The markets seem encouraged by earnings reports that aren’t as bad as expected, and in tech there’s been a similar move—Intel comes to mind. Yesterday we had a couple of big network firms report, Ericsson and Nokia, and also the tech giant of all, IBM. What can we glean from these reports?
I find Ericsson’s report most interesting because when you take it along with my survey findings it shows the slippery slope vendors are navigating. Ericsson did decently, certainly not issuing a profit warning like Alcatel-Lucent, and the majority of its success came from growth in professional services. That’s no surprise; Ericsson has been focusing more on that strategy for years now.
But Ericsson really isn’t just Accenture with an attractive Scandinavian accent. They actually have all of the pieces needed to field an NGN architecture that would meet operator needs. Their problem is that they never learned to tell people about it effectively. Like their counterpart to the east, Ericsson lacks good strategic articulation, which pushes more and more educational-sell requirements onto the sales organizations. That never works; sales people sell, they can’t take the time to build a business case for their prospects. That’s a role that strategic marketing has to fill, and it’s not happening yet.
Then we have Nokia. Their numbers have been bad; they’ve fallen from being THE handset player to the guy hanging with frozen fingers onto the edge of a lifeboat. The current quarter was certainly nothing to restore their former glory, and the fact that they did better in handset sales with Windows phones only shows how bad things were before. But what was good for Nokia was that NSN reported a turnaround to profit in the quarter if you discount restructuring costs.
NSN doesn’t have the fundamentals problem that Nokia has; they actually have good stuff, a strong framework from which to launch a drive to empower operators in advanced services. I looked at their cloud position and it’s a very good one, with an unusually rich vision even on the IT side that’s rare for a company without servers in their product line. The articulation isn’t bad either, but their forum for pushing the position was a TMF meeting. Whether you love the TMF’s progress or not, you have to admit that showcasing a monetization strategy to OSS/BSS guys is like presenting a new marketing plan to the accounting department. NSN could do really well if they, like Ericsson, learned to sing pretty.
IBM’s numbers were very interesting to me because in many ways they cut across all the grains in tech. The company raised full-year guidance in earnings, and its EPS was higher than consensus, but it suffered a pretty consistent revenue downside not only in areas where it might be expected (like hardware) but also in software and services.
I have to wonder whether IBM is falling victim to “quarter myopia”, looking so much at the short term results that they start focusing their marketing on sales support instead of brand awareness, buyer strategic education, and account control. On the call, IBM sounded like it’s plan was to mine margins rather than grow the business, and I think that reflects a defensive position on the potential for IT to improve productivity—at the very moment when there’s a prospect that the cloud might actually be able rebuild productivity cycles for the first time in a decade.
An interesting final earnings comment is Mellanox, an InfiniBand fabric player who as far as I can see is the actual leader in data center fabric deployment. The company had 50% sequential growth in revenue and hit record levels this quarter. It had 87% growth in operating income. What I think this means is that the network equipment vendors who want to push data center fabric have to do that in a broader strategic context or they’ll just create a market for a mature fabric technology that hardly anyone has heard of (except, apparently, real buyers). It’s hard to beat InfiniBand in basic fabric applications, but Mellanox doesn’t really do cloud positioning and so it’s vulnerable to a strategic presentation of fabric mission—at least until it figures that out and takes steps to counter the problem.
My image of the networking industry is that of a bunch of bloodhounds with noses to the ground searching for a quarry who’s standing on the top of the next hill waving a flag to attract attention. Yes, these guys will likely find their target at some point, but if any one of them just lifts their eyes to the strategic horizon they’re going to be comfortably entrenched in the Network Promised Land when the others arrive. And trust me, at this point it’s still anyone’s game to win.