to SDN development as a merchant silicon vendor and to pioneering in the promotion of SDN adoption in China.” From the ONF’s standpoint, the more merchant silicon on the market for OpenFlow switches, the better.  Expansion in China doubtless is a welcome prospect, too.

Established in 2005, Centec has been financed by China-Singapore Suzhou Industrial Park Venture Capital, Delta Venture Enterprise, Infinity I-China Investments (Israel), and Suzhou Rongda. A little more than a year ago, Centec announced a $10.7-million “C” round of financing, in which Delta Venture Enterprise, Infinity I-China Investments (Israel), and SuZhou Rongda participated.

Acquisition Rumor

Before that round was announced, Centec’s CEO James Sun, formerly of Cisco and of Fore Systems, told Light Reading’s Craig Matsumoto that the company aspired to become an alternative supplier to Broadcom in the Ethernet merchant-silicon market. As a Chinese company, Centec not surprisingly has cultivated relationships with Chinese carriers and network-gear vendors. In his Light Reading article, in fact, Matsumoto cited a rumor that Centec had declined an acquisition offer from HiSilicon Technologies Co. Ltd., the semiconductor subsidiary of Huawei Technologies, China’s largest network-equipment vendor.

Huawei has been working not only to bolster its enterprise-networking presence, but also to figure out how best to utilize SDN and OpenFlow (and OpenStack, too).  Like Centec, Huawei is a member of the ONF, and it also has been active in IETF and IRTF discourse relating to SDN. What’s more, Huawei has been hiring SDN-savvy engineers in China and in the U.S.

As for Centec, the company made its debut on the SDN stage early this year at the Ethernet Technology Summit, where CEO James Sun gave a silicon vendor’s perspective on OpenFlow and spoke about the company’s plans to release a reference design based on Centec’s TransWarp switching silicon and an SDK with support for Open vSwitch 1.2. That reference design subsequently was showcased at the Open Networking Summit in April.

It will be interesting to see how Centec develops, both in competitive relation to Broadcom and within the context of the SDN ecosystem.

Avaya Questions Mount

Those of you following the tortuous (some might call it torturous) saga of Avaya Inc. might wish to visit the investor-relations section of Avaya’s website or peruse Avaya’s latest Form-10Q filing on the SEC website.

Yes, Avaya’s numbers for its third fiscal quarter of 2012, which ended on June 30, are available for review. I have given the results a cursory look, and I’ve concluded that the story hasn’t changed appreciably since I last wrote about Avaya’s travails. There’s still no prospect of significant revenue growth, quarterly losses continue to accrue, channel sales are edging lower across the company’s product portfolio, and the long-term debt overhang remains formidable.

Goodwill Impairment? 

And there’s something else, which I neglected to mention previously: a persistently high amount of goodwill on the asset side of the ledger, at least some of which might have to be written down before long. The company’s goodwill assumptions seem willfully optimistic, and even Avaya concedes that “it may be necessary to record impairment charges in the future” if “market conditions continue to deteriorate, or if the company is unable to execute on its cost-reduction efforts.” While I believe the company will persist with its cost-reduction efforts, I don’t see a meaningful near-term turnaround in macroeconomic conditions or in the growth profile of the company’s product portfolio. Ergo, impairment charges seem inevitable.

In this regard, what you need to know is that Avaya is carrying goodwill of about $4.2 billion on its books as of June 30, up from nearly $4.1 billion as of September 30, 2011. The company’s total assets are about $8.24 billion, which means goodwill accounts for more than half that total.

For those desirous of a quick summary of revenue and net loss for the year, I can report that total revenue, including sales of products and services, amounted to $1.25 billion in the quarter, down from $1.37 billion in the corresponding quarter last year, a year-on-year decrease of $122 million or about 9 percent. Product sales were down across the board, except in networking, where sales edged up modestly to $74 million in the quarter this year from $71 million last year. Service revenue also was down. For the nine-month period ended on June 30, revenues also were down compared to the same period the previous year, dropping from $4.13 billion last year to about $3.9 billion this year.

Mulling the Options

Avaya’s net loss in the quarter was $166 million, up from $152 million last year.

The critical challenge for Avaya will be growth. The books show that the company is maintaining level spending on research and development, but one wonders whether its acquisition strategy or its R&D efforts will be sufficient to identify a new source of meaningful revenue growth, especially as it finds itself under mounting pressure to contain costs and expunge ongoing losses. Meanwhile, a foreboding long-term debt looms, kicked down the road but still a notable concern.

With the road to IPO effectively blocked — I really can’t see a way for Avaya to get back on that track now — Avaya’s private-equity sponsors, Silver Lake Partners and TPG Capital, must consider their options. Is there a potential strategic acquirer out there? Can the company be sold in whole, or will it have to be sold in parts? Or will the sponsors just hang on, hoping continued cost cutting and a strategic overhaul, perhaps including a change in executive leadership, might get the company back on course?

Xsigo: Hardware Play for Oracle, Not SDN

When I wrote about Xsigo earlier this year, I noted that many saw Oracle as a potential acquirer of the I/O virtualization vendor. Yesterday morning, Oracle made those observers look prescient, pulling the trigger on a transaction of undisclosed value.

Chris Mellor at The Register calculates that Oracle might have paid about $800 million for Xsigo, but we don’t know. What we do know is that Xsigo’s financial backers were looking for an exit. We also know that Oracle was willing to accommodate it.

For the Love of InfiniBand, It’s Not SDN

Some think Oracle bought a software-defined networking (SDN) company. I was shocked at how many journalists and pundits repeated the mantra that Oracle had moved into SDN with its Xsigo acquisition. That is not right, folks, and knowledgeable observers have tried to rectify that misconception.

I’ve gotten over a killer flu, and I have a residual sinus headache that sours my usually sunny disposition, so I’m no mood to deliver a remedial primer on the fundamentals of SDN. Suffice it to say, readers of this forum and those familiar with the pronouncements of the ONF will understand that what Xsigo does, namely I/O virtualization, is not SDN.  That is not to say that what Xsigo does is not valuable, perhaps especially to Oracle. Nonetheless, it is not SDN.

Incidentally, I have seen a few commentators throwing stones at the Oracle marketing department for depicting Xsigo as an SDN player, comparing it to Nicira Networks, which VMware is in the process of acquiring for a princely sum of $1.26 billion. It’s probably true that Oracle’s marketing mavens are trying to gild their new lily by covering it with splashes of SDN gold, but, truth be told, the marketing team at Xsigo began dressing their company in SDN garb earlier this year, when it became increasingly clear that SDN was a lot more than an ephemeral science project involving OpenFlow and boffins in lab coats.

Why Confuse? It’ll be Obvious Soon Enough

At Network Computing, Howard Marks tries to get everybody onside. I encourage you to read his piece in its entirety, because it provides some helpful background and context, but his superbly understated money quote is this one: “I’ve long been intrigued by the concept of I/O virtualization, but I think calling it software-defined networking is a stretch.”

In this industry, words are stretched and twisted like origami until we can no longer recognize their meaning. The result, more often than not, is befuddlement and confusion, as we witnessed yesterday, an outcome that really doesn’t help anybody. In fact, I would argue that Oracle and Xsigo have done themselves a disservice by playing the SDN card.

As Marks points out, “Xsigo’s use of InfiniBand is a good fit with Oracle’s Exadata and other clustered solutions.” What’s more, Matt Palmer, who notes that Xsigo is “not really an SDN acquisition,” also writes that “Oracle is the perfect home for Xsigo.” Palmer makes the salient point that Xsigo is essentially a hardware play for Oracle, one that aligns with Oracle’s hardware-centric approaches to compute and storage.

Oracle: More Like Cisco Than Like VMWare

Oracle could have explained its strategy and detailed the synergies between Xsigo and its family of hardware-engineered “Exasystems” (Exadata and Exalogic) –  and, to be fair, it provided some elucidation (see slide 11 for a concise summary) — but it muddied the waters with SDN misdirection, confusing some and antagonizing others.

Perhaps my analysis is too crude, but I see a sharp divergence between the strategic direction VMware is heading with its acquisition of Nicira and the path Oracle is taking with its Exasystems and Xsigo. Remember, Oracle, after the Sun acquisition, became a proprietary hardware vendor. Its focus is on embedding proprietary hooks and competitive differentiation into its hardware, much like Cisco Systems and the other converged-infrastructure players.

VMware’s conception of a software-defined data center is a completely different proposition. Both offer virtualization, both offer programmability, but VMware treats the underlying abstracted hardware as an undifferentiated resource pool. Conversely, Oracle and Cisco want their engineered hardware to play integral roles in data-center virtualization. Engineered hardware is what they do and who they are.

Taking the Malocchio in New Directions

In that vein, I expect Oracle to look increasingly like Cisco, at least on the infrastructure side of the house. Does that mean Oracle soon will acquire a storage player, such as NetApp, or perhaps another networking company to fill out its data-center portfolio? Maybe the latter first, because Xsigo, whatever its merits, is an I/O virtualization vendor, not a switching or routing vendor. Oracle still has a networking gap.

For reasons already belabored, Oracle is an improbable SDN player. I don’t see it as the likeliest buyer of, say, Big Switch Networks. IBM is more likely to take that path, and I might even get around to explaining why in a subsequent post. Instead, I could foresee Oracle taking out somebody like Brocade, presuming the price is right, or perhaps Extreme Networks. Both vendors have been on and off the auction block, and though Oracle’s Larry Ellison once disavowed acquisitive interest in Brocade, circumstances and Oracle’s disposition have changed markedly since then.

Oracle, which has entertained so many bitter adversaries over the years — IBM, SAP, Microsoft, SalesForce, and HP among them — now appears ready to cast its “evil eye” toward Cisco.

Some Thoughts on VMware’s Strategic Acquisition of Nicira

If you were a regular or occasional reader of Nicira Networks CTO Martin Casado’s blog, Network Heresy, you’ll know that his penultimate post dealt with network virtualization, a topic of obvious interest to him and his company. He had written about network virtualization many times, and though Casado would not describe the posts as such, they must have looked like compelling sales pitches to the strategic thinkers at VMware.

Yesterday, as probably everyone reading this post knows, VMware announced its acquisition of Nicira for $1.26 billion. VMware will pay $1.05 billion in cash and $210 million in unvested equity awards.  The ubiquitous Frank Quattrone and his Quatalyst Partners, which reportedly had been hired previously to shop Brocade Communications, served as Nicira’s adviser.

Strategic Buy

VMware should have surprised no one when it emphasized that its acquisition of Nicira was a strategic move, likely to pay off in years to come, rather than one that will produce appreciable near-term revenue. As Reuters and the New York Times noted, VMware’s buy price for Nicira was 25 times the amount ($50 million) invested in the company by its financial backers, which include venture-capital firms Andreessen Horowitz, Lightspeed,and NEA. Diane Greene, co-founder and former CEO of VMware — replaced four years ago by Paul Maritz — had an “angel” stake in Nicira, as did as Andy Rachleff, a former general partner at Benchmark Capital.

Despite its acquisition of Nicira, VMware says it’s not “at war” with Cisco. Technically, that’s correct. VMware and its parent company, EMC, will continue to do business with Cisco as they add meat to the bones of their data-center virtualization strategy. But the die was cast, and  Cisco should have known it. There were intimations previously that the relationship between Cisco and EMC had been infected by mutual suspicion, and VMware’s acquisition of Nicira adds to the fear and loathing. Will Cisco, as rumored, move into storage? How will Insieme, helmed by Cisco’s aging switching gods, deliver a rebuttal to VMware’s networking aspirations? It won’t be too long before the answers trickle out.

Still, for now, Cisco, EMC, and VMware will protest that it’s business as usual. In some ways, that will be true, but it will also be a type of strategic misdirection. The relationship between EMC and Cisco will not be the same as it was before yesterday’s news hit the wires. When these partners get together for meetings, candor could be conspicuous by its absence.

Acquisitive Roads Not Traveled

Some have posited that Cisco might have acquired Nicira if VMware had not beaten it to the punch. I don’t know about that. Perhaps Cisco might have bought Nicira if the asking price were low, enabling Cisco to effectively kill the startup and be done with it. But Cisco would not have paid $1.26 billion for a company whose approach to networking directly contradicts Cisco’s hardware-based business model and market dominance. One typically doesn’t pay that much to spike a company, though I suppose if the prospective buyer were concerned enough about a strategic technology shift and a major market inflection, it might do so. In this case, though, I suspect Cisco was blindsided by VMware. It just didn’t see this coming — at least not now, not at such an early state of Nicira’s development.

Similarly, I didn’t see Microsoft or Citrix as buyers of Nicira. Microsoft is distracted by its cloud-service provider aspirations, and the $1.26 billion would have been too rich for Citrix.

IBM’s Moves and Cisco’s Overseas Cash Horde

One company I had envisioned as a potential (though less likely) acquirer of Nicira was IBM, which already has a vSwitch. IBM might now settle for the SDN-controller technology available from Big Switch Networks. The two have been working together on IBM’s Open Data Center Interoperable Network (ODIN), and Big Switch’s technology fits well with IBM’s PureSystems and its top-down model of having application workloads command and control  virtualized infrastructure. As the second network-virtualization domino to fall, Big Switch likely will go for a lower price than did Nicira.

On Twitter, Dell’s Brad Hedlund asked whether Cisco would use its vast cash horde to strike back with a bold acquisition of its own. Cisco has two problems here. First, I don’t see an acquisition that would effectively blunt VMware’s move. Second, about 90 percent of Cisco’s cash (more than $42 billion) is offshore, and CEO John Chambers doesn’t want to take a tax hit on its repatriation. He had been hoping for a “tax holiday” from the U.S. government, but that’s not going to happen in the middle of an election campaign, during a macroeconomic slump in which plenty of working Americans are struggling to make ends meet. That means a significant U.S.-based acquisition likely is off the table, unless the target company is very small or is willing to take Cisco stock instead of cash.

Cisco’s Innovator’s Dilemma

Oh, and there’s a third problem for Cisco, mentioned earlier in this prolix post. Cisco doesn’t want to embrace this SDN stuff. Cisco would rather resist it. The Cisco ONE announcement really was about Cisco’s take on network programmability, not about SDN-type virtualization in which overlay networks run atop an underyling physical network.

Cisco is caught in a classic innovator’s dilemma, held captive by the success it has enjoyed selling prodigious amounts of networking gear to its customers, and I don’t think it can extricate itself. It’s built a huge and massively successful business selling a hardware-based value proposition predicated on switches and routers. It has software, but it’s not really a software company.

For Cisco, the customer value, the proprietary hooks, are in its boxes. Its whole business model — which, again, has been tremendously successful — is based around that premise. The entire company is based around that business model.  Cisco eventually will have to reinvent itself, like IBM did after it failed to adapt to client-server computing, but the day of reckoning hasn’t arrived.

On the Defensive

Expect Cisco to continue to talk about the northbound interface (which can provide intelligence from the switch) and about network programmability, but don’t expect networking’s big leopard to change its spots. Cisco will try to portray the situation differently, but it’s defending rather than attacking, trying to hold off the software-based marauders of infrastructure virtualization as long as possible. The doomsday clock on when they’ll arrive in Cisco data centers just moved up a few ticks with VMware’s acquisition of Nicira.

What about the other networking players? Sadly, HP hasn’t figured out what to about SDN, even though OpenFlow is available on its former ProCurve switches. HP has a toe dipped in the SDN pool, but it doesn’t seeming willing to take the initiative. Juniper, which previously displayed ingenuity in bringing forward QFabric, is scrambling for an answer. Brocade is pragmatically embracing hybrid control planes to maintain account presence and margins in the near- to intermediate-term.

Arista Networks, for its part, might be better positioned to compete on networking’s new playing field. Arista Networks’ CEO Jayshree Ullal had the following to say about yesterday’s news:

“It’s exciting to see the return of innovative networking companies and the appreciation for great talent/technology. Software Defined Networking (SDN) is indeed disrupting legacy vendors. As a key partner of VMware and co-innovator in VXLANs, we welcome the interoperability of Nicira and VMWare controllers with Arista EOS.”

Arista’s Options

What’s interesting here is that Arista, which invariably presents its Extensible OS (EOS) as “controller friendly,” earlier this year demonstrated interoperability with controllers from VMware, Big Switch Networks, and Nebula, which has built a cloud controller for OpenStack.

One of Nebula’s investors is Andy Bechtolsheim, whom knowledgeable observers will recognize as the chief development officer (CDO) of, and major investor in, Arista Networks.  It is possible that Bechtolsheim sees a potential fit between the two companies — one building a cloud controller and one delivering cloud networking. To add fuel to this particular fire, which may or may not emit smoke, note that the Nebula cloud controller already features Arista technology, and that Nebula is hiring a senior network engineer, who ideally would have “experience with cloud infrastructure (OpenStack, AWS, etc. . . .  and familiarity with OpenFlow and Open vSwitch.”

 Open or Closed?

Speaking of Open vSwitch, Matt Palmer at SDN Centralwill feel some vindication now that VMware has purchased a company whose engineering team has made significant contributions to the OVS code. Palmer doubtless will cast a wary eye on VMware’s intentions toward OVS, but both Steve Herrod, VMware’s CTO, and Martin Casado, Nicira’s CTO, have provided written assurances that their companies, now combining, will not retreat from commitments to OVS and to Open Flow and Quantum, the OpenStack networking  project.

Meanwhile, GigaOm’s Derrick Harris thinks it would be bad business for VMware to jilt the open-source community, particularly in relation to hypervisors, which “have to be treated as the workers that merely carry out the management layer’s commands. If all they’re there to do is create virtual machines that are part of a resource pool, the hypervisor shouldn’t really matter.”

This seems about right. In this brave new world of virtualized infrastructure, the ultimate value will reside in an intelligent management layer.

PS: I wrote this post under a slight fever and a throbbing headache, so I would not be surprised to discover belatedly that it contains at least a couple typographical errors. Please accept my apologies in advance.

Avaya’s Struggles Slip Under Industry Radar

As public companies, Nokia and Research In Motion have drawn considerable press coverage relating to their ongoing struggles. Nary a day passes without a barrage of articles on the latest setbacks and travails affecting both companies.  Some of the coverage is decidedly morbid, even ghoulish, with death-watch speculation on how soon one company or the other might be sold off or otherwise expire. 

Perhaps because it is private, Avaya has escaped such macabre notice from the mainstream business media and the industry trade press.  Nonetheless, speculation has arisen as to whether the company, richly backed by private-equity sponsors Silver Lake Partners and TPG Capital, has a future any brighter than the dim prospects attributed to RIM and Nokia. 

Abandoned IPO Hope  

At this particular juncture, the prospect of an IPO, which once seemed tantalizingly close for Avaya, seems a remote and forlorn hope.  As I’ve noted on a couple occasions before now, Avaya’s IPO was scuppered not only by its wan growth profile, but also by industry and macroeconomic headwinds that show no sign of abating. 

If no IPO is in the cards, what happens to the company? While at least one blogger has speculated that bankruptcy could be an option, I suspect the deep-pocketed private-equity sponsors might have no choice but to prop up Avaya until a buyer can be found. Given Avaya’s tepid growth prospects, its daunting long-term debt overhang, a recent weakening of channel sales, and stiffening competition across its product portfolio, the company is unlikely to find itself in the driver’s seat in any negotiations with a prospective buyer, presuming one can be found.  

Stranded in Purgatory 

Meanwhile, Avaya stakeholders, including the company’s employees, are mired in a purgatory. Sources have suggested the company will consolidate facilities and further reduce headcount, but no major announcements have been made on either front.

With an IPO seemingly off the table as an exit alternative, all eyes turn to the company’s private-equity sponsors. One potential delaying tactic, which we could see before the end of this calendar year, is the potential departure of president and CEO Kevin Kennedy, who has served in that dual capacity since January 2009. We’ve already seen revolving doors in the executive suites along Avaya’s mahogany row, and “new blood” in the CEO office would buy time for the company’s financial backers to devise and articulate a compelling narrative for customers, channel employees, employees, and potential strategic acquirers. 

We’ll have more insight into Avaya’s circumstances soon. The company is due to report its latest quarterly results within the next month or so.   

Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

Dell’s Steady Progression in Converged Infrastructure

With its second annual Dell Storage Forum in Boston providing the backdrop, Dell made a converged-infrastructure announcement this week.  (The company briefed me under embargo late last week.)

The press release is available on the company’s website, but I’d like to draw attention to a few aspects of the announcement that I consider noteworthy.

First off, Dell now is positioned to offer its customers a full complement of converged infrastructure, spanning server, storage, and networking hardware, as well as management software. For customers seeking a single-vendor, one-throat-to-choke solution, this puts Dell  on parity with IBM and HP, while Cisco still must partner with EMC or with NetApp for its storage technology.

Bringing the Storage

Until this announcement, Dell was lacking the storage ingredients. Now, with what Dell is calling the Dell Converged Blade Data Center solution, the company is adding its EqualLogic iSCSI Blade Arrays to Dell PowerEdge blade servers and Dell Force10 MXL blade switching. Dell says this package gives customers an entire data center within a single blade enclosure, streamlining operations and management, and thereby saving money.

Dell’s other converged-infrastructure offering is the Dell vStart 1000. For this iteration of vStart, Dell is including, for the first time, its Compellent storage and Force10 networking gear in one integrated rack for private-cloud environments.

The vStart 1000 comes in two configurations: the vStart 1000m and the vStart 1000v. The packages are nearly identical — PowerEdge M620 servers, PowerEdge R620 management servers, Dell Compellent Series 40 storage, Dell Force10 S4810 ToR Networking and Dell Force10 S4810 ToR Networking, plus Brocade 5100 ToR Fibre-Channel Switches — but the vStart 1000m comes with Windows Server 2008 R2 Datacenter (with the Hyper-V hypervisor), whereas the vStart 1000v features trial editions of VMware vCenter and VMware vSphere (with the ESXi hypervisor).

An an aside, it’s worth mentioning that Dell’s inclusion of Brocade’s Fibre-Channel switches confirms that Dell is keeping that partnership alive to satisfy customers’ FC requirements.

Full Value from Acquisitions

In summary, then, is Dell delivering converged infrastructure with both its in-house storage options, demonstrating that it has fully integrated its major hardware acquisitions into the mix.   It’s covering as much converged ground as it can with this announcement.

Nonetheless, it’s fair to ask where Dell will find customers for its converged offerings. During my briefing with Dell, I was told that mid-market was the real sweet spot, though Dell also sees departmental opportunities in large enterprises.

The mid-market, though, is a smart choice, not only because the various technology pieces, individually and collectively, seem well suited to the purpose, but also because Dell, given its roots and lineage, is a natural player in that space. Dell has a strong mandate to contest the mid-market, where it can hold its own against any of its larger converged-infrastructure rivals.

Mid-Market Sweet Spot

What’s more, the mid-market — unlike cloud-service providers today and some large enterprise in the not-too-distant future — are unlikely to have the inclination, resources, and skills to pursue a DIY, software-driven, DevOps-oriented variant of converged infrastructure that might involve bare-bones hardware from Asian ODMs. At the end of the day, converged infrastructure is sold as packaged hardware, and paying customers will need to perceive and realize value from buying the boxes.

The mid-market would seem more than receptive to the value proposition that Dell is selling, which is that its converged infrastructure will reduce the complexity of IT management and deliver operational cost savings.

This finally leads us to a discussion of Dell’s take on converged infrastructure. As noted in an eChannelLine article, Dell’s notion of converged infrastructure encompasses operations management, services management, and applications management. As Dell continues down the acquisition trail, we should expect the company to place greater emphasis on software-based intelligence in those areas.

That, too, would be a smart move. The battle never ends, but Dell — despite its struggles in the PC market — is now more than punching its own weight in converged infrastructure.

Tidbits: Oracle-Arista Rumor, Controller Complexity, More Cisco SDN

This Week’s Rumor

Rumors that Oracle is considering an acquisition of Arista Networks have circulated this week. They’re likely nothing more than idle chatter. Arista has rejected takeover overtures previously, and it seems determined to go the IPO route.

Controller Complexity

Lori MacVittie provides consistently excellent blogging at F5 Networks’ DevCentral. In a post earlier this week, she examined the challenges and opportunities facing OpenFlow-based SDN controllers. Commenting on the code complexity of controllers, she writes the following:

This likely means unless there are some guarantees regarding the quality and thoroughness of testing (and thus reliability) of OpenFlow controllers, network operators are likely to put up a fight at the suggestion said controllers be put into the network. Which may mean that the actual use of OpenFlow will be limited to an ecosystem of partners offering “certified” (aka guaranteed by the vendor) controllers.

It’s a thought-provoking read, raising valid questions, especially in the context of enterprise customers.

Cisco SDN

Last week, Cisco and Morgan Stanley hosted a conference call on Cisco’s SDN strategy. (To the best of my knowledge, Morgan Stanley doesn’t have one — yet.)  Cisco was represented on the call by David Ward, VP and chief architect of the company’s Service Provider Division; and by Shashi Kiran, senior director of market management for Data Center/Virtualization and Enterprise Switching Group.

The presentation is available online. It doesn’t contain any startling revelations, and it functions partly as a teaser for forthcoming product announcements at CiscoLive in San Diego. Still, it’s worth a perusal for those of you seeking clues on where Cisco is going with its SDN plans. If you do check it out, you’ll notice on side three that a number of headlines are featured attesting to the industry buzz surrounding SDN.  Two bloggers are cited in that slide: Greg Ferro (EtherealMind) and, yes, yours truly, who gets cited for a recent interpretation of Cisco’s SDN maneuverings.

HP’s Latest Cuts: Will It Be Any Different This Time?

If you were to interpret this list of acquisitions by Hewlett-Packard as a past-performance chart, and focused particularly on recent transactions running from the summer of 2008 through to the present, you might reasonably conclude that HP has spent its money unwisely.

That’s particularly true if you correlate the list of transactions with the financial results that followed. Admittedly, some acquisitions have performed better than others, but arguably the worst frights in this house of M&A horrors have been delivered by the most costly buys.

M&A House of Horrors

As Exhibit A, I cite the acquisition of EDS, which cost HP nearly $14 billion. As a series of subsequent staff cuts and reorganizations illustrate, the acquisition has not gone according to plan. At least one report suggested that HP, which just announced that it will shed about 27,000 employees during the next two years, will make about half its forthcoming personnel cuts in HP Enterprise Services, constituted by what was formerly known as EDS. Rather than building on EDS, HP seems to be shrinking the asset systematically.

The 2011 acquisition of Autonomy, which cost HP nearly $11 billion, seems destined for ignominy, too. HP described its latest financial results from Autonomy as “disappointing,” and though HP says it still has high hopes for the company’s software and the revenue it might derive from it, many senior executives at Autonomy and a large number of its software developers already have decamped. There’s a reasonable likelihood that HP is putting lipstick on a slovenly pig when it tries to put the best face on its prodigious investment in Autonomy.

Taken together, HP wagered a nominal $25 billion on EDS and Autonomy. In reality, it has spent more than that when one considers the additional operational expenses involved in integrating and (mis)managing those assets.

Still Haven’t Found What They’re Looking For

Then there was the Palm acquisition, which involved HP shelling out $1.2 billion to Bono and friends. By the time the sorry Palm saga ended, nobody at HP was covered in glory. It was an unmitigated disaster, marked by strategic reversals and tactical blunders.

I also would argue that HP has not gotten full value from its 3Com purchase. HP bought 3Com for about $2.7 billion, and many expected the acquisition to help HP become a viable threat to Cisco in enterprise networking. Initially, HP made some market-share gains with 3Com in the fold, but those advances have stalled, as Cisco CEO John Chambers recently chortled.

It is baffling to many, your humble scribe included, that HP has not properly consolidated its networking assets — HP ProCurve, 3Com outside China, and H3C in China. Even to this day, the three groups do not work together as closely as they should. H3C in China apparently regards itself as an autonomous subsidiary rather than an integrated part of HP’s networking business.

Meanwhile,  HP runs two networking operating systems (NOS) across its gear. HP justifies its dual-NOS strategy by asserting that it doesn’t want to alienate its installed base of customers, but there should be a way to manage a transition toward a unified code base. There should also be a way for all the gear to be managed by the same software. In sum, there should be a way for HP to get better results from its investments in networking technologies.

Too Many Missteps

As for some of HP’s other acquisitions during the last few years, it overpaid for 3PAR in a game of strategic-bidding chicken against Dell, though it seems to have wrung some value from its relatively modest purchase of LeftHand Networks. The jury is still out on HP’s $1.5-billion acquisition of ArcSight and its security-related technologies.

One could argue that the rationales behind the acquisitions of at least some of those companies weren’t terrible, but that the execution — the integration and assimilation — is where HP comes up short. The result, however, is the same: HP has gotten poor returns on its recent M&A investments, especially those represented by the largest transactions.

The point of this post is that we have to put the latest announcement about significant employee cuts at HP into a larger context of HP’s ongoing strategic missteps. Nobody said life is fair, but nonetheless it seems clear that HP employees are paying for the sins of their corporate chieftains in the executive suites and in the company’s notoriously fractious boardroom.

Until HP decides what it wants to be when it grows up, the problems are sure to continue. This latest in a long line of employee culling will not magically restore HP’s fortunes, though the bleating of sheep-like analysts might lead you to think otherwise. (Most market analysts, and the public markets that respond to them, embrace personnel cuts at companies they cover, nominally because the staff reductions result in near-term cost savings. However, companies with bad strategies can slash their way to diminutive irrelevance.)

Different This Time? 

Two analysts refused to read from the knee-jerk script that says these latest cuts necessarily position HP for better times ahead. Baird and Co. analyst Jason Noland was troubled by the drawn-out timeframe for the latest job cuts, which he described as “disheartening” and suggested would put a “cloud over morale.” Noland showed a respect for history and a good memory, saying that it is uncertain whether these layoffs would bolster the company’s fortunes any more than previous sackings had done.

Quoting from a story first published by the San Jose Mercury News:

In June 2010, HP announced it was cutting about 9,000 positions “over a multiyear period to reinvest for future growth.” Two years earlier, it disclosed a “restructuring program” to eliminate 24,600 employees over three years. And in 2005, it said it was cutting 14,500 workers over the next year and a half.

Rot Must Stop

If you are good with sums, you’ll find that HP has announced more than 48,000 job cuts from 2005 through 2010. And now another 27,000 over the next two years. But this time, we are told, it will be different.

Noland isn’t the only analyst unmoved by that argument. Deutsche Bank analysts countered that past layoffs “have done little to improve HP’s competitive position or reduce its reliance on declining or troubled businesses.” To HP’s assertion that cost savings from these cuts would be invested in growth initiatives such as cloud computing, security technology, and data analytics, Deutsche’s analysts retorted that HP “has been restructuring for the past decade.”

Unfortunately, it hasn’t only been restructuring. HP also has been an acquisitive spendthrift, investing and operating like a drunken, peyote-slathered sailor.  The situation must change. The people who run HP need to formulate and execute a coherent strategy this time so that other stakeholders, including those who still work for the company, don’t have to pay for their sins.