Friday Musings, August 5th  2011

I had a few other titles for this post:

“Don Quixote and the 1G to 10G, Romley, Big Data Super-cycle”

“Brocade’s Warning”

“Inflection Points are a Time to Pause and Consider the Path Forward”

Before we get into a heavy technology post, I will say that one good jobs report from the BLS does not solve the public sector credit crisis and counterparty risk concerns.  Again, it just reminds me of 2008 when few people wanted to talk about the real issues, they just wanted to tell stories of how their daddy bought stocks after the Great Depression or after the Portfolio Insurance crash of 1987 and it all worked out.

BRCD pre-announced results short of expectations this morning citing weakness in storage and ethernet switching.  Looking back on the JNPR results a couple of weeks ago and looking forward to CSCO and HPQ, this clearly tells me there is pause in spending.  I do believe there is a significant inflection point in 2012 driven by the 1G to 10G upgrades initiated by Intel Romley MBs and the big data play – but I differ from many analysts who think that the incumbent players are going to get the business from this super-cycle.

I think this pending super-cycle is causing a pause in spending and it is opening a window for enterprises to stop and think about architectures and CAPEX.  There is no rush to add legacy equipment to a data center or a network today.  I think the macro drama is another reason why the big consumers of technology see no rush to spend and the pending super-cycle reinforces a prudent pause to ask: what is the best technology and architecture path going forward?

Let me provide an example of how macro events create opportunities for new technologies to emerge and take hold.  Here is what I wrote about APKT from April 2011.  “I define luck as: where planning meets opportunity.  The APKT team made the assumption that the proliferation of billions of IP enabled devices will use thousands of networks to communicate with each other and these networks will need devices on the borders to translate the languages between the networks.  This is called session border control and it is a software function that resides on an appliance.  The technology assumption was correct; all the company needed was an event to make the market.  Luckily for APKT a large number of investment banks (IB) massively over inflated the residential as well as the commercial real estate markets using leverage, derivatives and synthetic financial products.  I am pretty confident that the global financial crisis was not in the APKT business plan in the years leading up to 2009.

When the global credit crisis hit in 2008, it changed the technology buying process.  APKT became a winner and CSCO not so much a winner.  What really happened was the buying decision process and decision makers for technology provided by APKT changed.  CFOs started showing up in the decision making process and they wanted to buy technology that had a longer shelf life.  They wanted to break from the past and acquire technology that had longer deployable life span in the network.  You can see this in the revenue line in mid-2009.  Quarterly revenues start to move significantly higher after ten quarters of a relatively tight range.  This is when the market began to broadly adopt their technology and eight years of work began to pay off.”

My hypothesis for the next 12-18 months in the enterprise is the architectures for the data center and campus interconnect networks are up for grabs.  It is wide open and incumbents are not guaranteed to be the winners when the decisions are made.  In the service provider networks, the same is true.  There will be a lot fewer routers and switches and the routers that are deployed, may look very different from the routers you know and love today.

/wrk

* It is all about the network stupid, because it is all about compute. *

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