Cisco

Cisco’s earnings show customers’ releasing 2009 project budgets

Cisco saw both revenues and profits fall, but both also beat analyst expectations. Chambers was upbeat about the next two quarters, pumping estimates ahead of current guidance. Order growth in the U.S. was flat, and other geographies were down.Both enterprise and service provider business lines were down.

The Cisco CEO also talked about the opportunity he sees for Cisco and about Cisco’s ability to bring off a host of acquisitions, ventures and new offerings that combine to create a fairly radical shift in company direction. Chambers says orders are picking up and suggests this is a result of the “we-can’t-wait-any-more” mindset. Here we have to disagree; buyers could in fact wait for quite a while longer.

Cisco’s results are primarily the result of the release of 2009 budget money we reported in the spring. Our surveys showed that slightly more money was spent in the last quarter, but most of the line budgets are now spent (only 3% remains for Q4) and further spending growth will rely on Cisco getting a piece of project budgets. That’s likely to happen, but our research shows that buyers often juggle project spending between IT and networking gear in Q4. So it’s not possible to predict just what Cisco will get. We think that the next 2 quarters could prove more challenging depending on retail behavior in this quarter.

Cisco/EMC joint venture: private & public cloud data center strategy

Cisco, EMC and VMware have formed a joint venture called “Acadia” to promote a new vision of the data center, built on virtualization and presumably cloud-ready elements. Intel will also have a small stake in the deal. The core of this venture is an architecture built on technology from all three, who form what they call the Virtual Computing Environment (VCE) Coalition.

The “product” is a set of Vblock Infrastructure Packages that are essentially ready-to-install combinations of software and hardware to support security, virtualization, networking, computing and storage. Acadia will sell, install and sustain this as the customer requires, and we’re hearing they have their first contracts in the bag in Asia and the EU, with one in the U.S. likely coming within 45 days.

The concept is also targeted at both private and public clouds, and in this aspect it could be the basis for something highly interesting to service providers and even somewhat competitive as a service-layer technology. So far none of the players seem to be positioning Acadia as a generalized solution for the service layer, and we can’t find any indication of new products other than element management for the Vblocks, but the value of the package concept is considerable for users whose needs fit in the framework of the three Vblock configurations.

Professional services and a developer ecosystem are also provided; the latter may be where service-layer technology comes into the picture. We think that a service-layer extension to the VCE concept could put a lot of pressure on other network vendors. Ericsson has no real announced strategy, Alcatel-Lucent and NSN have strategies they’re not really opening up on, and Juniper has just announced a major service-layer innovation. All of these would need to accommodate whatever positioning Cisco might make.

Cisco’s ISR G2 and Borderless Networking: Service layer implications?

Cisco has announced a new generation of its popular ISR platform (G2, fittingly), and also announced an initiative/architecture called Borderless Networking. The ISR upgrades are performance enhancements to the earlier models based on what Cisco calls the “Service-Ready Engine” that can support Linux applications directly, not through the older AXP insert card.

Borderless Networking is harder to pin down, however. It appears to be what a Cisco PR video calls a “recommitment” of Cisco to some core technologies rather than a new announcement. But it is possible that Cisco will offer something new and substantive there. From the positioning, it appears to be a service-layer strategy focused on creating an “IT control plane” from Cisco’s data center and virtualization technology. Whether it’s real or slideware is the question.

Cisco often makes announcements like this to anticipate announcements by competitors, and a number of them may be planning something in the service layer area within the next month. As we’ve noted, this is a critical area, and if Cisco can create a credible “IT control plane” based on data center virtualization, it could have an impact in the space. Recent trends within Cisco management and organization, however, seem to suggest a de-emphasis on software products and on network abstraction and management, key ingredients in a service-layer strategy.

Cisco and Oracle look to change data center landscape

Oracle and Cisco may change the landscape in the data center if the companies continue to pursue their current tracks, according to most pundits, and we agree.

Oracle is already the giant of middleware, broader there even than IBM and more focused on making software the premier offering. The Oracle approach to IT is to create a brand around software and middleware, adding hardware to reap the maximum benefit from the sale, but focusing on software (especially middleware) for differentiation.

Cisco wants to ride virtualization and connectivity in the data center, and collaborative applications that link employees, into a dominant position. Cisco’s theory is that owning collaboration could give the company a foot into every application door because collaboration is the broadest of all horizontal applications.

Both companies face competition from incumbent giants IBM and HP, and the big question for 2010 is whether the competition among this group of four will create enough market buzz to build buyer literacy and interest levels enough to create a new technology buying cycle. We’re doubtful that competition alone can do it because competition typically focuses on differentiation rather than project justification. But we’ll have a better idea next month when we complete our enterprise fall planning survey.

Cisco’s Starent acquisition could be LTE procurement zone play

Cisco wrote another big check, this time to acquire Starent, a major player in the mobile/LTE space. And with the move, it may have leapfrogged a number of competitors. Starent and Cisco were somewhat competing previously, and Wall Street reports that it expected Juniper to announce a partnership with Starent that would have played in the AT&T procurement zone for mobile IP. Motorola was also a Starent partner, and to the extent that either of these deals was meaningful, they now have to be re-evaluated.

What may be most significant here is the procurement zone angle, in fact. Since we’re hearing that network operators worldwide are moving to a zone strategy, the acquisition of critical product mass in key zones is now vital for vendors. Cisco’s move signals an M&A wave to pluck up key components, since it’s now clear that major players will acquire vendors and thus kill simple partnership agreements.

The move will solidify a truth that’s been pretty visible for the last six months: LTE is where most investment focus will be in 2010 through 2012, so having a strong position there will be critical. LTE will accelerate disintermediation of operators, however, unless it’s coupled with a rational service-layer strategy.

Juniper and IBM Ethernet OEM deal focuses on data center

Juniper and IBM have announced an OEM arrangement that will allow IBM to label and sell Juniper’s Ethernet products designed for the data center. The pact covers selected models in the EX and MX lines and is similar to the deal already signed by IBM with Brocade.

The news is very good for Juniper because data center networking is an area where budget constraints are minimal this year and are expected to be even more so in 2010. The Cisco decision to sell blade servers has put Cisco in increased competition with IBM and HP. It’s also true that HP’s switch success worries IBM as much as it worries Cisco. Juniper now has a solid partnership in the enterprise, as it already has in carrier Ethernet with its NSN joint venture.

Cisco talks cloud offerings, focuses on Microsoft, Google

Cisco is talking a lot at its annual user conference, Cisco Live, but it’s not always being definitive. Cisco is said to be considering an expansion to its WebEx collaboration suite to include document authoring and management that would compete, in part, with Microsoft Office, but also with Google Docs and other online applications. Cisco also said it would be virtualizing voice and making it a cloud offering, and announced some WebEx support for private clouds, departing from its original strategy to support it only as a Cisco-hosted service.

The moves come as Cisco reorganizes its development council along more traditional lines (enterprise/commercial, service provider, consumer) and largely eliminates the high-level software group that contained the WebEx products. Cisco is shifting its original everything-hosted strategy to a hybrid-cloud model in our view, which is smart given that’s what enterprises want. The question is whether Cisco wants to be the public part of the hybrid cloud or wants to empower service providers to take that role.

The comments made by Cisco’s CTO suggest that Cisco doesn’t want to be an infrastructure-as-a-service provider but isn’t ruling out platform-as-a-service and certainly not SaaS. Cisco also indicated it was ready to meet the challenge of Google Voice and Google Wave in Unified Communication, which at least shows that Google knows that Wave and Voice are UC challenges. We wonder if Cisco might not get too diverted in a battle with Google; it would be better to simply adapt Cisco UC to work inside Wave and to integrate it with Voice using APIs.

Nortel passes; competitors should heed warning

Now that it’s pretty clear that Nortel is gone, the inevitable “what went wrongs” are multiplying. We’ve heard they didn’t innovate, now we hear that they weren’t supposed to. In truth, you can never game the outcome of changes in behavior that it’s too late to make.

Any company, to be successful, has to make its customers successful. There are a lot of paths toward doing that; some rely on innovation and others on integration or being a cost leader. Any company can pick one, but that’s the rub. You can’t pick none, or pick them all. Nortel never had a strategy, it only had a set of tactics to address this or that silo. At a time when “convergence” is the byword of the market Nortel didn’t see its market as being converged, as having a single set of needs and as driven by a single set of conditions. It was, and so they missed the boat.

Cisco or Alcatel-Lucent, both cited by some as examples of what should have happened at Nortel, aren’t out of the woods yet either. The world of carrier and enterprise networking changed forever in 2008/2009 and the remaining players have yet to be tested against the new conditions. Good things, and bad things, are still to come.

Microsoft and HP join UC hosted service trend

Microsoft and HP announced a major partnership in unified communications (UC) building on HP’s ProCurve blades and Microsoft’s UC and collaboration software tools. The two companies articulated a vision of communications as something more virtualized than tied to an appliance, a story that’s not unlike that being told by Cisco and one likely to be advanced further by Oracle. The deal is most likely a part of the overall trend we’ve discussed before; IT and networking players are fighting for the middle zone of hosted service features where much of the future value of both networking and IT will lie.

Cisco expands UCS to carrier market

Cisco, to no one’s surprise, has expanded its Unified Computing System (UCS) positioning to the service provider market, taking advantage of the interest of operators in cloud computing for both a retail service base and as a foundation for creating distributed next-gen service features. Cisco’s positioning is likely to be a response to interest from IBM, Microsoft and HP in the space, but most of all a reaction to what Oracle is likely to do with a Sun acquisition.

The service delivery platform (SDP) market has been hamstrung to date by a lack of a mission beyond voice and a lack of a general feature-friendly architecture at the platform level. Cloud computing can provide the latter, and with a flexible platform, the need to find specific non-voice drivers for deployment is reduced because the architecture can do nearly anything, respond to any trend.