Tablets and smartphones aren’t in HP’s future either. HP is dumping the whole WebOS effort and all of the devices that came with it. The move is in some ways more dramatic than the decision to spin out PCs because it’s a retreat from the client business completely, a sharp turn toward the center of the action that would seem to be irreversible. Are they abandoning the client world to Asia or to Apple, or both.

To round out the move, HP will (buy a British software specialist, Autonomy, which has strong credentials in database searching and business, as well as some expertise in content management. The price for the software company seems high to Wall Street; it’s probably one reason why HP’s shares have been off in pre-market. It’s the price and not the concept. HP has been buying software companies for some time as a part of a transformation that started with the hiring of former SAP CEO Apotheker. Most IT players at this point realize that software is the key to establishing a direct connection to the users’ business case, and HP is proving its commitment to that approach. But remember that HP is still a broad-based data center player, and a giant in enterprise computing.

Is the PC an endangered consumer species? If so, what about the enterprise?

So is the PC now chopped liver? There’s no denying the declining interest in the PC as the primary consumer appliance. That’s something that even Microsoft realizes, apparently. Its Windows 8 is obviously a transition product, something that would let it run the same basic OS across any suitable appliance. The announcement that Windows 8 will have its own app store seems to confirm a trend that’s been developing in the consumer market for several years. Driven largely by Apple, we’re seeing a transformation of “computing” into “appliancing,” a shift from designing personal computers as small computers to designing them as information portals. It’s not, at least not yet, as much about replacing the PC as about doing something the PC was never really needed for to begin with. The consumer wants entertainment, period. When PC games and PC browsers were their only conduit to that goal, they bought them. With game consoles, tablets and smartphones increasingly becoming the user’s window on the world, the PC is old news for consumers. Can the enterprise be far behind?

HP’s move puts pressure on the vendor pack

The HP move will certainly put pressure on a lot of players. To start off with, that means that Dell might find it necessary to do its own cut-and-run move. Their decision to get into networking with Force10 and their creation of a cloud-and-virtualization focus on the data center seems like it might be laying the groundwork. I think the loss of the PC would help Dell’s overall financials and also help the company focus on the data center, where it’s been showing most of its strength. In any event, it may have little choice at this point.

IBM, of course, shed its PC business by selling it to Lenovo. As a pure play on enterprise computing, it’s had its ups and downs, but there is no question that IBM is still the big tech success story. IBM proved that making big moves to cut your losses is as important as making moves to cement gains. With IBM now seeing giant HP aiming at IBM’s turf without being encumbered by PC baggage, what does IBM do? Networking? HP has networking products; rival Dell just picked up a line. Does IBM follow suit, and if it does who does it pick up?

Before we go there, let’s look at an important point about enterprise networking.  The only part of it that’s strategic is data center networking, and data center networking is about (you guessed it) the DATA CENTER, which is where servers and software and IBM and HP and Oracle and Dell all live. If “computer companies” are going to say that “computer” doesn’t include PCs then they’re focused totally on the data center, and unlikely to ignore the fact that the data center network is a big part of that picture. Networking first collapses into data center networking and unimportant branch junk, and then data center networking collapses into the server/storage technology plans of the buyer. That’s surely how the IT guys see it.

Two players (IBM and Oracle) might see themselves becoming a full-service data center companies and lack the network piece. Probably four network vendors might be acquisition targets—Brocade, Extreme, F5 and Juniper. Only two players max from this group could be acquired. If enterprise networking commoditizes and gets subducted, as the current moves suggest it will, then the rest of these, and other non-target players like Cisco, have to make it on their own. In the new market, is that possible? Who might be forced to find out?

Cisco might be feeling good; it seems to have accidentally occupied the space that everyone else wants to converge on. With servers, networking and a reduced consumer exposure, Cisco is a bit ahead of HP in terms of a transformation out of the business space, in a way. But Cisco isn’t an IT player no matter what it wants to believe—at least not yet.  Its understanding of IT is short of what’s needed to compete with the big boys, and Cisco has nothing in software, despite continued efforts. In fact, Cisco may find itself under a bit more pressure as HP steps up the “we-do-all-the-data-center” story at the sales level.

In the enterprise space, our spring survey found that enterprises were still generally holding their capital plans but were slow-rolling project spending. A part of the reason was concern over economic conditions, which was a visible issue even before the harsh political face-off that’s virtually killed market confidence this summer. Another part was some concern over their cloud plans, concern that arose from getting more insight into cost and benefit as they got deeper into the topic. Both these issues appear to have grown over the summer, and I expect our fall survey to show that.

Data center modernization is the only real driver of network change in today’s market. Nobody has demonstrated any direct productivity gains out of network change, despite Cisco’s attempts to make telepresence the water-carrier for network expansion. The problem is that virtualization as a driver for data center modernization appeared to have tapered off even this spring. It’s not that people weren’t doing it anymore, but rather that the network change part was largely baked and they were back-filling into pre-existing plans. Cloud computing was the big driver remaining, and the cloud has proved more complex than enterprises had expected.

In the service provider space, I’m seeing the result of five years of declining revenue per bit. But the thing that’s really hitting now is a more subtle structural issue. Content, which everyone knows means “video” is the driver of traffic in both wireline and wireless, to the point that you could almost neglect other growth sources in planning. But content isn’t “Internet” traffic as most would know it. More and more content is served out of metro cache points, and so it’s the metro capacity that’s consumed. Metro means Ethernet, and the growth of Ethernet to support content delivery has been the driver in a shift for operators from IP-dominated planning and spending to capital planning that’s Ethernet-dominated. That process at first tended to focus on more premium players and products because early metro/aggregation Ethernet was an expansion on the previous business-focused Ethernet services infrastructure. In most metro areas today, according to our operators, the impetus for Ethernet growth is consumer video, and that’s the worst service in terms of ROI. Thus, price pressure on Ethernet is inevitable.

Brocade has now jumped into the fray. The company has always been strong in the data center, but more on the storage side. Its Foundry acquisition gave it credentials in the enterprise WAN side of data center networking, and it has an OEM deal with IBM that’s offered it some new paths to market. Still, it’s fair to say that Brocade hasn’t kept up in this space, and more fair to say that it has lost some opportunity to steal share from its arch-rival Cisco. UBS also lowered its estimates on Cisco to reflect business-model transition, a fancy way of saying that management is distracted and things are in a state of flux.

Brocade’s strategy, which it calls the “Virtual Enterprise”, is built on an architecture that Brocade says is open and extensible, and is in turn called CloudPlex. I have to admit that “Virtual Enterprise” based on “CloudPlex” seems like an attempt to link all the right buzzwords to an announcement, and that cynical view may be somewhat validated by the fact that the new stuff associated with CloudPlex isn’t yet available.  Unlike rival-for-Cisco-market-share-castoff Juniper, Brocade didn’t tie its new architecture to a single new product, or to any specific future one either.

Spinning an architecture in advance of having specific execution to support it isn’t necessarily bad, though.  My surveys have consistently said that enterprises and service providers alike need to understand the ecosystem that a vendor’s vision represents before they worry too much about boxes, speeds and feeds.  The problem in this case is that the details on CloudPlex are sketchy themselves, and it’s not at all clear just how the concept links virtualization to the cloud. That’s particularly true when Brocade doesn’t supply virtualization/cloud software except through partnerships. I think Brocade could tell a strong story here, but they’ve not done it yet.

Brocade is also OEMed by IBM and is one of the companies we said might be acquired in the data-center-driven consolidation. So is it off the table? Apart from the fact that companies always say they’re not for sale, there’s the reality that the company was running ahead of the NASDAQ for most of this year but dipped below last week as it issued a disappointing forecast. Brocade has a relatively low market cap, small enough to make it worth a second look by some other players, we think.

Consolidation pressure in networking is going to mount through 2011 because of increased commoditization, according to our analysis of our fall survey data. The troubling truth about Brocade is its last quarter. As a data center player, it should have been able to pull in a pretty nice chunk, and the fact that it missed suggests that it can’t pull its own weight in the data center market, and IBM either can’t or isn’t pulling Brocaede through. Either one is a bad sign for Brocade, and it may mean that taking the money and running would be smart for management to consider.

We’ve noted that the control of network decisions is passing to data center IT personnel, and thus that network sales engagement means having IT products in the portfolio. HP obviously has them and is just as obviously now planning to expand its network portfolio.

But we think Brocade’s purchase of Foundry and Cisco’s decision to enter the server space is the catalyst for the move. 3Com has a new data center switch product that could significantly augment the HP portfolio, and also a relationship with Huawei and a position in Asia.

Tapping the China market is likely an early goal for the deal. The HP move could put pressure on IBM, which has been relying on partnership relationships in networking rather than fielding its own product. It may also put some of the smaller vendors in the LAN space into play, including Extreme, and possibly Brocade or Juniper.