Microsoft executive Kevin Johnson, president of the Platforms and Services division that was working for the Yahoo acquisition, is leaving Microsoft to run Juniper Networks. Juniper issued a press release indicating that Johnson will become CEO and Scott Kriens will become the chairman and will still be involved in strategic matters.
We believe this is a good thing. Johnson represents a vision of where Juniper must go, which is beyond being a box vendor or its products will commoditize and its stock stagnate or fall. Kriens understands where Juniper is now, and how near-term modifications can be made to lead to the ultimate direction Johnson represents. Both the goal and the route are equally critical for Juniper, and we hope that the two can be harmonized by Johnson and Kriens cooperation and effective collaboration.
We have heard that this change has been in the works for some time and was at least in part responsible for the other recent executive changes at Juniper. For Microsoft, which will be reorganizing its Platforms and Services area, the departure of Johnson seems to signal a bitter aftermath of the failed Yahoo deal and an internal conviction that the deal cannot now be done, though some inside Microsoft tell us that’s not necessarily the case.
At Juniper, the move is not completely a surprise. Kriens was one of the few executives to start a tech company and remain CEO through its IPO and operation as a major public corporation. Last year, according to rumors, there was board pressure to make some changes in Juniper and Stephen Elop was brought in (from Adobe). Elop left after a year (ironically, joining Microsoft). It would be significant in our view that Johnson, like the other executives recently joining Juniper have a software background.
We have long said that Juniper and other network equipment vendors needed to be more focused on the software layer of the network to insure they could sustain feature differentiation. The changes at Juniper suggest that there may be a shift to a more software-centric position, and perhaps a more aggressive positioning in the Carrier Ethernet space, but it is clearly too early to say for sure.
The ITU has approved its technical requirements document for 4G services and will be ready to consider technology applications this fall. This will certainly kick up the noise level in the WiMAX versus LTE battle, but the truth is that the issue may be less relevant because of the continued failure of the mobile operators to find a strong business case for non-voice services other than Internet access.
Cellular services at 100 Mbps may be technically feasible under either of the standards sets, but there is no way that Internet mobile access could sustain the investment given the price resistance of the users.
There are clearly major steps needed here, and the ITU and other standards bodies are not focusing on any feasible approach, in part because the business side of the process is out of their scope. We believe that the operators themselves have been struggling with what to do next, and they are becoming a bit more direct in their criticism of equipment vendors’ lack of help in this area.
Brocade Communications, a data center fibrechannel switch player, is acquiring Foundry, the Ethernet switch company. The deal is likely to meet little resistance from any regulatory or shareholder perspective and so can be considered done.
We believe this move is a step toward recognizing a major truth of enterprise networking, which is that in market cycles driven by IT factors, as this one is, data center switching is the most likely to lead the networking portion of the purchase cycle. In addition, data center products can pull through products elsewhere (which this deal is clearly banking on), while the opposite is not true.
Given the increased influence of IT in overall technology procurement (and the collateral decline of the influence of networking), we believe this to be a very smart move indeed. This acquisition may lead to some additional consolidation in the LAN switching and data center area as other players make counter-moves.
AT&T is expected to show weakness in its earnings report this week, with accelerated line loss in the wireline space and with reduced mobile profits.
The WSJ article blames this on the economy, but there is little evidence from past economic slumps, even recessions, that consumers cut back on telecommunications services. Most have contracts that set their spending in any event.
We believe this is a more general problem with AT&T. The company is more vulnerable to mobile revenue caps than Verizon because U-verse is a less valuable and profitable property. It is also more vulnerable to cable competition in voice and broadband, and we believe that the cable companies are targeting AT&T specifically because they need some success against the RBOCs.
The key will be what AT&T says about spending; it will show where the company believes future must lie.
IBM reported exceptionally strong numbers, and so one of our critical data points for the future of tech has been obtained, and in a positive direction. IBM revenue growth accelerated to 13%, EPS grew by 28%, but the US sector was last among the major markets with only an 8% growth rate.
EMEA led with 20% and Asia showed 16% growth. The growth was in software and services (about 17% in each category); computer hardware grew at only 2% overall but systems grew at 10%. IBM’s branded middleware grew at 21%, and WebSphere by 9%.
We believe the IBM numbers, particularly its service numbers, show that projects on SOA-driven modernization and the mashup process are pulling through software purchasing, thus creating the normal behavior for the IT cycle we believe to be driving the market at the moment.
We note that IBM’s information management tools expanded by 30%, showing that changes in IT directions are also changing the information content of worker experiences. All of this points to a positive data point for recovery of enterprise networking in 2009 and the need to prepare for this immediately. We believe that the strategic management changes by Cisco and Juniper are designed in part to prepare for the coming year’s changes in opportunity.
The low dollar may be contributing to interest in Sprint by SK Telecom, though many international operators have eyed acquisition as a means of entering the US market.
There isn’t much commentary on the deal, but we are hearing the SK Telecom may be betting that the WiMAX position in the US will be worth more than investors currently believe it will, and that the value of Sprint will therefore be higher.
There is no assurance that regulators would buy such a deal, even if Sprint were to agree. However, if the deal is even attempted it would likely show that Sprint’s board is concerned about the company’s future. Sprint continues to be dependent, in our view, on getting a lot of non-traditional devices onto WiMAX, and it is not likely that much progress can be made in this area until 2009, even with the backing of Intel.
Nokia Siemens Networks (NSN) has announced it will not continue to invest in GPON, focusing instead on DSL and next-gen optical access (NGOA).
The decision, we believe, is attributable to a number of factors, including the truth that PON in any form is not universally feasible (where demand density is low it won’t recover costs at current price points). In addition, vendors including ALU already have a substantial lock on the GPON business, and an NGOA that combines fiber remote and DSL or multimedia over oaxial cable access (MoCA) with PON could be the real long-term winner. We’re hearing interest in this last point from both carriers and equipment vendors.
Reports out of Washington D.C., suggest that the FCC’s Martin will recommend a sanction against Comcast for violating its net neutrality principles, but it is not clear (since those principles were not an “order” in a legal sense) whether the decision will have any teeth. Comcast, furthermore, has already changed the way it manages traffic, focusing on users and not applications. The move by the FCC is thus popular with consumer advocates and meaningless, but it may show that the FCC will come down harder on deep packet inspection (DPI) for gleaning behavioral data from ISP streams.
Microsoft is launching its new online flagship service concept in what it calls the “Deskless Worker.” The new suite is designed for the entry-level Exchange and Sharepoint candidates who often don’t use Microsoft at all because of the cost and complexity of running their own versions of the server software.
Microsoft is working to promote a revenue-sharing scheme with partners that will then benefit from the revenue stream in the same way they’d have profited from selling the server software. This latter piece is a critical component of the idea, since it rectifies one of the challenges Microsoft has faced in promoting SaaS versions of traditional server applications.
This launch jumps the gun on Cisco and other rumored entrants into the online collaborative service space, and it likely indicates a competitive collision in this area at the end of this year and ranging through 2009.
Emerging economies’ telecom deals may be creating a new wave of key players, absent some of the usual names. The recent action in China and India show that where an emerging economy invests in telecom infrastructure, the deals are weighted toward access, metro and fiber, and less to the high-flying switching/routing. Package bids that involve a range of products are also more common. This favors players like Alcatel-Lucent, whose broad portfolio of access products and metro solutions got it attention in India, but also price-leader players like Huawei and ZTE. We believe it is likely that there will be pressure put on Cisco, Juniper, Tellabs, Ciena and other more narrowly focused players to partner or even merge to counter the trend.