|By Michael Bushong||
|August 18, 2014 06:00 AM EDT||
As we head through earnings season, we get the opportunity to learn a bit about the state of the networking industry. Each data point gives us a bit more information about how the competitive landscape is unfolding, and ultimately how this will shape the market. So what do we know so far?
Start with Arista
Perhaps the most important data point for anyone in the networking industry not called Cisco is Arista’s post-IPO performance. Since their much-anticipated IPO earlier in the year, Arista’s stock is up more than 25%. Part of the price certainly reflects pent up demand, but performance also tracks with their impressive earnings growth.
So what does this mean for the rest of the industry?
Arista proves that there is demand in the networking market and that there are large enough volumes of customers who favor value more than pure incumbency and entrenched relationships. It also suggests that the market needs a strong second supplier for networking solutions.
While customer demand does not ensure vendor execution, it does mean that if vendors can demonstrate value, there is enough interest in the marketplace to build very lucrative businesses. It is true that there will always be buyers who subscribe to the mantra No one ever got fired for buying Cisco, but there is reason to believe that the cadre of those who put building something better above merely avoiding risk is growing.
What about Cisco?
Cisco’s earnings coverage has been dominated by the announced layoff of 6,000 employees. We should be somewhat fair when looking at these numbers. Cisco employs more than 70,000 people worldwide. While 6,000 is no small number, Cisco’s employee purges are really an annual event. At a company with as diverse a portfolio as Cisco, we should expect that they will constantly evaluate the bets they have placed, and then back off investments that aren’t performing and double down where it makes sense. To put it candidly, I think that people are taking their eye off the ball a bit by focusing on the cuts.
So where should we be focusing if not on the cuts?
Cisco’s numbers were actually not bad across the board. They beat estimates by by 2 cents per share and consensus revenue estimates by $300 million. To put those numbers into perspective, they beat estimates for the quarter by about as much as Arista earned in all of 2013. That’s not a bad haul. Another interesting point of view – for Cisco to grow 10% year-over-year, they basically have to build a Juniper Networks every year (not easy considering Juniper took 16 years to get to $5B in revenue).
That said, the stock has been hammered a bit. So why? Basically, Cisco’s strong numbers are underpinned by a couple of scary trends. Weakness in emerging markets (especially China) is worrisome. But beyond that, they reported year-over-year losses in both routing and switching (7% and 4% respectively).
The emerging markets trends are not terribly surprising given the global fallout in the post-Snowden era. But those trends are more damaging when you consider the losses in both routing and switching. It would appear that Cisco is losing share across both areas. So long as new markets are growing fast enough to offset share movement in more stable geographies, maybe things are not so bad. But if those new markets stall out, then share losses mean there is significant headwind.
When you take competitive growth and Cisco losses side-by-side, you get a little bit of nervousness in the investor community.
Why margins matter
If competition is heating up, Cisco will have to pay closer attention to pricing. This is partly why there is a strong focus on Cisco’s gross margins across the board. The fear for some is that a changing network landscape that features more competitors and new technology trends like bare metal switching will ultimately force Cisco to drop those healthy margins down into the 50s (they reported 61.8% for the year).
Interestingly, if Cisco is forced to drop price, it will actually create shockwaves through the industry. Players who have counted on being cheaper as part of mitigating the risk of switching to a new vendor will find that one of their competitive edges has been blunted. In markets that tend to buy on features and performance (carrier routing, for instance), this might not matter so much. But in more price-sensitive spaces (switching, for example), this starts to matter.
It will be interesting to watch both Arista and bare metal advocate counterpunch. They have to be preparing for Cisco to drop prices aggressively at some point. This could be why we are seeing a lot more attention paid to DevOps and automation, both of which allow vendors to continue the Total Cost of Ownership discussion with OpEx replacing CapEx in the models. The challenge is that OpEx is notoriously hard to model well.
Beyond the big numbers
The other number Cisco talked about is around ACI adoption. Chambers indicates that Cisco has over 580 ACI customers. Strictly speaking, I believe this number refers to Nexus 9000 customers, which is arguably not full ACI without the APIC controller (recently shipping). But regardless, for a nascent product (announced last year but fairly recently available), this demonstrates strong demand. More importantly, this indicates a healthy appetite for a different way of networking. Cisco’s ACI represents a new architecture built around the application and leveraging an SDN architecture. That customers are willing to migrate from legacy deployments to a new architecture is telling. It signals a change in buying behavior that favors solutions that are more application-oriented.
An interesting juxtaposition
Arista’s strength and Cisco’s ACI progress create an interesting juxtaposition. On the one hand, you have a market that is hungry for a second supplier. On the other, you have a set of buyers interested in a new way of networking. At some point, these trends will have to reconcile. The result has to be that a second supplier to the newer networking paradigms emerges. This creates intense opportunity, which will nurture a renewed focus on innovation in an industry that spent most of the new millennium making only incremental improvements.
The bottom line
So who wins? Ultimately, the winner has to be customers. Competition breeds improvement, both in terms of pricing and innovation. Those companies most capable of innovating should find hope in both Cisco’s and Arista’s earnings. And anyone banking on a legacy networking approach should eye these results with a concerned eye. We will see new players continue to rise at the expense of the laggards. And no amount of product re-labeling (But I SWEAR it’s SDN!) is going to make a ton of difference.
[Today’s fun fact: One brow wrinkle is the result of 200,000 frowns. This is why San Diego Padres and Minnesota Vikings fans have such weathered faces.]
Most companies hope for rapid growth so it's important to invest in scalable core technologies that won't demand a complete overhaul when a business goes through a growth spurt. Cloud technology enables previously difficult-to-scale solutions like phone, network infrastructure or billing systems to automatically scale based on demand. For example, with a virtual PBX service, a single-user cloud phone service can easily transition into an advanced VoIP system that supports hundreds of phones and ...
May. 22, 2015 07:00 AM EDT Reads: 2,560
Since 2008 and for the first time in history, more than half of humans live in urban areas, urging cities to become “smart.” Today, cities can leverage the wide availability of smartphones combined with new technologies such as Beacons or NFC to connect their urban furniture and environment to create citizen-first services that improve transportation, way-finding and information delivery. In her session at @ThingsExpo, Laetitia Gazel-Anthoine, CEO of Connecthings, will focus on successful use c...
May. 22, 2015 06:00 AM EDT Reads: 4,637
The recent trends like cloud computing, social, mobile and Internet of Things are forcing enterprises to modernize in order to compete in the competitive globalized markets. However, enterprises are approaching newer technologies with a more silo-ed way, gaining only sub optimal benefits. The Modern Enterprise model is presented as a newer way to think of enterprise IT, which takes a more holistic approach to embracing modern technologies.
May. 22, 2015 06:00 AM EDT Reads: 5,790
DevOps Summit, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 17th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long developmen...
May. 22, 2015 06:00 AM EDT Reads: 1,995
Security can create serious friction for DevOps processes. We've come up with an approach to alleviate the friction and provide security value to DevOps teams. In her session at DevOps Summit, Shannon Lietz, Senior Manager of DevSecOps at Intuit, will discuss how DevSecOps got started and how it has evolved. Shannon Lietz has over two decades of experience pursuing next generation security solutions. She is currently the DevSecOps Leader for Intuit where she is responsible for setting and driv...
May. 22, 2015 06:00 AM EDT Reads: 3,685
“Oh, dev is dev and ops is ops, and never the twain shall meet.” With apoloies to Rudyard Kipling and all of his fans, this describes the early state of the two sides of DevOps. Yet the DevOps approach is demanded by cloud computing, as the speed, flexibility, and scalability in today's so-called “Third Platform” must not be hindered by the traditional limitations of software development and deployment. A recent report by Gartner, for example, says that 25% of Global 2000 companies will b...
May. 22, 2015 05:45 AM EDT Reads: 2,597
Software-driven innovation is becoming a primary approach to how businesses create and deliver new value to customers. A survey of 400 business and IT executives by the IBM Institute for Business Value showed businesses that are more effective at software delivery are also more profitable than their peers nearly 70 percent of the time (1). DevOps provides a way for businesses to remain competitive, applying lean and agile principles to software development to speed the delivery of software that ...
May. 22, 2015 05:45 AM EDT Reads: 6,245
JFrog on Thursday announced that it has added Docker support to Bintray, its distribution-as-a-service (DaaS) platform. When combined with JFrog’s Artifactory binary repository management system, organizations can now manage Docker images with an end-to-end solution that supports all technologies. The new version of Bintray allows organizations to create an unlimited number of private Docker repositories, and through the use of fast Akamai content delivery networks (CDNs), it decreases the dow...
May. 22, 2015 05:30 AM EDT Reads: 3,112
Big Data is amazing, it's life changing and yes it is changing how we see our world. Big Data, however, can sometimes be too big. Organizations that are not amassing massive amounts of information and feeding into their decision buckets, smaller data that feeds in from customer buying patterns, buying decisions and buying influences can be more useful when used in the right way. In their session at Big Data Expo, Ermanno Bonifazi, CEO & Founder of Solgenia, and Ian Khan, Global Strategic Positi...
May. 22, 2015 05:30 AM EDT Reads: 2,175
More organizations are embracing DevOps to realize compelling business benefits such as more frequent feature releases, increased application stability, and more productive resource utilization. However, security and compliance monitoring tools have not kept up and often represent the single largest remaining hurdle to continuous delivery. In their session at DevOps Summit, Justin Criswell, Senior Sales Engineer at Alert Logic, Ricardo Lupo, a Solution Architect with Chef, will discuss how to ...
May. 22, 2015 05:15 AM EDT Reads: 2,869
Thanks to Docker, it becomes very easy to leverage containers to build, ship, and run any Linux application on any kind of infrastructure. Docker is particularly helpful for microservice architectures because their successful implementation relies on a fast, efficient deployment mechanism – which is precisely one of the features of Docker. Microservice architectures are therefore becoming more popular, and are increasingly seen as an interesting option even for smaller projects, instead of bein...
May. 22, 2015 05:00 AM EDT Reads: 4,168
Over the last few years the healthcare ecosystem has revolved around innovations in Electronic Health Record (HER) based systems. This evolution has helped us achieve much desired interoperability. Now the focus is shifting to other equally important aspects - scalability and performance. While applying cloud computing environments to the EHR systems, a special consideration needs to be given to the cloud enablement of Veterans Health Information Systems and Technology Architecture (VistA), i.e....
May. 22, 2015 05:00 AM EDT Reads: 3,863
17th Cloud Expo, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterprises a...
May. 22, 2015 05:00 AM EDT Reads: 2,057
The Workspace-as-a-Service (WaaS) market will grow to $6.4B by 2018. In his session at 16th Cloud Expo, Seth Bostock, CEO of IndependenceIT, will begin by walking the audience through the evolution of Workspace as-a-Service, where it is now vs. where it going. To look beyond the desktop we must understand exactly what WaaS is, who the users are, and where it is going in the future. IT departments, ISVs and service providers must look to workflow and automation capabilities to adapt to growing ...
May. 22, 2015 04:30 AM EDT Reads: 2,953
The truth is, today’s databases are anything but agile – they are effectively static repositories that are cumbersome to work with, difficult to change, and cannot keep pace with application demands. Performance suffers as a result, and it takes far longer than it should to deliver new features and capabilities needed to make your organization competitive. As your application and business needs change, data repositories and structures get outmoded rapidly, resulting in increased work for applica...
May. 22, 2015 04:30 AM EDT Reads: 2,516
The speed of product development has increased massively in the past 10 years. At the same time our formal secure development and SDL methodologies have fallen behind. This forces product developers to choose between rapid release times and security. In his session at DevOps Summit, Michael Murray, Director of Cyber Security Consulting and Assessment at GE Healthcare, examined the problems and presented some solutions for moving security into the DevOps lifecycle to ensure that we get fast AND ...
May. 22, 2015 04:15 AM EDT Reads: 4,777
From telemedicine to smart cars, digital homes and industrial monitoring, the explosive growth of IoT has created exciting new business opportunities for real time calls and messaging. In his session at @ThingsExpo, Ivelin Ivanov, CEO and Co-Founder of Telestax, shared some of the new revenue sources that IoT created for Restcomm – the open source telephony platform from Telestax. Ivelin Ivanov is a technology entrepreneur who founded Mobicents, an Open Source VoIP Platform, to help create, de...
May. 22, 2015 04:00 AM EDT Reads: 6,120
The Internet of Things (IoT) promises to evolve the way the world does business; however, understanding how to apply it to your company can be a mystery. Most people struggle with understanding the potential business uses or tend to get caught up in the technology, resulting in solutions that fail to meet even minimum business goals. In his session at @ThingsExpo, Jesse Shiah, CEO / President / Co-Founder of AgilePoint Inc., showed what is needed to leverage the IoT to transform your business. ...
May. 22, 2015 04:00 AM EDT Reads: 6,489
In his session at DevOps Summit, Tapabrata Pal, Director of Enterprise Architecture at Capital One, will tell a story about how Capital One has embraced Agile and DevOps Security practices across the Enterprise – driven by Enterprise Architecture; bringing in Development, Operations and Information Security organizations together. Capital Ones DevOpsSec practice is based upon three "pillars" – Shift-Left, Automate Everything, Dashboard Everything. Within about three years, from 100% waterfall, C...
May. 22, 2015 03:45 AM EDT Reads: 6,690
Skeuomorphism usually means retaining existing design cues in something new that doesn’t actually need them. However, the concept of skeuomorphism can be thought of as relating more broadly to applying existing patterns to new technologies that, in fact, cry out for new approaches. In his session at DevOps Summit, Gordon Haff, Senior Cloud Strategy Marketing and Evangelism Manager at Red Hat, will discuss why containers should be paired with new architectural practices such as microservices ra...
May. 22, 2015 03:30 AM EDT Reads: 3,020