IBM

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.

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.

IBM/Sun deal breaks down but could revive

There are reports that the Sun/IBM deal is off because of a breakdown in talks over the price. Some say this is a negotiating ploy, but others have said there is really an irreconcilable difference here.

Is this a Microsoft/Yahoo reprise? Most expect the deal to revive when Sun’s market price falls, particularly if shareholders file suit against the board. Some of the issues were payments to Sun executives and terms to prevent IBM from changing its mind. We think the big question on IBM’s side is just how much of Sun’s incumbency in the networking world could be monetized by IBM without simply moving Sun’s full product line and head count over into IBM.

Lacking major symbiosis, the premium IBM would have paid over market price would only be justified by assuming major reductions in costs through consolidation, meaning most of Sun’s workforce would have to go.

Intel’s Nehalem chip and the Sun/IBM dynamic

Sun’s relationship with Intel on the new generation of processors may bear fruit with Solaris support for the Intel “Nehalem” chip family. In fact, Solaris may have the first and best support for the new processor.

Sun is hoping that better support for the new multi-core chips with special power management capability will give it an edge in the server space, but of course the question of an IBM Sun acquisition still hangs over the vendor. So does the fact that the Intel chip competes with Sun’s own Sparc line.

Users aren’t concerned about the IBM deal; they feel that Sun under IBM would be an even stronger partner. The Intel Nehalem affinity for Solaris and an IBM Sun acquisition might put Linux under more pressure. IBM has been a Linux backer but might be less active should it have its own open-source UNIX-compatible OS.

The Nehalem chip is one of the most advanced and fastest available, outperforming (says Intel) both IBM and Sun/Sparc by a large margin and providing unparalleled power management, I/O handling, and virtualization support. The new chip (Xeon 5500 is the current instantiation) is already launching a major flush of new servers from IBM, Dell, and HP.

IBM to acquire Sun? Benefits for the cloud

IBM is said to be in talks with Sun on acquiring the company, which has been troubled since the NASDAQ bubble burst. The move would give IBM a commanding position in the server/hosting space for the Internet and a strong position in telecom. A move would very likely create considerable angst for Cisco, which now faces a broader blade server collision with the industry’s most formidable tech giant.

We believe the move would be good for both companies. We also believe it is an indicator that IBM sees the transformation taking place in what’s called “cloud computing,” the creation of a new relationship between network and IT resources for both network operators and enterprises. Sun’s credentials are strongest in the network space, but it also has considerable cloud talent and its own cloud computing offering.

IBM’s cloud computing position: Make the PC obsolete?

IBM is using its clout with universities to pull the computer science curriculum n a more “cloudy” direction, to build awareness of and skills in cloud computing. According to our sources, IBM’s radical shift is based on simple economics.

IBM believes that as network bandwidth costs fall, what happens on the network and not in it will determine the future, build profit and revenue growth, and change user and business behavior. Distributing computing power in new ways is clearly an example of something facilitated by declining unit cost of bandwidth.

It is also true that a shift in power from personal computers and laptops with general-purpose missions toward netbooks that are little more than browser platforms with local storage suits IBM, which no longer makes PCs. The cloud craze, so our IBM sources tell us, is revolutionary because it will ultimately make the personal computer obsolete, and that its impact on personal computing will be far larger than its impact on business.

Cisco positions for cloud computing move

Cisco is reportedly eyeing VMware for possible acquisition, a move that would surely put Cisco squarely into the IT competition and mark perhaps the most dramatic transformation of business model attempted by any major U.S. tech vendor.

There are other things that Cisco could be focusing on, but the recurring rumor we’ve heard is that Cisco plans a major cloud computing initiative, recognizing correctly that enterprise transition to a cloud computing model may be the most significant incremental spending opportunity in 2010 and 2011 (it isn’t likely to hit this year, so Cisco has some time).

Cloud computing is a strategic mixture of IT and networking, but it is also a space where having the total solution seems valuable, and Cisco fears that IBM, HP, or Microsoft might at best support a strategy that was open in terms of networking, and at worst ally with a competitor. IBM and Juniper have done some joint cloud announcements already.

Microsoft’s cloud strategies

Microsoft is still playing coy with its Azure cloud computing pricing, but there is little question that Microsoft and IBM are both gearing up for more competition in the space, and other players like Sun and HP are doing likewise.

Cloud computing is a typical emerging market in tech—vague and multiply defined. But it appears that the early opportunities for cloud computing will come in areas like hosting some web content, supporting collaboration and other interpersonal communications applications, and perhaps some backup/offload.

The broader transition to cloud computing must come, as IBM suggests, from the reorientation of current application architectures to something more mashup-friendly and better able to take advantage of selective movement of applications to the cloud, and also to broader private cloud usage by enterprises. We think most of this won’t happen until 2H10 or later.

Cisco blade servers — part of a bigger plan?

Rumors that Cisco was going to enter the blade server market have been swirling for a year now, and got some boost from being published in The New York Times this week. It appears from our sources that Cisco really is entering that market and will be making the announcement fairly soon.

The move is obviously a gutsy one. On one hand, Cisco seems to understand better than any of its competitors that if bits are commoditizing, you better be in a business that commoditized bits will stimulate if you’re going to keep pumping out bit-producing products.

The other side of the issue is that servers per se aren’t exactly an exploding market, and margins there are typically low. IBM and HP will really hate Cisco for competing and will likely counter-move. The risk for Cisco in being an ordinary IT server is so large it’s hard for us to believe the company would do it, and so we think Cisco may be trying something very smart, which would be to create specialized server appliances for feature hosting, linked intimately with Cisco switches and routers and creating a service ecosystem. Given Chambers’ announcement of service mashups or API harmonization at Cscape, this could get really interesting.

IBM financials strong despite economy

IBM reported a solid quarter in any times, and a sterling one in the present economy, with profits up 20%. IBM also reaffirmed its full-year guidance, a move that sent analysts into a feeding frenzy and boosted stock futures today.

We believe that IBM’s numbers reflect two truths:

• Economic issues are more likely to impact future capital projects and spending than current ones
• Companies with strong service businesses can sustain project momentum better by establishing stronger account control and thus aiding in the project justification process.

We believe that trusted strategic partner firms like IBM, HP, Accenture, and Oracle will generally do well even in the conditions to come.