Monday, Monday

The weekend brought more disorder to the Middle East, particularly Libya, but while the initial turmoil there had knocked stock prices down a bit, the decline has not been alarming and it was reversed on Friday.  Today futures and the European exchanges both suggest an up market again.  Even cooler-than-expected growth in US consumer spending isn’t hurting, and some suggest that Buffett’s bullish letter to investors may be the cause.

In the tech world, Cisco’s stock-price woes continue; the company has been largely flat since its earnings call while competitors Alcatel-Lucent and Juniper have been on a bit of a tear.  Fundamentals isn’t much of a motivation for stock movement these days, but it is clear that investors in the main believe that the latter two stocks have a potential for an upside and Cisco doesn’t have that same potential.  Objectively, I think that’s all true.  Cisco need to work through some very real product issues as well as redefine its internal sales-driven (as opposed to “value-driven”) culture.  Alcatel-Lucent and Juniper both need to learn how to sing better, but both have made what could be very significant product announcements in the last couple weeks.

OK, Cisco is in the dog house for now, but I still have to point out in fairness that the company could largely eliminate its problems in a stroke with some light-weight M&A and some heavyweight re-positioning and strategizing.  The service layer, which means the cloud-to-network binding for both enterprises and service providers, is the sweet spot of the future market.  Own it and you can hope to pull through your solutions en masse.  It’s still open territory.

There may be cloud architecture competition emerging from new quarters.  F5 today announced it had worked with IBM to develop a reference architecture for the cloud.  The architecture clearly covers the creation of private clouds based on virtualization, and F5 promises that it will be extended to envelope public cloud components to hybridize them with private clouds.  We see no reason why the architecture (which looks much like Eucalyptus, and that’s no accident according to F5) can’t be used for public cloud applications, including service provider clouds.  IBM has specific aspirations in the service provider space, and the reference architecture may be a step in helping prospective SP clients build cloud services that can then easily hybridize with enterprises.  It seems to us that the approach would also support SOA applications, but that’s not a specific part of the release.

Staying in the cloud, Verizon is planning to offer UCaaS, hoping to capture a share of business buyers who want unified communications and collaboration that includes users on mobile devices.  Generally, businesses embrace the notion of service-based pricing as opposed to building their own solutions because they like the cash flow better and because they may fear making a capital investment in a space that’s undergoing major change.  However, carriers have for years lost market share with hosted communications options relating to voice services, and it seems to me that this offering would be all too easy for OTT giants like Google to counter if they feel like getting into the space.

Moving to consumer social networks, JP Morgan says it’s going to take a stake in Twitter, and speculation is that will happen by buying out some existing investors.  The deal is said to value Twitter at over $4 billion, and it’s the sort of thing that already has the SEC concerned that private equity is circumventing the protections created by public corporation status while keeping the companies private in name.  I’ve got major reservations about any strategies that have the effect of empowering the “professional” investors and not the general public, which this would surely seem to do.  Further, I wonder whether we’re not creating another opportunity for bubbles by creating a whole new exit strategy set; companies don’t sell out, they don’t go public, but they sell pieces off privately to pay off early investors.  How do we avoid collapse when eventually the public has to bail out the last of the “private” investors like JP Morgan?

The murky regulatory area isn’t getting less murky.  Republicans have recently signaled that they’re not prepared to compromise on their rejection of any sort of net neutrality principles. While that doesn’t mean there won’t be any (Democrats can block any attempts to un-fund or weaken the FCC’s position here), it does mean that if the courts throw out the FCC’s latest order (which I think is likely) then there’s no option to create comparable rules through legislation.  That would mean market forces would decide what happens, always a risk but perhaps not as great a risk as bad explicit policy.  The current FCC order isn’t bad in my view, but I think there’s less than a 30% chance it will stand.

Another semi-regulatory issue is raised by Comcast’s announcement it would not be offering paid streaming video service to non-subscribers, something at least one satellite TV rival says it’s preparing to do.  That may raise an issue with regulators who think that Comcast must make at least NBCU content available to competitors on the same basis as they offer it internally.  Does not offering separate streaming video satisfy that condition?  Comcast may have another reason to appeal the FCC’s order—which is already a target of appeal by other players.  The Comcast/Level 3 dispute may even join the parade here!

Tech, overall, is in a bit of a state of flux, which may be why it’s off today when the Dow is up.  Good economic conditions overall don’t guarantee tech company success these days, and since bad economic conditions guarantee failure in most tech sectors, the industry may be headed for some whipsawing as investors try to price out the current muddy trends.

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