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Tag: Acquisitions

The Architecture of CE Innovation Keynote Eric Kim

by on Sep.24, 2009, under Storage

The Architecture of CE Innovation Keynote Eric Kim

The future of television°KIt°¶s not that far away.

The Eric Kim keynote kicked off with a demonstration of a variety of engaging, future-forward applications, for television in particular. Of course, the Star Trek analogies emerged. The special surprise was a guest appearance by LeVar Burton, who pumped up the crowd, calling for innovation and creativity, and reminding us that flip phones started life as fictional tricorders.

What all that led up to was that we need innovations°Xspecifically in user experience°Xand business models to move this technology into living rooms.

Breakthrough technology, a good user experience (content service, purpose), and a solid business model. All three must converge. Radio, telephone, television°Xinnovative technologies that took years (and sometimes full generations) to realize successful business models.

Fortunately, there are plenty of innovations in user experience right now. Here are some of my takeaways from recent sessions.

CE3100 launched last year Q3, enabling unique capabilities for rich interactive TV. Suri Medapati came out to do a demonstration, and talked about emerging codecs. I hadn°¶t heard of White Wine before, but it enables high-def video experiences. It allows implementation of new technologies as customers demand them.

Then there°¶s CE4100°Xthe 45nm generation single chip-SOC. Blu-ray, digital TV, and other devices. Backward compatible with CE3100.

Cisco°¶s Malachy Moynihan stepped in to talk about how they are focused on delivering premium video, and how they have made company acquisitions (most recently Pure Digital, the makers of Flip cameras) to drive that. They are preparing for the expected upcoming transition°Xthat 60% of video will be consumed by consumers, and that 60% of that consumption will be via IP technologies.

Screen choice by consumers is becoming hard to predict. They may watch video on their TVs, on their computer monitors, or on their mobile devices.

The Beijing Olympics were the first IP Olympics. Video shot in Beijing was sent to New York, where it was edited and then published online. So it didn°¶t matter what major networks were showing which sport, if any. Users could get their sport of choice any time.

Cisco calls this type of network for rich media a medianet. Soon service providers will become experience providers.

°ßDon°¶t make my TV work like a PC.°® It°¶s what Intel has been told by consumers over and over. But we do need to create rich experiences. How can we give them the richness of the Internet, while keeping it simple?

Widget was launched last year to bring one-click access to television.

Internet application development framework for television is needed. Flash has the largest developer community behind it. It blends interactivity, video, and animation. David Wadhwani from Adobe spoke about Open Screen Project, which will open up Flash, data, and media protocols and eliminate license fees. He also demoed Flash Player 10. Immersive TV experiences, built with Flash 10, will reshape the way consumers interact with their televisions.

This is about evolving the user experience, and also generating revenue.

Internet video advertising is going up from 3.2 million to 1.6 billion per year.

Analog advertising dollars become digital advertising dimes. How do networks attract an audience in the first place? There are infinite choices for the consumer. What can networks do to leverage capabilities?

George Schweitzer°XCBS marketing

The CBS widget is about to go live. The call is for us (the audience) to create great experiences that not only meet, but exceed consumer expectations.

Direct gaming experience°XFlash games are likely to be ported and designed for TV. Intel is interested in running PC games on Linux boxes to bridge the gap for consumers who love the old games that are not compatible.

We also heard from Vikas Gupta, CEO of Transgaming. Transgaming created an engine to allow software designed for the PC to be easily portable to Linux-based machines, including Mac. Now, they are working on the C platform to very quickly port games to Flash for immersive TV experience.

Transgaming°¶s is their on-demand gaming service built to integrate with in-home architecture. They are developing an SDK and a content delivery network where developers can upload their converted or unique games. Users will be able to subscribe through ad-supported gaming experiences. Custom peripheral devices are expected to drive the experience. Consumers don°¶t want keyboards or mice in their living room. Transgaming expects an early 2010 service launch.

The bottom line is that we have the power to create amazing experiences. The C reference platform and development kit is available now. Go. Hurry. Get it. And grab one for me.

The future of entertainment is in Moore°¶s law now.

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Seagate Technology Reports Fiscal Fourth Quarter and Year-End 2009 Results

by on Jul.21, 2009, under Storage

Seagate Technology Reports Fiscal Fourth Quarter and Year-End 2009 Results

Quarterly revenue of $2.35 billion – Cash, Short-term Investments and Restricted Cash grew to $2.0 billion – Expects sequential revenue growth and margin improvement

SCOTTS VALLEY, Calif. – July 21, 2009 – Seagate Technology (NASDAQ: STX) today reported results for the quarter ended July 3, 2009 of 40.6 million disk drive unit shipments, revenue of $2.35 billion, a net loss of $81 million and net loss per share of $0.16. The financial results for the quarter include $21 million of purchased intangibles amortization and other charges associated with acquisitions, and $85 million of restructuring and related accelerated depreciation charges. The aggregate impact of these items is $106 million or approximately $0.22 per share.

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Data Domain, NetApp And The IT Industry

by on Jul.21, 2009, under Storage

Data Domain, NetApp And The IT Industry

EMC logo Data Domain, NetApp And The IT Industry

As I think about this latest acquisition, there are three major themes worth exploring. The first theme has been covered widely already — the impact of data deduplication, why it’s hot, the value of differing approaches, why it needs to…

Chess As I think about this latest acquisition, there are three major themes worth exploring.

The first theme has been covered widely already — the impact of data deduplication, why it’s hot, the value of differing¬†approaches, why it needs to go everywhere in the stack, etc.¬†

No need to cover that one here.

The second theme is the impact to EMC, Data Domain and our mutual customers. 

I attempted to sketch out how Data Domain’s technology and offering could potentially create a surprising amount of scale and synergy when juxtaposed with EMC.¬†

There were some colorful comments on that one.

The third theme revolves how this acquisition is emblematic of broader themes in the industry, and how a certain class of IT vendors will find themselves with hard choices to make going forward.¬† Although I’ll be using NetApp as an example, the discussion actually covers a fairly broad spectrum of well-known IT players.

And, yes, I’m wearing an asbestos suit …

Big Things Afoot In The IT Biz

No surprise, we’re in a period of rapid consolidation in the IT industry.¬† Being a large, successful IT vendor is now a game of scale and synergy — scale to reduce the costs of development, distribution and support, and synergies across the portfolio to increase the value of the overall offering.

For example, if one looks at what Oracle is doing, it’s pretty clear they’re thinking this way.¬† EMC’s transformation from a single product vendor (Symmetrix) to the broad portfolio of today reflects that thinking as well.¬† Cisco might fall into this camp.¬† And there are other examples, if you think about it.

If you get involved in corporate strategy, you have this “aha” moment when you fully grasp the amazing potential of scale and synergy.¬† However, realizing that potential is another thing altogether, as we’ll see in a moment.

Get Big Or Get Bought

Now, let’s look at the chessboard from another perspective.¬† Imagine you’re a mid-sized IT vendor, and you’ve become really successful with “your thing” — maybe it’s a particular technology, or a business model, or something else relatively innovative that’s gotten you to a certain size.

At some point, other people start to figure out what you’ve done, and start to offer alternatives that are just as good — or sometimes better — than your unique gig.¬†

You might think you can compete through size and strength, until these newer competitors get bought up by the bigger companies, and then the tables turn on you.

For example, Dell had a killer business model — until other vendors copied it.¬† In the late 90′s, EMC had a lock on high-end enterprise storage, until there were “good enough” alternatives from other vendors.¬† NetApp has a nice file system with some useful tricks, but has never been able to move much beyond this.¬†

Lots of other examples in the industry when you look at it this way.

The key point here is simple — the things that fuel the initial phases of growth of any successful IT vendor only have a limited life span — the rocket fuel doesn’t last forever.

So, What’s An IT Vendor To Do?

It’s easy — buy or get bought.¬† Either play the “scale and synergy” game, or sell yourself to someone who wants to play that game.

To play the “scale and synergy” M&A game, you’ll need three things:

(1) money, in the form of cash or equity
(2) a reasonable pool of attractive candidates to buy
(3) the ability to extract the “scale and synergy”

I am no financial engineer, so I don’t have much to say about capital structures, debt to equity ratios, dilution and so on.¬† I can follow those conversations, but I don’t have much to say.¬† To simplify the discussion, let’s assume that our moderately successful IT vendor has a pile of money to work with.

The problem that’s specific to these class of mid-sized vendors right now is that it’s a pretty shallow pool of acquisition targets.¬† The larger and more interesting targets that have shipping products, happy customers, demonstrated growth potential, etc. are drawing the attention of the bigger players.¬†

These bigger players not only have more money,¬†but usually¬†have demonstrated an ability to extract more value from an acquisition.¬† Which tends to leave either very small companies who haven’t demonstrated success, or a few picked-over shop-worn names that everyone else has looked at already, and decided to pass.

That’s the M+A target pool that NetApp and others in their category are facing right now.¬† Not a lot of attractive choices, and — if there is one — there will likely be acquired by a bigger player who’s more interested and can make a better offer.¬†

Making An Acquisition Work

The only proven way to make M+A work is to invest in building a machine and doing it over and over and over again.¬† That’s the formula at Oracle, Cisco, EMC, Microsoft and the other big players.¬† We’re not perfect, and we all make mistakes, but each company has a core discipline and track record in making acquisitions work.

Most people aren’t aware that EMC was doing acquisitions way back in the 1990′s.¬† I would offer that we weren’t very good at it back then, just like any midsized IT vendor in our category.¬† It wasn’t until we set off in a new strategic direction (thanks to Joe Tucci) that we invested enough effort to get really good at the whole thing.

By comparison, NetApp hasn’t been able to demonstrate any real success in making their acquisitions work.¬† The Spinnaker acquisition could hardly be called a success (it almost tore the company apart), Decru disappeared into obscurity, Topio was withdrawn from the market.¬† One could argue that Onaro is enjoying some small modicum of success, but does it really matter?

Hard Choices Ahead

It was interesting to hear Dan Warmenhoven publicly tick through the list of potential suitors for NetApp, and take each and every one of them off the table for one reason or another.¬† While I could debate his logic, it’s very clear that he and the rest of his management team are thinking long and hard about “Option A” — be acquired.

By comparison, “Option B” — buy a lot of stuff — isn’t working out so well.¬† There are bigger and more skilled players competing for the same acquisitions, and they can justify paying more simply because they have a track record of extracting value through scale and synergy.

Which leaves us with “Option C” — carrying on as before.¬† Continue to focus on one single product and technology¬† (e.g. WAFL), continue to enhance it with new features such as dedupe and various forms of integration, incrementally tune the business model in terms of margin, channel mix, keep a brave face in public, etc. — but hardly exciting in the big scheme of things.

Unfortunately, much as NetApp got their start in offering “good enough”, there’s a host of players waiting in the¬† wings waiting to do the same thing to them: open-source file systems such as ZFS, small aggressive players such as Isilon, Compellent and 3Par, and even encroachment from the consumer/prosumer/SMB marketplace.¬†

Not to mention big players like EMC that have enormous R+D budgets and are prepared to use them as a weapon.

Add to that the structural transition going on in the market from physical to virtual, and from enterprise IT to service providers (private cloud thinking in a nutshell), and you’ve got to ask yourself some hard strategic questions.

No Obvious Answer

Now, this discussion is nothing against their technology (every technology has strengths and weaknesses), or a discrediting of their rabid fans (who I will undoubtedly hear from in their typical colorful fashion), or even a critique of their conduct (still have big issues with that one) but in terms of The Big Game, it’s not clear what their next move will be.

And it’s not just NetApp — I could construct a rather long list of other IT technology companies who are roughly in the same position that they are, and are facing the same set of uncomfortable choices.

Any thoughts?

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