|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.]
With an estimated 50 billion devices connected to the Internet by 2020, several industries will begin to expand their capabilities for retaining end point data at the edge to better utilize the range of data types and sheer volume of M2M data generated by the Internet of Things. In his session at @ThingsExpo, Don DeLoach, CEO and President of Infobright, discussed the infrastructures businesses will need to implement to handle this explosion of data by providing specific use cases for filterin...
Jul. 24, 2016 02:00 PM EDT Reads: 1,183
IoT generates lots of temporal data. But how do you unlock its value? You need to discover patterns that are repeatable in vast quantities of data, understand their meaning, and implement scalable monitoring across multiple data streams in order to monetize the discoveries and insights. Motif discovery and deep learning platforms are emerging to visualize sensor data, to search for patterns and to build application that can monitor real time streams efficiently. In his session at @ThingsExpo, ...
Jul. 24, 2016 01:30 PM EDT Reads: 775
Enterprise networks are complex. Moreover, they were designed and deployed to meet a specific set of business requirements at a specific point in time. But, the adoption of cloud services, new business applications and intensifying security policies, among other factors, require IT organizations to continuously deploy configuration changes. Therefore, enterprises are looking for better ways to automate the management of their networks while still leveraging existing capabilities, optimizing perf...
Jul. 24, 2016 01:00 PM EDT Reads: 962
Internet of @ThingsExpo has announced today that Chris Matthieu has been named tech chair of Internet of @ThingsExpo 2016 Silicon Valley. The 6thInternet of @ThingsExpo will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Jul. 24, 2016 12:00 PM EDT Reads: 1,875
Early adopters of IoT viewed it mainly as a different term for machine-to-machine connectivity or M2M. This is understandable since a prerequisite for any IoT solution is the ability to collect and aggregate device data, which is most often presented in a dashboard. The problem is that viewing data in a dashboard requires a human to interpret the results and take manual action, which doesn’t scale to the needs of IoT.
Jul. 24, 2016 12:00 PM EDT Reads: 1,857
When building large, cloud-based applications that operate at a high scale, it’s important to maintain a high availability and resilience to failures. In order to do that, you must be tolerant of failures, even in light of failures in other areas of your application. “Fly two mistakes high” is an old adage in the radio control airplane hobby. It means, fly high enough so that if you make a mistake, you can continue flying with room to still make mistakes. In his session at 18th Cloud Expo, Lee...
Jul. 24, 2016 12:00 PM EDT Reads: 1,322
Continuous testing helps bridge the gap between developing quickly and maintaining high quality products. But to implement continuous testing, CTOs must take a strategic approach to building a testing infrastructure and toolset that empowers their team to move fast. Download our guide to laying the groundwork for a scalable continuous testing strategy.
Jul. 24, 2016 11:45 AM EDT Reads: 1,841
CenturyLink has announced that application server solutions from GENBAND are now available as part of CenturyLink’s Networx contracts. The General Services Administration (GSA)’s Networx program includes the largest telecommunications contract vehicles ever awarded by the federal government. CenturyLink recently secured an extension through spring 2020 of its offerings available to federal government agencies via GSA’s Networx Universal and Enterprise contracts. GENBAND’s EXPERiUS™ Application...
Jul. 24, 2016 11:00 AM EDT Reads: 1,788
Much of IT terminology is often misused and misapplied. Modernization and transformation are two such terms. They are often used interchangeably even though they mean different things and have very different connotations. Indeed, it is somewhat safe to assume that in IT any transformative effort is likely to also have a modernizing effect, and thus, we can see these as levels of improvement efforts. However, many businesses are being led to believe if they don’t transform now they risk becoming ...
Jul. 24, 2016 11:00 AM EDT Reads: 1,098
"We provide DevOps solutions. We also partner with some key players in the DevOps space and we use the technology that we partner with to engineer custom solutions for different organizations," stated Himanshu Chhetri, CTO of Addteq, in this SYS-CON.tv interview at DevOps at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Jul. 24, 2016 11:00 AM EDT Reads: 1,577
Introducing Enterprise IoT Bootcamp at @ThingsExpo Silicon Valley | #IoT #M2M #API #DigitalTransformation
SYS-CON Events announced today the Enterprise IoT Bootcamp, being held November 1-2, 2016, in conjunction with 19th Cloud Expo | @ThingsExpo at the Santa Clara Convention Center in Santa Clara, CA. Combined with real-world scenarios and use cases, the Enterprise IoT Bootcamp is not just based on presentations but with hands-on demos and detailed walkthroughs. We will introduce you to a variety of real world use cases prototyped using Arduino, Raspberry Pi, BeagleBone, Spark, and Intel Edison. Y...
Jul. 24, 2016 11:00 AM EDT Reads: 1,297
What does it look like when you have access to cloud infrastructure and platform under the same roof? Let’s talk about the different layers of Technology as a Service: who cares, what runs where, and how does it all fit together. In his session at 18th Cloud Expo, Phil Jackson, Lead Technology Evangelist at SoftLayer, an IBM company, spoke about the picture being painted by IBM Cloud and how the tools being crafted can help fill the gaps in your IT infrastructure.
Jul. 24, 2016 11:00 AM EDT Reads: 2,016
Using new techniques of information modeling, indexing, and processing, new cloud-based systems can support cloud-based workloads previously not possible for high-throughput insurance, banking, and case-based applications. In his session at 18th Cloud Expo, John Newton, CTO, Founder and Chairman of Alfresco, described how to scale cloud-based content management repositories to store, manage, and retrieve billions of documents and related information with fast and linear scalability. He addres...
Jul. 24, 2016 10:45 AM EDT Reads: 892
DevOps at Cloud Expo – being held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA – announces that its Call for Papers is open. Born out of proven success in agile development, cloud computing, and process automation, DevOps is a macro trend you cannot afford to miss. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the world's largest enterprises – and delivering real results. Am...
Jul. 24, 2016 10:45 AM EDT Reads: 2,127
Aspose.Total for .NET is the most complete package of all file format APIs for .NET as offered by Aspose. It empowers developers to create, edit, render, print and convert between a wide range of popular document formats within any .NET, C#, ASP.NET and VB.NET applications. Aspose compiles all .NET APIs on a daily basis to ensure that it contains the most up to date versions of each of Aspose .NET APIs. If a new .NET API or a new version of existing APIs is released during the subscription peri...
Jul. 24, 2016 10:00 AM EDT Reads: 573
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
Jul. 24, 2016 09:30 AM EDT Reads: 1,069
As companies gain momentum, the need to maintain high quality products can outstrip their development team’s bandwidth for QA. Building out a large QA team (whether in-house or outsourced) can slow down development and significantly increases costs. This eBook takes QA profiles from 5 companies who successfully scaled up production without building a large QA team and includes: What to consider when choosing CI/CD tools How culture and communication can make or break implementation
Jul. 24, 2016 09:00 AM EDT Reads: 1,509
Adding public cloud resources to an existing application can be a daunting process. The tools that you currently use to manage the software and hardware outside the cloud aren’t always the best tools to efficiently grow into the cloud. All of the major configuration management tools have cloud orchestration plugins that can be leveraged, but there are also cloud-native tools that can dramatically improve the efficiency of managing your application lifecycle. In his session at 18th Cloud Expo, ...
Jul. 24, 2016 09:00 AM EDT Reads: 827
The best-practices for building IoT applications with Go Code that attendees can use to build their own IoT applications. In his session at @ThingsExpo, Indraneel Mitra, Senior Solutions Architect & Technology Evangelist at Cognizant, provided valuable information and resources for both novice and experienced developers on how to get started with IoT and Golang in a day. He also provided information on how to use Intel Arduino Kit, Go Robotics API and AWS IoT stack to build an application tha...
Jul. 24, 2016 08:45 AM EDT Reads: 898
It’s 2016: buildings are smart, connected and the IoT is fundamentally altering how control and operating systems work and speak to each other. Platforms across the enterprise are networked via inexpensive sensors to collect massive amounts of data for analytics, information management, and insights that can be used to continuously improve operations. In his session at @ThingsExpo, Brian Chemel, Co-Founder and CTO of Digital Lumens, will explore: The benefits sensor-networked systems bring to ...
Jul. 24, 2016 08:30 AM EDT Reads: 1,471