Why Apple and Juniper Must Look to the Cloud

We had a couple of interesting earnings reports yesterday, both of which offer perhaps some color into an element of tech.  Obviously Apple was the big one, but Juniper also reported.  The first gives us our consumer-appliance view, and the latter two some color on the network equipment space.  Both, I think, offer some specific cloud insight and some general tech insight.

Apple’s shares had been down yesterday, and they took a big jump after hours when the company reported a 94% profit increase, largely on iPhone sales.  The euphoria isn’t surprising; the Street loves a winner.  There were still some disquieting signals in my view.  Mac shipments were light versus estimates, iPhone and iPod shipments were in line, and only the iPad beat on the shipment side.

Is the iPad cannibalizing Apple’s own systems?  The portable systems were the drag on the Mac; desktops actually beat expectations slightly.  OK, Apple doesn’t need to be a big winner everywhere, but it has been trying to get its software platforms aligned to insure that the Apple brand becomes a developer ecosystem.  With Microsoft getting ready to launch Windows 8 late this year, I’m sure Apple would have liked to have seen a strong pull-through from iPhone and iPads to Macs.  Maybe it’s too early, but it still has to be worrisome.

If you look at numbers alone, what it looks like in unit-ship terms is the classic product wave.  One comes out, booms, flags, and another comes out.  That is NOT what Apple needs because you can’t keep pulling rabbits out of the hat in the consumer space time after time.  They need the whole to develop around the parts, and I think that’s a cloud story for them.  I said from the first that iCloud disappointed me.  Apple has taken a tiny step in a market it needs to be a giant in.  Google is in the cloud; even Microsoft (no great innovative force these days) is in the cloud.  Why is Apple, the thought leader, trailing here?  They need to be asking that.

iCloud as a sync host among Apple platforms is pedestrian; it’s not worthy of the best marketing company in the world.  You can’t win in appliances without winning in the cloud, Apple.  All that interior capability and horsepower will let competitors drive down device complexity and pricing and create a service model where your margins will shred.  If you want to stop this, you have to get out in front and make the cloud a concept leader in the new age of services.

So now we move to Juniper, who gave the market a couple of surprises yesterday.  First, somehow its numbers came out a bit before 3:30 PM EST, well before the close of the market.  Second, they beat on revenues, which sent the stock from trading down over two percent to trading up as much as ten percent with some nice swings between, which got them noticed on the RealTick list of unusual trade patterns for the day.  The shares were finally halted.  Look deeper, though and you find that revenue was down both sequentially and year over year and profits were also down, and guidance for the second quarter was below estimates.  Competitor Ericsson, who also announced, had doubled their profit.

High drama with respect to financial disclosures isn’t any fun, and it overshadowed the fact that Juniper did a bit of a restructuring of reporting to mirror its organizational shift. The general thrust seemed to be to get the products a bit more aligned with the class of buyer, and to split out software to further the company’s emphasis on that space.  The alignment thing seems smart but I’m not sure about the software decision, or maybe I’m not sure about the software commitment.

Juniper had the best chance in all of network equipment to create a truly stunning software vision.  They had a Junos brand that offered a cohesive platform for network connectivity.  All they needed to do was to build a service/application layer on top of it, one that could empower content, mobile/behavioral apps, and the cloud, and things were gold.  About two and a half years ago they seemed to promise that with their announcement of a Java platform to overlay the network, called Junos Space.  Well, the operative qualifier here was “seemed do” because Space became a little operations overlay, and there’s nothing in the Juniper roadmap to build the service layer.  In fact, they appear to be hoping partners will build on top of Junos to do that, and such a move surrenders strategic influence to others.

Wishing they were a software company doesn’t make it so for Juniper.  Ford might want to be an oil company too, but having oil in every engine and an engine in every car doesn’t make that happen.  Being a software company in the network space means having a strong software vision that goes beyond the embedded stuff that’s in every piece of network equipment.  Having a software business unit isn’t even a prerequisite for success, it’s the software framework that is.  That framework is something Juniper has been walking away from for two years now.

On the Juniper call they talked about QFabric and PTX and the future.  Without a cloud strategy, QFabric has too limited a market to be of any value to Juniper, and the PTX is only a way to cannibalize core router sales.  Without a software strategy, there’s no cloud strategy for Juniper.  You can’t vertically integrate applications with hardware without the applications, and you can’t really have applications without a true software framework to run them in.  Stand on that great chip technology today, Juniper, and look up through your boxes toward the sky, the cloud, the money.  Nothing there.

Two companies, two cloud risks.  I’m not trying to say that the cloud Rules All. What’s happening is that the combination of cloud principles and ubiquitous broadband is CHANGING ALL.  The revenues in the new age may not be astronomical compared to the current one (though I think they could well be) but for sure the stuff that earns them is going to be very different, which means the players could be different—winners and losers.  I’m watching every player to see what camp they seem determined to join.  If you’re a buyer or an investor, you should be too.


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