Notebook 11.02.11: Datacenter Switching, Packet Switching, Market
A few weeks ago I wrote a post in which I referred to keeping a notebook and how George Soros’s book the Alchemy of Finance reminded me of the value of keeping a notebook and that my blog is really a distillation of my notebook accessible by all. Today I am creating a new category and entry format that I will use on occasion. The notebook format will be for days when I want to cover multiple subjects without focusing on a specific topic in detail.
Datacenter Switches and Mobile Devices: I was sitting through a presentation from a merchant silicon team last week. They were going over their designs in detail as well as roadmaps and application examples. They put up a slide matching chips to switch reference designs. A customer could choose chip A and build 48x10G switch or chip B with 48x10G and 4x40G design, etc. I was looking at the slide and thinking where have I seen this before and then it occurred to me: the mobile device market. One of the reasons I have been negative on the mobile device market is it really down to four operating systems: IOS, Android, Windows and RIMM. Apple is a fully integrated (vertical) and closed system. That is the most valuable franchise in mobile devices. RIMM has the oldest OS that was designed to solve problems from ten years ago. If you want to design a smartphone today, the process is to pick an OS: Android or Windows. Then you get a reference design from QCOM or Mediatek, etc. The real value is in the user interface (UI). I know marketing, manufacturing, distribution all matter too, but the mobile device market is bifurcated into Apple (the closed OS with ASICs) versus the Windows or Android OS phones with developer built UIs and merchant silicon (reference design) mobile device companies. I am crossing analogies to explore a thought path.
Will the switching market go the way of the mobile device market? Will CSCO someday have to make a choice like Nokia or will they go the way of RIMM? Will a new company or legacy company quickly rise to take share because they built a vertically integrated switching solution like the iPhone? Will the rise of merchant silicon and reference designs create a vast market of white boxes driving down price points in which the differentiation and value is in the software, i.e. the customer UI? Just a thought path I am exploring.
Packet Switching and the Network: I found this article on Blackberry’s SWAT team interesting. Here we go again with the network being the problem and not the solution. Perhaps we all need to review Paul Baran’s paper on distributed networks from 1962.
Market Thoughts: The market is basically un-investible. You can pick individual stocks here and there, but Europe is a mess and not getting better. There was a long stretch of peace in Europe from the close of the German wars of unification in 1871 to 1914; forty-three years of economic expansion and living standards improvement. Europe is completing a 60-65 year cycle and countries are thinking more about dissolution than union. It will be interesting to watch how European politics play out over the next year to see if any old stresses emerge from their slumber. I am not sure which way the FOMC plays QE III, it seems the market wants it, which must mean the economy is bad and therein lays the problem. The market is not a self sustaining entity – it is propped up by artificial entities thus making it un-investible. The governments and central banks should have let a lot of institutions that were over stretched go down, but rather they transferred their liabilities to the public side and we are still living with the cancer. Just look at GM. I think I am one of the few people to think of the Corzine MF Global irony this week. Corzine was head of Goldman-Sachs when LTCM went down forced by bond spreads that went against the firm driven by the Russian default of 1998. The book to read is When Genius Failed. Lowenstein infers in the book that Corzine always wanted Meriwether as a partner. Thirteen years later they can share stories of failure caused by a global sovereign credit crisis.
* It is all about the network stupid, because it is all about compute. *
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