Economics and Networks

There’s more good economic news this morning; ADP’s private payrolls report gained the largest number of jobs in its history, which strongly suggests that hiring may be coming back.  You may recall that our forecast for unemployment for 2011 was considerably more optimistic than the official one, and I’m hopeful that the ADP data is validating that optimism.  Employment is the biggest barrier to a resumption of normal economic growth.

Qualcomm is buying Atheros, a chipmaker whose product line is more directed at smart appliances, including smartphones and tablets, in yet another validation of the consumer electronics craze.  The move comes as both AMD and Intel announce their own successor chip families, and the former seems directly aimed at the low-end market, including tablets.  Intel clearly has aspirations in smart devices too, and has been promoting its own Linux-based OS to gain some developer credibility.  With CES launching today we’ll certainly be hearing more about tablets, and while it’s obvious that not all of those announced will be market leaders, recall that the laptop market has plenty of active players.

Speaking of M&A, Dell has purchased a security company (SecureWorks) to buttress its enterprise services position.  What’s not clear yet is whether Dell will be applying the technology to the standard data center framework or focusing it more on private clouds.  My research says that enterprises are very concerned about the way that private cloud computing and hybrid clouds would impact security, and while this isn’t as large a market at this point as the managed security services market, MSSP is a security outsource strategy that might in the long run reduce the revenue Dell could hope to obtain from the acquisition.

Some financial analysts are posting positive comments about both the LightSquared “wholesale LTE” model and the vendors who are involved in it.  The basic idea of LightSquared is to provide a wholesale wireless network with national coverage, a host to MVNO relationships with players who want a wireless presence but don’t want to run a network themselves.  The idea has some appeal in that there are certainly companies (cable companies come to mind) who are likely to fit the customer model, but there are also challenges.  In fact, there are three.  First, wholesale profits are lower than retail, and the industry is already squeezed.  Second, the MVNO model has been tried by operators, including for cable MSOs, and hasn’t exactly sung.  Third, it’s far from clear that a satellite network hybrid will be technically successful and that terrestrial coverage will be ample where it’s needed most.

So here’s how I see it.  LightSquared has marginal financial options at best, and there are a lot of factors that say “best” won’t happen.  Thus, I’m not inclined to give the deal much credibility, or to assume that it will drive any benefit to vendors.

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