Category Archives: SMB

Bad and Good in Avaya’s Pending IPO

We don’t know when Avaya will have its IPO, but we learned a couple weeks ago that the company will trade under the symbol ‘AVYA‘ on the New York Stock Exchange.

Long before that, back in June, Avaya first indicated that it would file for an IPO, from which it hoped to raise about $1 billion. Presuming the IPO goes ahead before the end of this year, Avaya could find itself valued at $5 billion or more, which would be about 40 percent less than private-equity investors Silver Lake and TPG paid to become owners of the company back in 2007.

Proceeds for Debt Relief

Speaking of which, Silver Lake and TPG will be hoping the IPO can move ahead sooner rather than later. As parents and controlling shareholders of Avaya, their objectives for the IPO are relatively straightforward. They want to use the proceeds to pay down rather substantial debt (total indebtedness was $6.176 billion as of March 31), redeem preferred stock, and pay management termination fees to its sponsors, which happen to be Silver Lake and TPG. (For the record, the lead underwriters for the transaction, presuming it happens, are J.P. Morgan, Morgan Stanley, and Goldman Sachs & Company.)

In filing for the IPO, Avaya has come clean not only about its debts, but also about its losses. For the six-month period that end on March 31, Avaya recorded a net loss of $612 million on revenue of $2.76 billion. It added a further net loss of $152 million losses the three-month period ended on June 30, according to a recent 10-Q filing with the SEC, which means it accrued a net loss of approximately $764 million in its first three quarters of fiscal 2011.

Big Losses Disclosed

Prior to that, Avaya posted a net loss of $871 million in its fiscal 2010, which closed on September 30 of 2010, and also incurred previous losses of $835 million in fiscal 2009 and a whopping $1.3 billion in fiscal 2008.

Revenue is a brighter story for the company. For the one months ended June 30, Avaya had revenue of more than $2.2 billion, up from $1.89 billion in the first nine months of fiscal 2010. For the third quarter, Avaya’s revenue was $729 million, up from $700 million in the corresponding quarter a year earlier.

What’s more, Avaya, which bills itself as a “leading global provider of business collaboration and communications solutions,” still sits near the front of the pack qualitatively and quantitatively in  the PBX market and in the unified-communications space, though its standing in the latter is subject to constant encroachment from both conventional and unconventional threats.

Tops Cisco in PBX Market

In the PBX market, Avaya remained ahead of Cisco Systems in the second quarter of this year for the third consecutive quarter, according to Infonetics Research, which pegged Avaya at about 25 percent revenue share of the space. Another research house, TeleGeography, also found that Avaya had topped Cisco as the market leader in IP telephony during the second quarter of this year. In the overall enterprise telephony equipment  market — comprising sales of PBX/KTS systems revenues, voice gateways and IP telephony — Cisco retains its market lead, at 30 percent, with Avaya gaining three points to take 22 percent of the market by revenue.

While Infonetics found that overall PBX spending was up 3.9 percent in the second quarter of this year as compared to last year, it reported that spending on IP PBXes grew 10.9 percent.

Tough Sledding in UC Space

Meanwhile, Gartner lists Avaya among the market leaders in its Magic Quadrant for unified communications, but the threats there are many and increasingly formidable. Microsoft and Cisco top the field, with Avaya competing hard to stay in the race along with Siemens Enterprise Networks and Alcatel-Lucent. ShoreTel is gaining some ground, and Mitel keeps working to gain a stronger channel presence in the SMB segment. In the UC space, as in so many others, Huawei looms as potential threat, gaining initial traction in China and in developing markets before making a stronger push in developed markets such as Europe and North America.

There’s an irony in Microsoft’s Lync Server 2010 emerging as a market-leading threat to Avaya’s UC aspirations. As those with long memories will recall, Microsoft struck a valuable UC-centric strategic alliance — for Microsoft, anyway — with Nortel Networks back in 2006. Microsoft got VoIP credibility, cross-licensed intellectual property, IP PBX expertise and knowledge — all of which provided a foundation and a wellspring for what Microsoft eventually wrought with  Lync Server 2010.

The Nortel Connection

What did Nortel get from the alliance? Well, it got some evanescent press coverage, a slippery lifeline in its faltering battle for survival, and a little more time than it might have had otherwise. Nortel was doomed, sliding into irrelevance, and it grabbed at the straws Microsoft offered.

Now, let’s fast forward a few years. In September 2009, Avaya successfully bid for Nortel’s enterprise solutions business at a bankruptcy auction for a final price of $933 million.  Avaya’s private-equity sponsors saw the Nortel acquisition as the finishing touch that would position the company for a lucrative IPO. The thinking was that the Nortel going-out-of-business sale would give Avaya an increased channel presence and some incremental technology that would help it expand distribution and sales.

My feeling, though, is that Avaya overpaid for the Nortel business. There’s a lot of Nortel-related goodwill still on Avaya’s books that could be rendered impaired relatively soon or further into the future.  In addition to Nortel’s significant debt and its continuing losses, watch out for further impairment relating to its 2009 purchase of Nortel’s assets.

As Microsoft seeks to take UC business away from Avaya with expertise and knowhow it at least partly obtained through a partnership with a faltering Nortel, Avaya may also damage itself through acquisition and ownership of assets that it procured from a bankrupt Nortel.

Why RIM Takeover Palaver is Premature

Whether it is experiencing good times or bad times, Research in Motion (RIM) always seems to be perceived as an acquisition target.

When its fortunes were bright, RIM was rumored to be on the acquisitive radar of a number of vendors, including Nokia, Cisco, Microsoft, and Dell. Notwithstanding that some of those vendors also have seen their stars dim, RIM faces a particularly daunting set of challenges.

Difficult Circumstances

Its difficult circumstances are reflected in its current market capitalization. Prior to trading today, RIM had a market capitalization of $11.87 billion; at the end of August last year, it was valued at $23.27 billion. While some analysts argue that RIM’s stock has been oversold and that the company now is undervalued, others contend that RIM’s valuation might have further to fall. In the long run, unless it can arrest its relative decline in smartphones and mobile computing, RIM appears destined for continued hardship.

Certainly, at least through the end of this year — and until we see whether its QNX-based smartphones represent compelling alternatives to Apple’s next crop of iPhones and the succeeding wave of Android-based devices from Google licensees — RIM does not seem to have the wherewithal to reverse its market slide.

All of which brings us to the current rumors about RIM and potential suitors.

Dell’s Priorities Elsewhere

Dell has been mentioned, yet again, but Dell is preoccupied with other business. In an era of IT consumerization, in which consumers increasingly are determining which devices they’ll use professionally and personally, Dell neither sees itself nor RIM as having the requisite consumer cache to win hearts and minds, especially when arrayed against some well-entrenched industry incumbents. Besides, as noted above, Dell has other priorities, most of which are in the data center, which Dell sees not only as an enterprise play but also — as cloud computing gains traction — as a destination for the applications and services of many of its current SMB customers.

In my view, Dell doesn’t feel that it needs to own a mobile operating system. On the mobile front, it will follow the zeitgeist of IT consumerization and support the operating systems and device types that its customers want. It will sell Android or Windows Phone devices to the extent that its customers want them (and want to buy them from Dell), but I also expect the company to provide heterogeneous mobile-management solutions.

Google Theory

Google also has been rumored to be a potential acquirer of RIM. Notable on this front has been former Needham & Company and ThinkEquity analyst Anton Wahlman, who wrote extensively on why he sees Google as a RIM suitor. His argument essentially comes down to three drivers: platform convergence, with Google’s Android 4.0 and RIM’s QNX both running on the same Texas Instruments OMAP 4400 series platform; Google’s need for better security to facilitate its success in mobile-retail applications featuring Near-Field Communications (NFC); and Google’s increasing need to stock up on mobile patents and intellectual property as it comes under mounting litigious attack.

They are interesting data points, but they don’t add up to a Google acquisition of RIM.

Convergence of hardware platforms doesn’t lead inexorably to Google wanting to buy RIM. It’s a big leap of logic — and a significant leap of faith for stock speculators — to suppose that Google would see value in taking out RIM just because they’re both running the same mobile chipset. On security, meanwhile, Google could address any real or perceived NFC issues without having to complete a relatively costly and complex acquisition of a mobile-OS competitor. Finally, again, Google could address its mobile-IT deficit organically, inorganically, and legally in ways that would be neither as complicated nor as costly as having to buy RIM, a deal that would almost certainly draw antitrust scrutiny from the Department of Justice (DoJ), the Securities and Exchange Commission (SEC), and probably the European Union (EU).

Google doesn’t need those sorts of distractions, not when it’s trying to keep a stable of handset licensees happy while also attempting to portray itself as the well-intentioned victim in the mobile-IP wars.

Microsoft’s Wait

Finally, back again as a rumored acquirer of RIM, we find Microsoft. At one time, a deal between the companies might have made sense, and it might make sense again. Now, though, the timing is inauspicious.

Microsoft has invested significant resources in a relationship with Nokia, and it will wait to see whether that bet pays off before it resorts to a Plan B. Microsoft has done the math, and it figures as long as Nokia’s Symbian installed base doesn’t hemorrhage extravagantly, it should be well placed to finally have a competitive entry in the mobile-OS derby with Windows Phone. Now, though, as Nokia comes under attack from above (Apple and high-end Android smartphones) and from below (inexpensive feature phones and lower-end Android smartphones), there’s some question as to whether Nokia can deliver the market pull that Microsoft anticipated. Nonetheless, Microsoft isn’t ready to hit the panic button.

Not Going Anywhere . . . This Year

Besides, as we’ve already deduced, RIM isn’t going anywhere. That’s not just because the other rumored players aren’t sufficiently interested in making the buy, but also because RIM’s executive team and its board of directors aren’t ready to sell.  Despite the pessimism of outside observers, RIM remains relatively sanguine about its prospects. The feeling on campus is that the QNX platform will get RIM back on track in 2012. Until that supposition is validated or refuted, RIM will not seek strategic alternatives.

This narrative will play out in due course.  Much will depend on the market share and revenue Microsoft and Windows Phone derive from Nokia. If that relationship runs aground, Microsoft — which really feels it must succeed in mobile and cloud to ensure a bright future — will look for alternatives. At the same time, RIM will be determining whether QNX is the software tonic for its corporate regeneration. If  the cure takes, RIM won’t be in need of external assistance. If QNX is no panacea, and RIM loses further ground to Apple and the Google Android camp, then it will be more receptive to outside interests.

Those answers will come not this year, but in 2012.

Dell and HP Face Direction, Leadership Questions

Quarterly earnings results are on tap later today from Dell and HP. While the two companies would never be confused for twins, they have much in common. Not only do they sell similar products into similar markets, serving similar types of customers in the process, but both are bedeviled by serious questions about direction and leadership.

At HP, of course, the strange circumstances surrounding the sudden departure of former CEO Mark Hurd continue to generate more questions than answers. The details and machinations behind Hurd’s ouster might never be known. That presents a problem for a public company, because shareholders don’t usually like the firms in which they invest to be enveloped in a fog of murk, mystery, and intrigue.

For HP, the game of Clue will have to end. Whatever Mr. Hurd might have done, and how and where he might have done it, will have to take a decisive back seat to issues pertaining to HP’s direction, focus, strategies, and tactics. Investors and market watchers will be looking for clear indications tonight, when the company conducts its conference call with analysts, that HP has a firm hand on the tiller and is heading in the right direction. Given what’s transpired in the last couple weeks, HP will have to place particular emphasis on candor and clarity in its communications this evening. The substance of the message is always important, but tone now is critical for HP, too.

Nobody is Indispensable

My own view is that CEOs are like quarterbacks on football teams. They tend to get too much credit for corporate successes and too much blame for setbacks. Honest CEOs who’ve enjoyed success will tell you that they’ve been surrounded by excellent teams that contribute to the plans and bring the execution to fruition. The business media, though, likes to personalize and simplify, so it tends to focus on the CEO as the apotheosis of corporate culture. That’s not really how or why technology companies are successful, but it makes for good copy. The truth is, nobody is indispensable.

On Cisco earnings calls recently, I’ve noticed that CEO John Chambers has been giving prominent credit to his bench strength, noting the contributions of specific executives who run various parts of the company.

As much as it might pain it to do so, HP should follow Cisco’s lead and correct the ridiculous media misconception that the company’s wheels will fall off now that Mark Hurd isn’t sitting at the front of the bus. Considering that too much Mark Hurd might well have been a bad prescription for what had begun to ail HP, I think HP should be confident in showing that it knows how to correct its course.

No More Frankentablets

As for Dell, leadership issues also are on the front burner. About a quarter of votes cast at Dell’s recent shareholder meeting withheld support for Michael Dell’s re-election to the company’s board. The company’s shares are down a staggering 50 percent from where they stood in August 2008, and Dell recently paid $100 million to settle a government probe into questionable accounting practices.

Alleged accounting shenanigans aside, I think the primary problem for Dell is one of focus. It tries to have the breadth of an HP, but it doesn’t have the resources to pull it off. LIke a lot of other market watchers, I’d like to see Dell show more solution focus and market discipline.

The company is going nowhere in consumer markets. The Streak, for example, looks like something hatched by a committee that couldn’t decide whether it wanted to devise a smartphone or a tablet. Consequently, it wound up producing a Frankentablet with a five-inch display.  I have a feeling it came as much from Dell’s ODM partners as from its own design labs.

I know it won’t happen on this call — certainly not with the current composition of Dell’s board of directors — but I’d like to see the company recognize, for once and for all, that it’s out of its depth in the consumer space. I’d like to see it turn its attention, focus, and resources to the SMB and enterprise markets, and to further enhancing its evolving virtualization and cloud strategies.

It won’t happen, but it should.

Microsoft Leads Analysts Astray

Microsoft today will host its annual meeting with market analysts. The company will bring the visitors up to speed on strategic initiatives, discuss salient market and technology trends, spotlight key products and solutions, and perhaps reset or gently massage market expectations for the year ahead.

As I read what analysts had on their minds as they prepared for the gathering in Redmond, I lost hope that Microsoft finally would muster the courage to look itself the mirror and acknowledge the earnest business-solution purveyor that stares back at it. I was tempted to say that the analysts are part of Microsoft’s problem — that they’re focused on the wrong things, that they don’t understand the essence of Microsoft, that they don’t appreciate the company’s inherent strengths and weaknesses — but, you know, that just wouldn’t have been fair, much less right.

Analysts take their cues from the companies they follow. If the market watchers monitoring Microsoft are stumbling down a blind alley, that’s because Microsoft led them there, perhaps even setting the wrong GPS coordinates on a doomed Windows Mobile application.

It follows, then, that if the guests at Microsoft today are focused on the wrong things — if they’re looking for answers and guidance on markets where Microsoft shouldn’t be playing, where it should scale back its efforts and investments, or where it needs to rethink its strategy — the fault is entirely Microsoft’s. The analysts are preoccupied with Microsoft’s consumer-facing product roadmaps, revenue projections, margins, and earnings (or lack thereof) because that is where Microsoft has focused their attention.

Rather than pointing at its potential to expand its presence and to achieve further growth in its core business markets — SMBs and large enterprises, and where and how those constituencies will consume application and computing services in future — Microsoft perversely has chosen to showcase its embarrassments and warts. It’s not a pretty sight, as the Kin fiasco demonstrates.

Meanwhile, if Microsoft would only listen, its customers — even its closest partners — are trying to set it straight. Yesterday, for example, HP confirmed that it would pursue a dual-tablet strategy, providing a Windows 7-based tablet for business customers and a webOS-based tablet for consumers. HP knows where Microsoft is strong and where it’s not so strong.

Microsoft might get the message one of these days. I’m just not expecting the epiphany to arrive today.

Why Microsoft Might Finally Acquire RIM

In the past, I have argued that a Microsoft acquisition of Research in Motion (RIM) was unlikely and unwise. Still, stuff happens in the space-time continuum — circumstances change, new dynamics come into play — that cause one to revisit earlier assumptions and to reconsider possible outcomes.

Such is the case for my thoughts about a union between Microsoft and RIM. I no longer view it as an unlikely scenario. Considering what has been happening in the industry, and in light of the daunting challenges Microsoft and RIM face in the mobile marketplace, a marriage of convenience, if not one of amorous intent, could be in the cards.

Let’s first consider Microsoft’s circumstances. The company has failed utterly and repeatedly in its bid to establish a dominant mobile platform. Its smartphone licensees are defecting in droves, running into the welcoming arms of Google’s Android proselytizers.

Microsoft’s share of the smartphone operating-system market is plummeting like sales of The Knack’s follow-up albums. Microsoft’s latest silver bullet in this market is called Windows Phone 7, but a technical preview of that software, now undergoing lab testing at wireless operators, suggests Microsoft hasn’t cracked the code. A consensus is building that Windows Phone 7 is several years too late and several hundred-hundred million dollars short of where it needs to be.

At the same time, Microsoft might be coming to the grim realization that it isn’t the consumer-electronics behemoth it sees when it looks into the Redmond funhouse mirror. Microsoft’s perception of itself, as a company that actually understands and intuitively anticipates the desires of consumers, has been unmasked as abject delusion.

Fortunately, Microsoft might be gradually coming around to reality, recognizing that it must play to its strengths, not to its weaknesses. Its strengths are in enterprise markets, from SMBs upward. That  has been increasingly obvious to many people, except to certain denizens of Microsoft’s boardroom and to a few habitues of its executive suites.

Regrettably, though, Microsoft’s mobile offerings for the enterprise, even in terms of integration with its own server-based products, are sorely lacking in nearly every respect. Microsoft has failed at mobile, and it has disregarded one of its key constituencies in the process.

Meanwhile, we have RIM. Despite not having quite the corporate breadth of, let’s say, Nokia, RIM has the benefit of market focus and an established enterprise franchise that won’t vanish overnight. RIM could remain independent and stay the course. It could retain a solid core of its enterprise customer base — especially in certain vertical markets that require the centralized control, compliance, security, and back-end integration that BlackBerry products and technologies provide — but it will see some market-share erosion at the hands of Google’s Android and even Apple’s iPhone.  If RIM had more resources at its disposal, it might be able mitigate that erosion, if not stop it.

RIM might not want to entertain a union with Microsoft — scuttlebutt suggests it has resisted Microsoft’s entreaties before — but it might be more amenable to considering a compelling proposal now. Watching what’s happening to Nokia — a death of a thousand cuts amid a river of piranha, after losing its strategic bearings in a predatory jungle — cannot be edifying viewing for the chieftains at RIM. At one time, Nokia had acquisitive interest in RIM, and now Nokia is fighting, apparently without success, to remain relevant.

To be sure, RIM would not accept just any Microsoft offer. Maybe now, though, it  would not slam the door on the right offer. What might that be, though, and would Microsoft be willing to entertain it?

With more than $37 billion (and counting) in cash reserves, Microsoft has the means at tis disposal to pull off a RIM purchase involving a combination of cash and stock. RIM now has a market capitalization of $29.58 billion. Microsoft would have to pay a premium of at least 30 percent, probably more, to complete a deal. A $40-billion offer, with the right inducements, might suffice.

Clearly, that’s a lot of coin. We’re not talking about a simple, low-cost tuck-in acquisition with a modest risk profile. This would be a big deal, larger than any acquisition Microsoft has done. Until now, Microsoft’s biggest deal involved aQuantive, an online-marketing concern it bought for more than $6 billion in 2007. If Microsoft were to buy RIM, it would involve a transaction orders of magnitude greater than its purchase of aQuantive.

Indeed, the acquisition of RIM would be a scary proposition for the potentates in Redmond. It would be an off-the-scale move, a sharp deviation from Microsoft’s past practices and strategic playbook. But, as the saying goes, desperate times call for desperate measures. Microsoft, I believe, is very desperate. It could immediately realize revenue and profitability from RIM’s product portfolio and business model, which are more lucrative by far than anything Microsoft could offer in the mobile realm. Synergies with complementary Microsoft products and services also ought to be taken into account.

Critics might scoff, perhaps justifiably, citing two factors that argue against a deal (aside from the prohibitive price tag, which we’ve already discussed). First, they would point to technology-integration issues, arguing that Microsoft would struggle to convert RIM’s BlackBerry platform to Windows.

My response: Who says that needs to happen? RIM already integrates well with Microsoft applications and back-end systems. and Microsoft has been rewriting its mobile operating systems, practically from scratch, recently. It’s starting all over again with Windows Phone 7, which is receiving mixed reviews.

What risk would Microsoft incur by replacing Windows Phone 7, which doesn’t have an installed base, with RIM’s BlackBerry OS? I don’t see powerful arguments against the move. The cost of the transaction is a bigger impediment.
But, one might argue, what about Microsoft’s hardware licensees? What would Microsoft do about them?

Perhaps you’ve noticed, but Microsoft is losing their formerly loyal patronage. HP has bought Palm, and will begin using webOS in its mobile devices, while HTC, Motorola, and scores of others increasingly are adopting Google’s Android as their smartphone operating system. I don’t see many smartphone vendors anxiously awaiting the release of Windows Phone 7. They’ve moved on, and Microsoft knows it. What’s more, Google is giving away Android to licensees, making it all the more difficult for Microsoft to sell its smartphone operating system to handset manufacturers. Google changed the business dynamics of the OS-licensing game.

More than at any time I can recall, Microsoft is considering the merits of an integrated platform, one that involves a tight fusing of device hardware, operating-system software, uniform user experience (including a sleek, universal browser), a focused developer program, and a unified means of delivering and monetizing applications and content.

I am not saying Microsoft will buy RIM. The price alone is enough to dissuade it from doing so, and there are valid concerns about corporate integration and assimilation, about being able to get everybody moving in the same direction, about precluding needless and distracting internecine warfare and turf battles. There are good reasons, in fact, not to do such a deal, only a few of which I’ve touched on here.

But there’s desperation in Redmond. It’s palpable. Microsoft views mobile success as absolutely integral to its continued growth and prosperity. But Microsoft is no longer confident of its golden touch, especially in mobile computing, and it is more inclined to look beyond its doors for answers. RIM already has the sort of business Microsoft would like to own, with the potential for further synergies stemming from integration with Microsoft’s enterprise product portfolio and its cloud-computing strategy.

Consequently, I must revise my earlier opinion. I can no longer dismiss the possibility of Microsoft acquiring RIM.

Not Showy, but Dell OEM of Microsoft System Center Essentials Makes Sense

Dell and Microsoft have much in common.

They’re both companies that rode the PC to fame and fortune. They both leveraged client-server computing to grow their businesses. They both do extremely well in the SMB space. They both struggle with branding challenges occasioned by stupendous misadventures in consumer markets. And they both are seeking to reinvent themselves for an era of widespread virtualization and increased adoption of cloud computing.

Dell’s Windows Azure partnership with Microsoft was noted in this august forum earlier in the week. That pitch was directed primarily at larger enterprises and service providers. Now I’d like to turn my attention to a  comparatively modest announcement Dell made Wednesday that speaks volumes about how well it understands its notable SMB customer base.

Sure, in announcing the availability of available a Dell OEM version of Microsoft System Center Essentials 2010, Dell wasn’t revolutionizing the SMB space. It wasn’t even revolutionizing its own approach to that market. What it was dong, however, was continuing to give its customers new options for effectively managing their Microsoft and Dell systems and environments.

By integrating Microsoft System Center Essentials with Dell’s OpenManage portfolio of Dell Management Packs, PRO-pack, and Update Catalogs, Dell will allow its customers to use a single interface to manage technology infrastructure comprising Dell PowerEdge servers, PowerVault and EqualLogic storage, and other products.

Dell will start pricing of its OEMed version of Microsoft Systems Center Essentials 2010 at approximately $5,000. Dell will make money sales of the software, but the overriding objectives are to give customers management options, to make life easier for them, to save them time and money, and — not coincidentally — to keep them in the Dell camp.

The solution is designed for SMBs with up to 50 physical or virtual server operating systems and 500 client devices, and it  provides systems management for virtualized and nonvirtualized environments.

I was briefed on this announcement by Forrest Norrod, VP and GM of Dell’s Server Platform Group, and Enrico Bracalente, senior strategist of system-management product marketing in Dell’s Enterprise Product Group. From that discussion, I understand that Dell is seeing strong and widespread  demand for virtualization from its midrange enterprise customers. The company expects that interest to intensify, and I think you will see Dell continue to build, partner, and buy to address it.

Another takeaway from that discussion is that Dell and Microsoft recognize that they can provide mutual reinforcement for one another, in enterprise markets generally, but particularly in the SMB realm. Dell and Microsoft have a long history of working together, of course, and neither depends exclusively on the other. Still, it’s a relationship that remains far from enervated.

That will surprise the casual observer, but only because the Dell and Microsoft brands have been tainted by their consumer-market follies. On the enterprise side, and especially in SMB, these companies have a lot to offer, as customers will readily attest. In that regard, it’s not surprising that Dell would become the first major vendor to OEM Microsoft System Center Essentials and put it into a bigger-picture customer context.

On its own, this announcement isn’t a particularly glamorous milestone, and it doesn’t rank high on the industry hype meter; but it does qualify as the sort of practical blocking and tackling that keeps SMB customers in the fold. There’s something to be said for that.

HP Keeps UCC Options Open

When it comes to unified communications and collaboration (UCC), HP isn’t ready to bet the house on a single partner. It has struck UC-related partnerships with Microsoft, Avaya, and Alcatel-Lucent, and it also has the capability, through products obtained as a result of its 3Com acquisition, to develop a home-grown alternative.

It isn’t surprising that HP’s channel partners and customers, as well as neutral observers, are confused by HP’s seemingly promiscuous approach to UCC solutions. I’ll try to shed a bit of light on the situation, but I suspect nothing is carved in stone and that HP’s strategy will be subject to change.

HP’s latest UCC-related move involves Avaya.  The two companies announced a three-year alliance in which HP will sell and service Avaya UC and contact-center products as part of HP’s UCC enterprise-level services portfolio. The deal was inked in the aftermath of a similar 10-year accord that HP struck with Alcatel-Lucent.

Avaya and Alcatel-Lucent struck their deals with HP’s services business, which will act as a system integrator in bundling and delivering solutions to customers. It’s worth noting that HP also has a video-collaboration and UC partnership with Polycom.

The partnership with Microsoft is a bit different. That relationship primarily involves HP’s product and marketing groups, and it entails ongoing product integration and joint-marketing programs that stemmed from  the companies’ Frontline Partnership. Another difference is that Microsoft is taking a desktop-oriented approach to delivering unified communications whereas HP’s other partners, Avaya and Alcatel-Lucent, are addressing it from the IP PBX.

HP has decided to play the field for a couple reasons. First, the UCC space remains an underdeveloped market whose best days remain ahead of it. Despite years of hype, unified communicaitons has yet to fulfill its potential. To be fair, the reasons for that underachievement have more to do with industry politics and macroeconomic circumstances than with technological factors. Nonetheless, the market is one that has seemed perpetually on the cusp of better times.

Another reason that HP has cast a wide net with its UCC partnering efforts is that the predilections of the market, both with regard to vendors and architectural approaches, have yet to be revealed. Neither the PBX approach from Avaya and Alcatel-Lucent nor the desktop gambit from Microsoft has been declared a definitive winner. Moreover, the possibility exists that hosted UCC solutions might prove attractive to a significant number of enterprise customers. HP is getting into the game, but it’s spreading its bets across a number of leading contenders until the odds shift and one vendor establishes a clear market advantage.

As for why HP is getting into the game, well, the answer is partly that the company detects improving fortunes for UCC and partly that it feels compelled to respond to Cisco. One thing that HP and all its UCC partners have in common is competition against Cisco. HP needs an enterprise alternative to what Cisco is offering, and these partnerships provide it with various options.

Even though HP focused on the SME space with its latest Microsoft UCC announcement, I can’t see clear horizontal- or vertical-market delineation in HP’s partnering strategy.

Consequently, HP’s technology partners can’t feel overly secure. Any of these deals could fall apart, in real (revenue-generating) terms, without much warning. HP will follow its customers’ money. At the same time, it might be tempted to build or buy its own alternative. Further chapters in this story are sure to written.

Magor Offers “Telecollaboration” to SMEs

Some have accused telepresence of being the preserve of the rich.

To be sure, room-based telepresence has an exclusive aura, conferred by its prohibitive price and imperious requirement. It is a proficient, if costly, means of bringing meeting participants together around a virtual boardroom table, but it is relatively inflexible and stiffly formal when asked to share the stage with data-based collaboration.

For verisimilitude, though, telepresence sits at the pinnacle of the video-meeting throne. It is followed in the hierarchy by videoconferencing, which covers a broad swatch of ground and extends from specialized systems to software-based services that provide a best-effort experience on nearly any device with a broadband Internet connection. With regard to the latter, think Skype.

It has become readily apparent, in fact, that the market for video communications is richly segmented rather than monolithic. Cisco would like to get more than its “fair share” of the market action, but its current portfolio (even with Tandberg) remains vulnerable to competitive incursions in the SME space, where price sensitivity is more acute than in the rarefied environs of the world’s largest transnational corporations. To be fair, though, even the world’s corporate kingpins are holding their wallets a little tighter as we move into a “new normal” of permanent cost controls and reduced growth scenarios.

Macroeconomic misgivings aside, there is also that unsettled question about how elegantly collaboration can be brought, figuratively and literally, into the videoconferencing picture.

One company taking its best shot at addressing the challenge is Magor Communications Corporation. The company calls what it does “telecollaboration,” which it defines as an “emerging category of communications solutions (that) . . . . combines high-definition (HD) videoconferencing and advanced collaboration capabilities to enable life-like interactions and experiences no matter where people are located.”

Put simply, Magor is trying to fuse adaptable high-quality (1080p, where possible) videoconferencing with data-based collaboration.

The company, which is now raising a round of financing, recently gave me an opportunity to experience its technology firsthand.  I came away impressed by the price-performance proposition, the quality and naturalness of the videoconferencing experience, and the smooth interplay of collaboration and videoconferencing. The user interface also seemed uncluttered and surprisingly simple. Like the best telepresence and videoconferencing systems, Magor’s facilitated a natural eye-to-eye conversation without getting in the way.

The Magor technology doesn’t give you all the visual brilliance of, let’s say, Cisco’s telepresence, but it also won’t give mid-sized enterprises sticker shock. That factor, and some others I’ll mention at the end of this piece, could be pivotal to the company’s success.

If you ask Magor what sets it apart from the pack, it cites four main differentiators.

At the top of its list is a patented video-compression technology that allows Magor to stream HD video at 2 Mbps, peaking at 4 Mbps. In contrast, it says, its competitors transmit at 5 Mbps, peaking at 30 Mbps, to accommodate one 1080p stream. When the network is heavily congested, Magor says, its system can dynamically and gracefully adjust the video quality to accommodate constrained resources. If network conditions improve, Magor readjusts video quality accordingly. To effect these quality adjustments, Magor’s software samples the video stream multiple times per second.

A second point of differentiation, according to Magor, is that its functionality is delivered entirely in software that runs on industry-standard, off-the-shelf hardware. Magor says it is looking to port its software to a range of platforms, including increasingly powerful notebook PCs, tablets (such as the iPad), and smartphones.

Magor says another distinguishing characteristic is its support for original-format data collaboration rather than for a bandwidth-sapping H.323 “collaboration image” pushed through a side channel.

Finally, Magor points to how easy its systems are to use. To add users or data collaboration to a conference, participants need only push a button on a SIP phone or click on a mouse.

With regard to pricing, a single-display system goes for approximately $15,000, with a dual-display system selling for about $30,000, and a three-display configuration going for $45,000. The two- and three-display configurations are offered with the option to purchase additional HDTV cameras, which increases the price of the packages by about $2,000.

Launched in 2006 under the aegis of Wesley Clover — an investment firm chaired by Terry Matthews, founder of Mitel and Newbridge Networks — Magor sports an accomplished executive team. Mike Pascoe, the company’s CEO, served in the same role at Meriton Networks and PairGain Technologies. Dan Rusheleau, Magor’s executive VP of product development, co-founded Newbridge. Not surprisingly, considering its progenitor, the entire executive team comprises alumni of Terry Matthews’ corporate constellation.

I suspect there’s a potentially sizable market for what Magor is selling, but it will face competition from above — Cisco, HP, Polycom — and from below, where Logitech’s LifeSize and the cheap-and-cheerful Skype are among the players.

The big challenge for Magor will be to establish strong business partnerships that give it the industry profile, channel reach, and business scalability to gain separation from the pack. It is busily building OEM strategies, vertical-market plans, and reseller networks. It already has Mitel in its camp, and it is working on a series of other agreements.

Thoma Bravo Sees Promise in SonicWALL’s UTM Plans

A reader asked me to comment on the acquisition of SonicWALL, so that’s what I’ll do now. Yes, I sometimes take requests, just like a washed-up lounge lizard.

The announced transaction has been well documented in the business and trade press. An investor group led by private-equity firm Thoma Bravo, and comprising the Ontario Teachers’ Pension Plan, will acquire SonicWALL in a deal worth approximately $717 million. SonicWALL shareholders will receive $11.50 per share in cash, a 28-percent premium over Wednesday’s close.

The deal already is being challenged by law firms alleging that SonicWALL and its board of directors breached fiduciary duties by agreeing to the proposal before diligently seeking an offer that would have provided better value to shareholders.

I don’t want to step into that fray, because it’s an inherently subjective debate based on market estimates from analysts who might or might not have applied accurate assumptions, methodologies, and statistical models. I have no idea how some analysts arrive at their forecasts — some perform thorough channel checks and build intricate spreadsheets, while others perform Santeria rituals with live chickens on neighborhood baseball diamonds under the cover of darkness.

I think you take my point. That said, I will note that the premium offered looks at least superficially attractive. What’s more, the fevered response to it from the wealth-redistribution agents of the legal profession tells you that SonicWALL is an asset that is not bereft of hope and promise.

Indeed, SonicWALL is a strong UTM-firewall and point-product security vendor in the SMB/SME space and across a number of vertical markets, including government, education, and healthcare. The company has built a strong channel presence, and its channel partners generally have a favorable view of the company.

In its latest quarter, just before this acquisition hit, its results did not suggest obvious signs of distress. You can do the math and employ your multiples based on those numbers, but this deal is about what the buyers think the company is worth going forward, not on what the company has done historically. My point regarding the recent financial results, though, is that SonicWALL’s wheels were not falling off.

SonicWALL faces a lot of competition in an Internet-security market that is consolidating on multiple fronts. Security functionality is consolidating, as evidenced by jack-of-all-trades UTM boxes from the likes of Fortinet and SonicWALL; and the market is consolidating, too. Bigger vendors are buying point-product purveyors in attempts to become one-stop shops for the security needs of SMEs and large enterprises alike.

That’s why SonicWALL’s management chose to do this deal. Thoma Bravo not only brings money to the table, but also a potentially coherent plan as to how SonicWALL fits into its existing stable of Internet-security and infrastructure companies. In previous transactions, Thoma Bravo has acquired security-management firm Attachmate, application and database-tool vendor Embarcadero Technologies, and authentication vendor Entrust. Conceivably, SonicWALL will benefit from access to this technology ecosystem and to its sales channels.

Meanwhile, Thoma Bravo saw considerable growth potential in SonicWALL. The vendor holds its own in the SSL VPN market, where it has about a 20-percent share, but the real promise is in UTM, which really is the next-generation firewall.

According to Frost & Sullivan, the UTM market was worth nearly $2 billion in 2009. The market-research firm expects UTM growth to increase through 2010 and 2011 before moderating in subsequent years.  Nonetheless, if the market researchers are right, the UTM space will reach revenues of $7 billion in 2016. With SMEs and distributed enterprises expected to account for the vast majority of those sales, SonicWALL is well placed to benefit.

This is where we have to come back to the competition, though. The company faces not only Fortinet, which rode to an IPO on its UTM exploits, but also Internet-security heavyweights such as Cisco, Juniper, and, to a lesser extent, Check Point.

One factor that could work in SonicWALL’s favor is that Cisco doesn’t seem as focused on Internet security as it has been. Not only has Cisco suffered from component shortages that deferred and cut into sales of its ASA boxes, but the Internet-gear colossus seems distracted by shinier, glossier market opportunities. Cisco also is less focused on serving SMEs than on catering to its large-enterprise and service-provider customers.

Looking ahead to the changing security demands occasioned by increasing virtualization and the adoption of cloud computing, SonicWALL is developing a new security God-box architecture under an Austin Powers-like moniker, Project SuperMassive. The company describes it as a “next-generation security platform and technology capable of detecting and controlling applications, preventing intrusions, and blocking malware at up to 40 Gbps without introducing latency to the network.”

According to SonicWALL, Project SuperMassive will implement a patented Reassembly-Free Deep Packet Inspection (RFDPI) engine to “provide increased insight into inbound and outbound network content without compromising security or performance.” SonicWALL says its new technology will intercept network threats that come from “anywhere and everywhere” and “scan everything.”

It all seems impressive, but the proof is in the pudding, or — in this case — the UTM. However it turns out, Thoma Bravo is buying a company with no shortage of technological vision.

As a postscript to this note, I will say that HP bears watching in the space. It’s possible, though by no means certain, that HP will acquire a vendor such as Fortinet to fill a gap in its HP Networking security portfolio.

Major Ramifications from HP’s Palm Buy

Microsoft was one of the primary reasons I did not think HP would pursue an acquisition of Palm. Simply put, I though HP would tap Microsoft as its operating-system partner in the mobile space. I calculated that HP wouldn’t do anything that would endanger its extensively business and technology partnerships with Microsoft.

Well, I was wrong.

In buying Palm, HP sent shockwaves through the industry. It’s time to review and challenge the assumptions and orthodoxies that underpin our understanding of the information-technology universe. This move will have repercussions beyond the mobile space, which is increasingly important in its own right.

Even if HP fails utterly with its acquisition of Palm — even if it spins its wheels as a fringe player in the mobile space with smart phones, tablets, and netbooks running webOS — it has sent a powerful message that is being carefully digested in boardrooms worldwide.

Microsoft, once the capo di tutti capi of the industry, is no longer a feared and respected force. In choosing to buy Palm, in choosing to have an mobile operating system of its own over anything its longtime partner could provide, HP is speaking volumes not only about its own objectives and the changing dynamics of the mobile space, but also about Microsoft’s downwardly mobile place in the world.

The HP-Microsoft partnership is or was exceptionally close, far closer than any dalliance HP had with Cisco. HP and Microsoft partnered across product portfolios, markets, business units, and geographies. If Microsoft developed software, one could be sure it would run on an HP system, be it a server, PC, or mobile device. The companies co-marketed and sold into nearly every addressable market.

Even though executives from HP and Microsoft say the relationship will remain strong, that it will endure, one has to wonder. HP has wounded Microsoft grievously, and both parties know it. What’s more, the rest of the vendor community knows it, too.

Everything must be reconsidered now. How and where else will HP deviate from its Microsoft alliances? Watch for changes to HP’s collaboration and unified-communications strategy, especially for HP to enhance and extend 3Com’s VoIP product portfolio from its mid-market perch. Watch also for HP to bolster its videoconferencing capabilities.

What does Microsoft do now? Now that HP has kicked it in the gut, its other mobile operating-system licensees will question, even more than before, whether Windows Phone 7 Series is really for them. Those doubts are turning into negative judgments, decisions to look elsewhere for what they need.

I would have to think everything is back on the table at Microsoft, even acquisitions of other mobile players, something that would have been unthinkable before HP’s acquisition of Palm. For Microsoft, mobile is too important a space for it to be seen as week and irrelevant.

Irrespective of whether HP succeeds in squeezing value from Palm, it has set off an interesting chain reaction.

Dell Makes Right Move Providing Financing for SMB Customers

Dell is being more aggressive in extending financing to its SMB customers, according to an article in the Wall Street Journal.

Although I recognize the risks inherent in providing relatively generous credit terms to SMBs, many of which have suffered inordinately during the savage economic downturn and the current joyless recovery, Dell is doing the right thing, for itself and for the economy.

As the money spigots are turned tightly off by banks and other traditional sources of credit, Dell and other vendors that depend on the ongoing patronage of SMBs confront a difficult dilemma: refuse to provide vendor financing to these customers, and see them perish or go to other vendors willing to extend financial largesse; or provide them with the financing they need to buy your products and services, incurring the risk that some of them will fail anyway and not repay your loans.

The second option is better, particularly if Dell is selective in how and to whom it provides its vendor financing. In that regard, Dell, which derives about 23 percent of its revenue from SMBs (companies with fewer than 500 employees), is taking a conservative, prudent approach in assessing the credit risks of its clientele.

That’s good practice, of course. But it’s also good practice for Dell to reach out and help those customers who can be helped, and who will continue buying Dell PCs, servers, and services when times improve. The concept of enlightened self-interest in business often is viewed cynically, and there’s no question that it features a hard edge of commercial realpolitik. It can work, though, delivering benefits for all involved, and this is one example where it definitely serves more than one party’s interests.

Dell has $7 billion in credit available for small companies, and it extends most of the credit itself rather than through financial intermediaries. Good for Dell, and good for the companies and organizations that qualify for the financing.

Dell at the Crossroads

As I read the news coverage of Dell’s fourth-quarter financial results, I noticed a salient question from Shannon Cross of Cross Research:

“You have higher revenue but we didn’t see it on the bottom line. The question is, what is the potential profitability of their model?”

That’s a good question. I don’t have the answer, and I’m not sure Dell does. Which begs another question: Just what is Dell’s strategic focus?

The company is caught between a rock and a hard place. When Michael Dell returned to the company, he said he would boost gross margin and find a way to bring back the balanced profitability and growth for which Dell was known in its halcyon days.

He’s struggled to recreate the old magic, but it’s not because he’s doing things differently from how he and his team did them previously. In fact, the problem is that Dell hasn’t adapted enough to current circumstances. Dell needs to make some hard choices, and that means answering some difficult questions.

For example, should it continue to play in the consumer-PC market? I think the answer to this question depends primarily on whether it has the wherewithal to succeed in the market, and secondarily on whether the company can reduce its component and production costs to the point where it makes decent margins on sales. As things stand, Dell isn’t getting it done, and one has to wonder whether the situation will change. As it slides down the PC market-share charts, its economies of scale won’t improve.

The company also has a branding problem in the consumer space, and that exacerbates the situation. The tarnished brand can be burnished, but that will take sustained effort and resources, both of which might be more gainfully employed in other areas of the business.

Recently, Dell has added a smartphone and a five-inch tablet PC to its consumer-product portfolio. I understand the motivations. Dell wants to get a piece of the relatively high-margin smartphone market, and it’s also keen to ride the iPad wave in the seemingly resurgent tablet space. However, does Dell have a market mandate to play in these spaces? Does it have a reasonable expectation of being anything more than a non-medal contender in those areas?

A given market segment might be attractive, for reasons of margin or other considerations, but not every company should try to compete in it. The dynamics of the aforementioned consumer segments overwhelmingly favor the top market-share players, and I don’t think Dell can become a leader in smartphones or tablets, especially with products that seem compromised, inspired by calculations of margin percentage rather than by an implicit understanding and appreciation of consumer interest.

On the other sides of Dell’s business, there’s promise. In the SMB and enterprise markets — as well as in verticals bolstered by its acquisition of Perot Systems — Dell can compete effectively and win. It has a decent brand, it has the customer relationships, it has a reasonably attractive product and services portfolio, it’s growing its profile in the emerging BRIC economies (though I wonder whether any technology company that is not of China can truly thrive for long in the Chinese market).

In those business-oriented markets, the company also possesses a good appreciation of what the customers want today and what they might want tomorrow. As some news coverage suggests, Dell might be discounting more than is necessary to maintain presence in SMB, enterprise, and government accounts. But, with careful calibration, that problem can be readily fixed.

Another area that Dell needs to reconsider, on the product side, is its networking strategy. I think this is an area where it cannot be ambiguous. Dell can follow HP’s lead, and go all in against Cisco as a direct competitor, or it can to take a software-based, services-led approach that is agnostic toward network infrastructure, responding impartially and objectively to customer needs. Sometimes that will mean working with Cisco and its gear and sometimes not, but it doesn’t entail the same stark dynamics as an unambiguously antagonistic relationship.

Here’s the question that should drive that decision: In all honestly, and without the reality distortion that comes form wearing one’s own marketing goggles, does Dell believe that enterprise customers want the integrated, proprietary data-center pitch of Cisco’s Unified Computing System (UCS)? If Dell believes that’s what enterprise customers want, and that HP will follow suit once it has integrated 3Com into its full-service offerings, then Dell probably has no choice but to acquire and own the necessary networking assets to play the same game.

If Dell doesn’t believe that UCS is what customers want, that customers will seek an open, interoperable approach to data-center integration, then the company ought to take an IBM-like, integrator’s approach to the market. It can leverage Perot, focus on extending its software portfolio in areas such as data-center management and orchestration, build value at the application layer, investing in the glue that brings everything together rather than in the underlying plumbing.

Dell knows what its customers are telling it. The company just has to listen to what’s being said.