I’ve talked about the fortunes of the service providers and the network equipment vendors in past blogs, and so it’s logical now to talk about the IT giants who are players in the networking space. None of these firms are likely to be targets of M&A in at least the traditional sense, and Dell has already gone private. Others in the space aren’t likely to follow suit, so the question is really not one of survival as much as of prospering, and perhaps acquiring some other players. Even network guys? We’ll see.
Let’s start with the obvious giant, IBM. There is no technology company I respect more, because there’s no other technology company that has shown it can weather major shifts in the market and technology. I learned programming on an IBM computer, worked with the first true IBM mainframe. They launched the mainframe and the PC in a very real sense. Their Systems Network Architecture (SNA) was the foundation of enterprise networking. They have patents and R&D in every area of IT. You have to take these guys seriously.
The problem IBM has is that old guys like me don’t make up the market. There was a time when IBM as a brand was solid gold, but IBM doesn’t have the brand they used to because their stuff is hardly populist. Selling off the PC (laptop, desktop) business to Lenovo made financial sense but not brand sense. But the big problem is marketing. If you sell to the Fortune 500 you don’t normally need it, but if you want to shift your focus and image you certainly do. I
BM has to become a cloud company, and in the networking space it has to become an SDN and NFV company. I was at a European networking show where IBM had a booth, consisting of a sad little flag, two bored people, and nothing else. It was worse than not being there, and yet OpenDaylight had a nice booth. And in NFV, I don’t see IBM having a real story at all even though they have virtually all the assets. I could build NFV from the ground up more easily using IBM products than from the products of any other vendor, but you’d never know it unless you dug in more than anyone is likely to.
Might they do some M&A to fix their problem? No, not because the M&A part isn’t likely but because you can’t fix a problem with the choir director by hiring more singers. IBM needs to orchestrate in more ways than one.
HP is in a much better place in the singing sense. In the cloud space, HP is a player with servers and software and even a public cloud offering. They also have an SDN story and one of the better (maybe even the best) NFV story. The problem HP has is not that they don’t have a story but that they may still be a tad short on substance. In the cloud, SDN, and NFV space HP is still following a roadmap instead of sitting happily at the destination.
NFV is IMHO the critical test for HP. NFV is the near-term application for a level of orchestration and management that will eventually touch everything in the networking and IT space. It used to be that HP OpenView was almost the household word of network management, and HP needs to have HP Open-something the household word of orchestration down the line. The only way to insure that happens is for them to be a player in NFV as soon as possible. They are working on it, working better than any other IT player is, but they might still do some canny M&A to get there faster. It’s hard to say what would be best for them to pick up because I can’t read their technology trend line with management and orchestration yet. Watch these guys though, because if any IT player moves in this space HP is one who might.
My next name is Intel and that may surprise you. Intel is known as a chip player, but they’ve been quietly looking more and more into software. The Wind River Carrier Grade Communications Server is impressive; arguably the best open-source platform for carrier cloud, SDN, and NFV. If you were to add orchestration and management to it, the combination might be so powerful it would establish Intel as the kingpin in that space, giving them a completely killer NFV approach.
The challenge for Intel in management and orchestration is that they don’t have anything going there in an open-source sense. They’ve had a relationship with Tail-f but I’m not convinced that’s going to provide them what they need, and the relationship might actually discourage both Intel and other partners from cohabiting to create a better solution. If Intel does any relevant M&A I think that the management and orchestration space is where it would make sense.
Dell is another potential network-market server/IT vendor. Like HP, Dell has a pretty decent portfolio of stuff for the networking space, and like HP it’s largely based on open source (Dell/Red Hat for example). The challenge is that open source is inherently non-differentiating, and Dell needs to have a differentiated strategy if they want to compete in the space with the likes of HP or Cisco (who we covered among the network vendors).
HP has management distractions, and so obviously does Dell, who needs to figure out how to run as a private company so they can do a re-IPO later on and make everyone who participated in the privatization rich. That means doing a lot better than expected, which means doing more than push servers and PCs the same way as always. The carrier market could be huge for Dell, and it could be that Dell has to pull partner Red Hat’s carrier train against Intel/Wind River too. A big order, one that Dell may have to do a lot of M&A to fill, but they have no stock currency to buy with. We’ll see what happens.
So there we have it. The IT giants are safe in their core markets for now. They have some M&A incentive, but not to buy network equipment players. This is all about software now. Open source software in areas where you can’t differentiate yourself easily, to poison the well for others who might try. Special sauce where something special is possible. That’s what to look for.