Ethernet

Nortel’s Ethernet auction: What of the NSN speculation?

It’s almost time to play “Who’s Got the Nortel Ethernet” assets, with the auction coming in little more than a week. The big question is whether NSN, Cisco or another player might jump on Ciena’s stalking-horse opening bid.

Most financial industry speculation is aimed at NSN, whose numbers seemed to show more product sales erosion than others in the market. At NSN’s analyst event, there was a sense that professional services were the name of the game, though of course they could never sustain a business of that size. Furthermore, nobody knows how much of the professional services business NSN could get without a strong equipment base. In short, NSN needs to sell gear.

The Nortel stuff would bring them a much better North American presence, one of the problems NSN is contending with. It may collide with the Juniper/NSN joint venture, however, enough to reduce its overall value. We don’t think NSN could up the Ciena bid more than about $250 million without paying so much the Street would trash its stock. We also wonder whether more low-OSI-layer assets will really help.

Our feeling: leave Nortel alone.

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.

Nortel’s Ethernet sale: Who will buy?

We may be coming to the point of a Nortel Ethernet sale soon after the first of the year, according to some of our sources. Four companies have been named possible buyers (Cisco, Ericsson, Huawei, and Nokia-Siemens), but we are hearing that the front runner is Huawei and that Cisco is not a serious contender. There are potential issues in a Huawei sale but company executives from both sides have been working to make them less likely to derail a deal. Whoever does the deal, it is likely that it will spur additional activity in the Ethernet space, and a Huawei buy could well set the stage for an eventual takeover of all of Nortel by Huawei

New Cisco edge router to focus on metro apps in 2009

Cisco has announced a new edge router, the 9000, which is widely expected to be the replacement for its aging but important 7600 series. The new box features a card design that gives it a very high per-card capacity, making it capable of supporting the new 100 Mbps Ethernet standard when it is finalized. The box is most likely to be deployed in an edge-of-core or metro-core application, with the latter application focusing on replacing PBT with MPLS inside a metro network. We believe that Cisco will be going full out in 2009 on the metro applications, as well as on “glamour” plays like its deal with the Yankees for an immersive multimedia experience in the stadium.

Juniper exec changes could indicate software emphasis

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.

Brocade to acquire Foundry

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.

Juniper launches enterprise Ethernet products

Juniper announced its long-awaited EX series of enterprise Ethernet switches, and marketing partnerships with Microsoft, IBM and Oracle. The move to enterprise switching was expected but the partnerships are more a surprise, though how well they will pan out for Juniper is yet to be seen. Juniper lost its COO, Steven Elop, to Microsoft in January, and it may be that there are links between the move and the partnership, though details again are lacking at this point.

Dueling Cisco/Juniper Ethernet switch rumors

Rumors continue to spin around a new Juniper enterprise Ethernet switch and a competing Cisco product launched, not surprisingly, at about the same time. As we reported last week, financial analysts were predicting that Juniper would launch its Ethernet switch on January 29th in New York at a meeting scheduled for the financial and media communities, and Cisco has traditionally worked to trump competitive announcements by making one of their own just before that date. All of this is aimed at the larger “data center” or enterprise headquarters market, a market that in 2008 may be more challenging than it was in 2007 according to our research.

Juniper Quarterly Earnings Benefit from NGN Investment

Juniper reported strong sales, with its infrastructure products up about 35% and its service-layer technology up 17%, beating Street estimates. The stock was lower in after-market trading, however. Some analysts expected even faster growth rates, and this will clearly put some pressure on Juniper for the coming quarters. Dell’Oro Group puts Juniper’s router market share at 15%, far less than Cisco’s 65% and double that of Alcatel-Lucent. However, many analysts believe that Alcatel-Lucent has targeted Juniper for market share gains, though Alcatel had a very weak quarter in contrast to Juniper’s. Juniper is benefiting from service provider NGN investment, which we believe will continue to be strong in 2008 and through at least the first half of 2009.

The key question for Juniper is the enterprise business (part of their Service Layer Technology) and there the issue is Ethernet switches. It is very unlikely that Juniper can maintain engagement in the enterprise space lacking these products, and so we believe that Juniper is indeed likely to field a family of enterprise switches either late this year or early in 2008. However good this might be for SLT, it will certainly put more pressure on Juniper’s management and strategy, particularly since Cisco is executing extremely well in the enterprise sector at this time.

Verizon seeks multi-service edge device

September 27 2007: Verizon will likely announce the winner of its RFP for a multi-service edge device by late November, and the announcement could come as much as a month earlier. The company, like many access providers, has been looking for a device that could be used to transition customers from the multiple packet protocols used to deliver business services today, to a converged Etherenet/IP infrastructure. Verizon is looking initially for products to deploy IP VPNs and Ethernet services, primarily over carrier-grade Ethernet infrastructure. The box will have IP features but is likely to be acting as an edge router for IP-over-Ethernet rather than direct IP connection. We believe that Verizon is also asking for a PBB/PBT commitment.

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