Networking

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.

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.

Telstra’s separate susidiary buzz: Government plan could zap ROI

Telstra, Australia’s national carrier, remains locked in a dispute between its shareholders and the Australian government, which proposes to break Telstra up to support its broadband network initiative. Telstra believes it can play a role in NBN, as the network is called, without structural separation. Discussions on how that would be accomplished were proceeding nicely, according to Telstra, until the legislation for separation was introduced.

We are of the view that separation like this is not likely to succeed at its objectives and in fact is more likely to compromise them. In addition, it would clearly undermine the value of Telstra’s shares, which have been sold off to the public for some time through yet another government program. To take steps to devalue them now is not likely to create confidence in any new government process, including NBN.

Then there’s a very important truth, which is that competition always lowers price and always creates overbuild and thus always lowers net industry ROI. There are situations where that is reasonable; some geographies have ample demand density. Australia doesn’t appear to be one of them, according to our model.

If the government’s goal is to create competition in the interior or service portion of the network by making the access network into a shared utility, it should have clear indicators that the ROI in that service portion is sufficient to create real opportunity. Without that, there could be a lot of future failures in the center, which would undermine the profitability and sustainability of the new edge—whatever it turns out to be.

NSN professional services a plus for carrier procurement zone strategy

The head of NSN’s North America operation said the company would be an LTE leader in North America, and said it rather emphatically, to be sure. The comments came at NSN’s analyst event this week, which was a parade of optimism on NSN’s prospects in the market, not only in North America but elsewhere.

NSN’s greatest strength is its professional services business, and second on the list comes its credibility with operators in multi-vendor integration. The company also has a strong service-layer story, though that story is built on tools used by its consulting and professional services staff to create one-off solutions for operators and not productized (at least for now).

The value of professionals services in the U.S. today is based on the procurement zone trend, already formally in place at AT&T, and in process (we’re told) at both Verizon and Qwest, and being considered even by Sprint. This program creates what’s effectively a mandatory systems integration position in each zone, which in turn means that those with strong capabilities in that area can expect to get a prime vendor position.

Verizon’s smartphone direction still chasing AT&T?

Verizon is apparently planning a total smartphone blitzfor the holidays, including the already-discussed Droid from Motorola, but also according to rumor, a new HTC Android smartphone and perhaps a third model as well.

The Verizon moves are, we think, are calculated to make things complicated for AT&T and Apple with the iPhone for the holidays. A multiplicity of models at various sizes and price points makes sense at this stage in the market, but there is no question Apple still has the cachet that other smartphones have so far been unable to match.

We think all of these smartphone wars are a signal that whatever the FCC might do with wireless net neutrality, operators are committed to the mobile web.

Internet’s classic model no longer the reality

An interesting piece on the evolution of the Internet shows pretty convincingly that the classic model is being replaced by a new one where content portals and content delivery networks (CDNs) peer with access ISPs, eliminating more and more of the classical notion of an Internet backbone.

We’ve talked about this trend often. Experiences are a resource-to-user connection and not a user-user connection and thus don’t demand universal peer connectivity. While in theory, there are many resources available on the Internet, the practical reality is that most of them are found at statistically insignificant rates and contribute nothing to value and traffic—today.

The challenge we now face is whether the profit-driven evolution toward content concentration and experience networking is going to change the nature of the Internet. Is it becoming a big TV network, in effect? How much of what broadband policy is trying to preserve in the way of innovation and flexibility is already being lost to a quiet restructuring? We aren’t railing against the changes, only against the fact that we’re not facing them squarely and talking about the consequences.

Google, for example, is building the most connective resource center on the planet, and with that, it has a jump on any new application, not to mention the older ones. All of the talk about how Internet traffic is growing (Cisco) or how operators’ backbones are expanding (AT&T, Verizon) treats the Internet as homogeneous. It’s not, and how its structure is changing is critical to everyone.

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.

Mobile web has “senior” appeal

Mobile web use is actually growing fastest among seniors, according to a recent report. While much of this is due to the very low adoption rate there (3% of mobile web users are over 65), part is also likely due to the fact that applet-based or widget-based web tools are easier for seniors to navigate and more directly linked to their needs.

Research has tended to show that older users use the Internet more narrowly, “by rote,” and thus may be less interested in the range of things that you can do on broadband than with the specific need to find a restaurant or store, for example. This means that a wireline broadband appliance tuned to provide at-home information like TV schedules, health information, etc. might induce more seniors to adopt broadband at home.