Yesterday was the final date for the submission of bids for Nortel’s metro Ethernet assets. Financial analysts are generally saying that the deal would be favorable for Ciena at its straw-man bid price, but of course the favorable outcome demands it getting the bid.
Nortel, whose latest quarter showed more bloodletting, is in the process of self-dismemberment down to a minimalist piece nobody can quite identify yet. NSN is also widely expected to bid for the unit to rekindle its chances in North America, where rival Ericsson’s win of the Nortel wireless unit has given it a leg up. The Ericsson CEO did a bit of crowing over its position in North America, in fact.
With Alcatel-Lucent winning many of the AT&T procurement zones and Ericsson strong in wireless, NSN needs to get effective in a hurry. We don’t think that the Nortel deal will do enough; NSN should look to broader M&A and strategy changes quickly.
Verizon, Motorola and Google can all be pleased at the pace of Droid sales, estimated at $250,000 the first weekend. While Apple’s iPhone sales record dwarfs that of Droid, it’s still the fastest-selling Android phone, and it’s said to be already responsible for half the Internet activity for Android handsets. Another report says it will likely drive Android past Windows Mobile in market share soon, a formidable achievement despite Microsoft’s indifferent promotion of its mobile phone system in the past.
Droid seems a clear winner, which could have significant impact on the credibility of Google’s Android and the potential Android may have as the near-term, de facto competitor to the iPhone and the eventual winner in the smartphone space. Apple with iPhone now faces a very “Mac-like” dilemma. The IBM PC won decisively in the market because it was open, but Apple has stayed very profitable and continues intact, while the PC has been fragmented and sold off to various players.
Should Apple now open things up with iPhone to seize market share or play the same game in the smartphone space? We think they’ll decide for the latter, but Google is a much smarter competitor than any Apple has faced before, and an Android success could establish Google as a broader alternative OS player, something that would hurt not only the iPhone but the Mac.
NSN, following on a show theme that IPTV needs to be more developer-friendly, has been talking up its open platform at the telco TV show, and its efforts raise some interesting questions.
We agree that simple IPTV isn’t innovating fast enough to be viable. If you look at the cost of IPTV versus linear RF multi-channel distribution, the latter is a clear winner, so unless telcos considering IPTV have no cable competitors, they face a difficult problem of ROI and pricing.
There is also little question that traditional linear RF channelized TV in its digital form is becoming more interactive and thus eroding the differentiation that IPTV might claim. Developers could help the process along, but we think the real issue is whether an open developer process can be made to support a single vendor’s platform. Too general an approach to developers risks eroding NSN’s differentiation and that of its customers because developers could take their solutions elsewhere.
A stronger strategy would be to integrate developer support for IPTV with similar developer capability elsewhere in the service layer. NSN, at its recent Dallas analyst event, seemed reluctant to productize its broader service-layer middleware tools. We think NSN will have to in order to make its IPTV platform an effective solution to the real problem, which is operator agility in services overall and not just in IPTV.
HP has made a somewhat-surprise move and acquired 3Com, a venerable but now fallen giant in the networking field, and the move is very likely an explicit a changing of the guard with respect to enterprise networking.
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.
Sprint and others in the WiMAX partnership have agreed to contribute more money to the 4G wireless technology despite the view by some that WiMAX is the poor stepchild of 4G and that LTE is the anointed. The problem is that they have fallen into a nomenclature trap. 4G technologies are alike in that they’re the generation after 3G, but WiMAX and LTE are in different families, and in truth are not likely to be very competitive.
WiMAX is aimed at migratory users who operate from a small number of fixed locations in some random sequence—hence our name for the group and the behavior. LTE is a successor to 3G mobile service, largely aimed at a mobile or at least a regularly moving population. The preferred LTE instrument is the smartphone; for WiMAX, it’s the tablet or the netbook.
We think Sprint and its allies are on to something here. Wireless behavior is constrained by its device support, and little devices are not great vehicles with which to view content or even web pages. Yes, there will be many iPhone and Android lovers who will use their mobile devices from fixed locations, but we think a large number of users will adopt a larger device designed for sedentary applications in cafes and other locations.
There’s still plenty of time (and ways) to mess this up, but we think Sprint could redeem its position with WiMAX. In fact, it’s the only way it can do that. Sprint is cutting its workforce, which hardly speaks favorably about its prospects with normal cellular services.
A proposal to pay ISPs to connect broadband customers is one of those that’s emerging out of the FCC broadband policy debate, and the concept has some merit. A direct payment for a connected subscriber might address the fact that there is a very large base of consumers who can get broadband but don’t, and not being willing/able to pay for it appears to be the largest reason.
A subsidy would be a strong incentive to boost broadband usage, but there are major risks. The incentive might spawn another overlay CLEC model that doesn’t really address cost management and thus doesn’t create a viable market. Users might be pirated to gain their subsidies and given substandard services. Some significant tuning on the idea is essential if it’s to form an element of a future broadband policy. We think, for example, that the funds should go only to ISPs who provide facility-based services.
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 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 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.
We have completed a full report on the critical service-layer middleware announced October 29th by Juniper Networks, called Junos Space. The report is free; Download it now.