The Street is busy handicapping the networking space, and what they’re finding is interesting in part because it demonstrates that stock potential and company sales and influence aren’t always congruent. Sometimes they are, though.
One recent Street favorite is Cisco, whose sudden fall from financial grace shook both investors and company management. The result was a period of loss of focus that was visible all the way down to the sales teams, and that made Cisco take a big dip in strategic credibility. The view now is that Cisco has gotten its act together and is ready to move forward, which is half-true.
Yes, at the sales level, I’m seeing much stronger account work being done and deals being closed. Cisco is recovering some of its strategic credibility, and so in that regard you could argue that they’re making up the losses. They also have that golden ring of incumbency that lets them leverage their current relationships to create more ARPU. But there’s still no real progress at the strategy level. Here, I think the challenge for Cisco is that they’re so much a company of personalities that they need everything that’s important to be run by a PERSON, a specific individual who becomes the face of articulation, the face of strategy, the face that customers and everyone else trusts. It’s been very hard for Cisco to create a face for its diverse activities. Chambers is a tough guy to share a bed with and internecine battles among his subordinates are legendary too. Not since Charlie Giancarlo left has Cisco had a credible technology face, and even he would be challenged by the adjacencies that Cisco now has to juggle.
F5 is another player who has catapulted to Street fame, largely by turning in a banner quarter. The big asset these guys have is a relentless focus on the data center at a time when in networking terms only the data center matters. They’ve ridden their position to a billion dollar annual sales run rate, and many on the Street think that they could be the “next Cisco”. Again, half true.
The primacy of the data center in networking has been a reality for two years now, and surprisingly the mainstream switch/router vendors are yet to really catch the range of the trend. I think the big issue is that they’re traffic-centric rather than project-centric in their approach. Scratch a Cisco or Juniper guy and bits stream out. The F5 guys have been, in contrast, very much focused on riding the conceptual waves that are driving data center change. The company is better known for its cloud strategy among enterprises than either Cisco or Juniper, for example. Their application-oriented networking story resonates, period, where competitors’ sound like an infomercial.
The challenge is that sleeping giants sometimes wake up. Cisco’s growing battle with Juniper over data center switching could hone either or both vendors’ strategies to better match the market, and if that happens the loser could well be F5 even though they’d be only collateral damage. The other issue is that billions in sales starts to make you look like a threat, and so far neither of the big enterprise data center players have bothered much with F5 counterpunching. They might learn now, and product breadth gives both Cisco and Juniper a potentially more compelling story if the companies can get out of the silo and back in the fields.
Speaking of fields, the Sony-Ericsson buyout by Sony is supposed to get both parties back onto their home turf, letting Sony build an entertainment empire to compete with Apple and Samsung and potentially MMI/Google while Ericsson focuses on wireless. The Street is liking both sides of this deal, something that’s a bit rare in the M&A game, and again the optimism they are feeling is based on half-truths.
The truth is that this is almost certainly good for Sony because it lets them drive their mobile device strategy in synchrony with the rest of their entertainment portfolio, which is perhaps the only one in the market broad enough to rival Apple. Sony has content editing and creation tools, games, TV, you name it. It makes sense to visualize these things as prongs in a coordinated market attack, but if one of them is a spear you’re sharing with someone else the process of spearing competitive hot dogs is complicated.
