Networking Thoughts to Start 2014

SIWDT is my second blog.  My first blog lasted few years from 2005 to 2007.  I created my first blog, which can still be found on the Wayback machine, after having an unexpected breakfast with Dave Winer in 2006.  It was at a conference in San Diego and if you do not know who Dave Winer, please stop reading now and go back to whatever you were doing before you thought to read this blog. Continue reading

Networking: Time to Change the Dialog

I am off to NYC to present at an SDN gathering hosted by Oktay Technology.   I am going to change up my standard pitch deck, so I am curious to see the reaction.  I have decided that I have been too nice and I plan to be more provocative and change the network dialog from speeds, feeds, ports and CLIs to a discussion about the network as a system and orchestrating the network from the applications down – opposed to the bottom up wires approach.
Continue reading

Odd Week of News and Notes

An odd week of news and notes.  Truth be told, there is not a lot that I am really motivated to write about, but there were a number of noteworthy articles and videos during the week.  Here is my run down of things I read or watched during the week:

1. About mid week I started to see all these hits on my blog from Networkworld.  Jim Duffy had listed my blog on a list of useful Cisco blogs.  Kind of cool and thanks to Jim.  With that maybe I should write something about Cisco.

2. Here is a link to an interview that John Chambers did with Reuters.  At the ~4 min mark he talks about market and technology (~7 min mark) transitions, the next big thing, etc.  I really have to wonder what transitions they have organically caught over the years?  The Flip phone?  No.  Cable business?  No, they bought that in the form of SA.  I think Cisco is a sales machine, but they bought Crescendo and rolled up the switching market in mid-1990s.  They bought Webex, they bought SA, bought a bunch of optical companies that were a disaster.  They buy a lot of companies, they are not innovators and they do not catch market transitions.  They buy technology and market transitions.  There is nothing wrong with that, but the company is not visionary in nature.  They wait till customers tell them to buy into a market in the form of a company.  As for what customers think of Cisco, this article is on a general level representative of what I hear in the market.

3.  Yesterday I read this article on SDN. Speaking of Cisco, it is full of quotes from Cisco:

The operative word in the term software defined network isn’t software. It’s defined, said David Yen, senior vice president and general manager for Cisco’s data center group. He said networks need to be defined by the applications that are using them. “It’s a change in perspective,” Yen said. ‘It’s really an evolution of this art of networking intelligence. And furthermore, a lot of the SDN idea is actually blending in some of the functions and features that traditional data center management software is doing. People are turning their attention more and more to the application perspective,” Yen said. “For the ease of developing applications and for the ease and effectiveness of deploying applications, it’s the right time for the underlying infrastructure to serve whatever the application desires.”

From Plexxi’s perspective, it is really great to read senior leaders at the marquee name in the industry adopting our view.  We agree that networks need to be defined by the applications that use them, rather than those pesky distributed protocols trying to figure out state and we certainly think that the underlying network infrastructure should be reflective of the application requirements.

4. Sounds like a tough week for the Juniper QFabric team if this article is correct.

5. Did I mention that Plexxi was listed as a hot startup by the WSJ?  Yea…#12.

Wrapping up what I wrote: Cisco does not get market transitions, they buy them.  Cisco SVP of Data centers thinks SDN is about applications.  Juniper QFabric team downsized.  Plexxi next big thing and we think that applications matter, and the NFL finally fixed the mess and Goodell should not be back or I should get a refund for 3/16ths of my season tickets value.

/wrk

Thoughts on Juniper Networks

If you read research reports on Juniper (JNPR) and you did not have an extensive background in networking technologies, it must be difficult to figure out all the different perspectives.  Here is how I would think about JNPR, but I am writing this from the notes I took reading through the last ~6 months of reports.

1. Prior Posts: I think most of my past posts on JNPR can be found here.

2. Product Cycles: Long time readers know that that I believe technology markets and cyclical and positive product cycles are fundamental to positive equity performance.  This not only includes revenue growth through market share gains, but also sustaining and expanding gross margins.  The fastest way to kill a tech stock is to shrink gross margins.  With that in mind there are numerous reports and a recent upgrade based on JNPR entering into a positive product cycle for 2012 with (i) T4000, (ii) PTX and (iii) QFabric.  Last month John Chambers said that “Juniper is the most vulnerable I’ve ever seen.”  Which one is it positive product cycle, vulnerable company or somewhere in the middle?

3. PTX: Conceptually PTX is an interesting product and with all the OTN offload, router bypass, hollow core, transport router talk over the past couple of years, I can see why JNPR built the platform.  On the other hand, the market for the additional capabilities is orthogonal to JNPR’s core business gross margin (GM) level.  JNPR and CSCO are companies that enjoy a premium gross margin advantage.  Traditional transport companies (e.g. CIEN, TLAB, ALU, ERIC, ADTN, INFN) regularly report GMs about 2000-2500 bps lower that CSCO and JNPR.  What I do not know, but look forward learning is how the PTX will be priced and purchased in the market.  Can JNPR maintain their traditional GM level in the mid 60s for the PTX platform?  Will service providers grind them down?  That is the conundrum I am curious to learn about.  A company like CIEN would enjoy adding some packet capabilities, but not a full router, to their product and receiving 500-1000 bps more in GMs.  I am not sure JNPR would like selling their PTX for 1000 bps lower than their traditional GM level.  I have no idea which way it will go, but I would say it is easier for the transport companies to add some packet and live in the market at the 40-55 GM level than it would be for the router companies to add some optical transport and live in a market of 50-55 GMs.

4. QFabric: The CSCO team is quick to point out three failings with QFabric: (i) it is proprietary, (ii) failure domains are too large and (iii) complex software.  Of these I am will to believe one and half.  The intended nature of the fabric design and evolution from merchant silicon to an ASIC is to run cells between the ToR and the fabric.  CSCO says this is proprietary, yet they are running TRILL for Fabric Path and it looks like you can only connect their ToR to the Nexus 7k and you a need software upgrade.  What is the difference?  TRILL is quasi standards based and JNPR cells are proprietary?  This is slicing hairs and is really meaningless.  Both vendors are locking out other ToR suppliers from connecting to their fabric architectures.  As for the failure domain being too large, I am not buying this.  As for the software being complex, I think that is entirely possible.  Will this solution be a big seller?   I am not so sure – but it is a new approach.  I think JNPR has some deliverable issues to overcome and the solution becomes more complete in 2012 with version 2.0, therefore I think the assumption of a large revenue ramp in 2012 is overly optimistic.

5.  Trading Range and Chart: In September I told a PM in NYC to buy JNPR. The stock was about $18 and had yet to bottom.  He asked me why, knowing I had been negative on JNPR.  I told him it was just a trading call at this low level as and bunch of tech trading desks would get positive on it and we would get goofy notes from analysts who are positive on JNPR saying the selling had gone too far.  That is exactly what happened.  I updated my JNPR weekly chart that I posted a few months ago.  I circled the high and low.  Before looking at the chart, do you know where JNPR is trading on a chart over 123 months?  The answer pretty much the middle.  The median price point over that time is $24.58 and the stock is $24.92 today.  If you look at the chart, you will see it spends time around the $24.56 level, which is the 50% fibb level from 2002 low and 2011 high.

6. Upgrades and Downgrades: The following chart is just a list of ratings changes I copied off Dow Jones.

Date

Research Firm

Action

From

To

31-Oct-11 RBC Capital Mkts

Upgrade

Sector Perform

Outperform

14-Oct-11 ISI Group

Initiated

Buy

27-Jul-11 Oppenheimer

Downgrade

Outperform

Perform

27-Jul-11 MKM Partners

Downgrade

Buy

Neutral

14-Jun-11 RBC Capital Mkts

Downgrade

Outperform

Sector Perform

20-Apr-11 Ticonderoga

Downgrade

Buy

Neutral

21-Jan-11 MKM Partners

Upgrade

Neutral

Buy

18-Jan-11 MKM Partners

Initiated

Neutral

20-Oct-10 Oppenheimer

Upgrade

Perform

Outperform

15-Jul-10 Oppenheimer

Downgrade

Outperform

Perform

5-Apr-10 WellsFargo

Upgrade

Market Perform

Outperform

7-Dec-09 Auriga U.S.A

Downgrade

Hold

Sell

13-Nov-09 Oppenheimer

Upgrade

Perform

Outperform

2-Nov-09 Stifel Nicolaus

Upgrade

Hold

Buy

23-Oct-09 Piper Jaffray

Upgrade

Underweight

Neutral

13-Oct-09 Jefferies & Co

Upgrade

Hold

Buy

9-Oct-09 Auriga U.S.A

Initiated

Hold

23-Sep-09 Robert W. Baird

Downgrade

Outperform

Neutral

31-Jul-09 BMO Capital Markets

Initiated

Market Perform

21-Jul-09 Soleil

Initiated

Hold

15-Jul-09 Citigroup

Initiated

Buy

15-Jul-09 BWS Financial

Upgrade

Sell

Hold

2-Jul-09 Deutsche Securities

Initiated

Hold

2-Jun-09 UBS

Downgrade

Buy

Neutral

1-Jun-09 AmTech Research

Downgrade

Buy

Hold

21-May-09 Barclays Capital

Upgrade

Equal Weight

Overweight

20-Apr-09 Oppenheimer

Downgrade

Outperform

Perform

17-Apr-09 Stifel Nicolaus

Downgrade

Buy

Hold

8-Apr-09 BreanMurray

Initiated

Buy

8-Apr-09 AmTech Research

Upgrade

Neutral

Buy

30-Jan-09 Piper Jaffray

Downgrade

Buy

Neutral

With all that being written, it is possible I am mistaken and got it all wrong.  🙂

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. ** 

October 2011 Earnings 1.0

Here is the start of my October 2011 earnings thread.  I am already a bit late having been positive on GOOG from the past, I did tweet it last week.  A few reactions so far:

GOOG: Sticking with my GOOG call from April, not much to update.

INTC: I have been positive on INTC based on my web 3.0 thesis.  It will be interesting to see if results were strong enough to break INTC out of the ten year down channel on a weekly basis.  Need a close above $22, but a close above $23.16 on a weekly basis would be a strong signal as that is the 38.2% Fibb going back to 2002.  I pitched this stock and thesis to a PM in NYC in September and he laughed at me.  Who is laughing now?

AAPL: I still like the product cycles and would be a buyer as it settles.  It is all about product cycles.

JNPR: JNPR was defiantly on the mind when I was thinking about my web 3.0 thesis and Moore’s Law exhaustion.  I read about fifteen reports on JNPR this morning, which is probably ten too many.  I would start by saying I think the company is in the midst of (i) product, (ii) market and (iii) leadership transitions.  These three forces need to harmonize for the company to go on a run and I do not see that happening for some time.

INFN: The company is making a bet on 100G and that they have the ability to scale their business to be a supplier in size to tier 1 service providers.  One cannot criticize the company for not taking on difficult endeavors.

APKT: Waiting on the official results after the pre neg which I posted about here.

YHOO: I think this stock is un-investible.  Negative product cycles and poor leadership; are there any other questions?

PWAV: I posted some thoughts on that last night.

MACRO: The market is really difficult to deal with on a daily and weekly basis.  It reminds me so much of 2008, even though I see people on CNBC who say it is not 2008.  I have posted on this in the past, but I will add when the market swings on reports from news outlets like Reuters, CNBC, WSJ and government officials and central bankers, we might as well appoint a Committee of Public Safety and start the Reign of Terror.

I will endeavor to post additional updates to this tread over the next few days.

Stocks of interest in the next few days:

10.19: RVBD, WDC

10.20: NOK, ERIC, T, STX, MSFT

10.21: GE, VZ

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. ** 

Content Delivery Networks (CDNs) 08.21.11

I had an email question two weeks ago regarding CDNs and where they are going or not going and who will be the winner or loser.  I answered the question privately, but it gave me cause to think about content deep networking, CDNs and what is going on in the network because of the evolution to longer form data, or big data depending on what term you prefer.  There is no question that Web 1.0 (~1995-2000) built on small HTML files is much different than Web 2.0 (~2002-2008) and Web 3.0 (~2009-?) with streaming HD content, state aware apps and access points at the edge that have higher connection speeds and capacities; all that being said, I am still a bit of an OTT skeptic.  Here is a chart I produced over a year ago using data from AKAM and CDN pricing trends.  The chart is not updated, but I think it shows the conundrum of having to serve longer form data in a market of declining ASPs.  I noted on the chart the start of iTunes, which is the poster child for the old content consumption model in which the user had to own the rights locally for the content.  The new content model which iTunes is using too, the rights are licensed by the content provider (AAPL, NFLX, AMZN, etc) and the end-user rents usage rights, usually as a monthly fee.

When I wrote that I was an OTT skeptic, I meant that I find it hard to quantify the OTT problem and I find that service providers (SPs) find it hard to quantify the problem.  I think there is no shortage of emotion, but I am not sure everyone is talking about the same problem or maybe they are just using the perception of a problem to force a discussion about another subject matter, which is what I really believe.

To start, let us step back and ask what video/OTT problem are service providers and the infrastructure companies are trying to solve?  Is it a bandwidth problem (i.e. real capacity constraints), a revenue problem (i.e. SPs want a share of NFLX revenues) or a CAPEX problem (i.e. SPs do not want to spend)?  I talk to a lot of people on many sides of the debate; I talk to equipment companies and I read the industry and investment reports.  I am skeptic when smart people tell me that it is a well known and understood problem that video is clogging the network.  Is it?  Can someone show me some stats?  When I read puff pieces like this, I struggle to grasp the meaning.

If OTT video is growing 40-50% over the next four years it is somewhat meaningless to me because network technologies and network capacities are not static.  The whole OTT space is a bit of conundrum.  There is a lot of noise around it and that is good for selling, marketing and thought leadership, but it seems vastly under invested if there is such a problem on the scale it is made out to be.  I think the data center (compute) scaling (more VMs on a Romley MB and the virtualization of the I/O) into the network is a much, much bigger market.

What are CDNs really good at?  Distributed CDNs like AKAM are really good at distributed content hosting like big file upgrades and regional specific content distribution like day and date.  iTunes is hosted by AKAM and they do a good job of ensuring you cannot download content specific to the UK in the US.  AKAM also offers really good site acceleration services for web properties that have low to medium traffic demands, but might have a spike in traffic due to an unforeseen event.

Centralized CDNs like LLNW and LVLT do really well at serving up specific content events and they are much better at hosting content that requires that state be updated, think Gmail which likes to update state on a regular basis.  Before thinking about CDNs, think about NFLX or Youtube.com (YT).

A year ago most service providers (SPs) who thought they had an OTT video problem viewed YT as the biggest problem, but as a problem it was small.  NFLX has overtaken YT traffic.  From a SP perspective, there are several ways to handle the problem of OTT video or user requested real time traffic.  (i) SPs can ignore it, (ii) SPs can meter bandwidth and charge consumers more for exceeding traffic levels, (iii) SPs can block it or (iv) SPs can deploy variations on content deep networking strategies.

Content deep strategies use products from companies like BTI Systems and JNPR (Ankeena acquisition) to mention a couple.  These companies deploy a caching CDN product in the network around the 10-50k user stub point.  The device replicates popular content that it sees requested from sites like NFLX (it is a learning algorithm) and thus the 10-50k user group does not have to traverse the entire network topology for popular content from streaming sites.

Similar to a cable node-splitting strategy, hosting popular content deeper in the network works well and seems to slow bandwidth consumption growth rates to very manageable levels.  CDNs win because they do not have to provision as much capacity and the SPs win because they have less money going to the CDN and less capacity issues in the network.

The user experience is better too.  When you see ATT and LVLT wanting to build a CDN service (GOOG too) it is really about content deep and putting content local to the user.  This is something I wrote about in my blog back in April.  Recently, there were reports of LVLT and LLNW combining CDNs and this makes sense to me as scale will matter in the business.

In terms of BTI, I listened to a webinar they produced about a month ago that was hosted on Dan Rayburn’s site.  BTI is claiming 10 content deep networking customers and in trials with a tier 1.  Specifically (if I heard the presentation correctly), they said that at the Tier 1 SP trial, OTT video traffic was growing at 3% per month.  311 days after insertion, video traffic is growing at 0% a month and that was during the rise of NFLX.  When BTI started their content deep solution it was all about YT, but this has changed in the last 9 months due to NFLX.

What I really think this entire debate is all about is money.  I put a chart in the April post that you can view here.  It is all about the chain of commerce.  Why did we pay $15 dollars for album in the 1980s and $9.99 for CDs in 1990s?  The answer is the chain of commerce could support that pricing model.  Today, the chain of commerce is shrinking and consumption habits have changed.  SPs do not want to be relegated to a “bits r us” business model.  They want a piece of the revenue stream from the content creator, to the content owner, to the content distributor, to the CDN, to the SPs and finally to the consumer.  I think the real issue is not the network, but the network is being used as a facility to broker a bigger discussion about the division of revenues.  I could be wrong too and the whole internet could collapse by 1996.

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **

Eight Days till Cisco Earnings

In eight days we are going to here Cisco’s full year FY11 and Q4 FY11 report.  Prior to their Q3 FY11 results I wrote about how important Cisco’s report is for the technology industry.  All the signs that CSCO had lost their way came true in the Q3 report.  What should we expect next week?  In the August report, CSCO is going to be the first technology company to tell us about July and they should guide FY12.  If they do not guide for the full year FY12, that is a red flag.  If they talk about visibility being limited, hard to define macro, and at this time only guide Q1 FY12, then red flags all around.  Public sector is a big piece of Cisco’s business so we want to see this number and hear about trends.

A few other data points to look at (1) margins, is the company discounting to protect/gain share (2) commentary from John Chambers on spending dispositions from CEOs.  I am looking for additional data points around slowing CAPEX which I posted here and here before JNPR confirmed with their results.

Here are two charts over the same period for JNPR and CSCO, which spans the market bottom in March 2009 till today.  CSCO benefitted first from post credit crisis catch up spend, but JNPR had a longer duration uplift driven from positive product cycles against CSCO.  As JNPR enters the market slowdown in 2011, do they enter into negative product cycles as CSCO refreshes product lines?  CSCO issued five consecutive disappointing reports starting in May 2010.  JNPR’s July 2011 report is really their second disappointing report.  How many are left?

I still think the bigger problem for CSCO and JNPR is they are clinging to the past, while others are focused on what is appearing in the network.  Network deployment strategies are changing.  I described the past practices as “if you are selling networking equipment for CSCO, JNPR, BRCD, ALU, CIEN, etc, you go to work every day trying to perpetuate the belief that Moore’s Law rules.  You go to work everyday and try to convince customers to extend the base of their networks horizontally to encompass more resources, vertically build the network up through the core and buy the most core capacity you can and hope the over subscription model works.  When the core becomes congested or the access points slow down, come back to your vendor to buy more.”

Another description would be if you think network deployment strategies are changing and the inflection point of another long and sustained network build out occurs in the 1H of 2012, then you need to be pretty far down the product/solution development effort path.  It is August 2011, which means it is really September because everyone is on vacation.  If you want to start selling solutions and deploying solutions in the 1H of 2012, you need be aggressively moving on the plan of record (POR).  You have about five months to get product development efforts complete enough to sell and position in your key accounts.  What I am going to be looking for at industry conferences over the next few months is evidence that the legacy Moore’s Law companies have realized there is a change and they are now trying to skate to where the puck will be, but I suspect I will find no evidence of this and they will be focused on skating to where they want the puck to be.  Game is on.

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **

July 2011 Tech Earnings 1.5: Network Transitions

Most of the tech investment world is trying to figure out what happened to JNPR in the last few months.  The Fast Money team on CNBC blamed Japan and macro.  I have counted five downgrades so far this morning.  A number of analysts are maintaining buy ratings, but I think they need to go back and do some research.  This is not a Japan problem, this is not a macro problem, and this is not a product transition problem.

I have written extensively that there is a major sea change going on in world of networking.  I am too lazy to repeat what I have previously written, but I will provide a short reading list.  Read these posts:

Back from the Valley, Things are Going to be Different (June 4, 2011)

Three Dislocations, Will they Meet? (June 7, 2011)

Looking at the Big Picture and Connecting the Dots (June 14, 2011)

Clouds and the Network (June 24, 2011)

Thinking About Moore’s Law (July 4, 2011)

Networking is like last dark art left in the world of tech.  The people who run networks are like figures out of Harry Potter.  Most of them have no idea what is in the network that they manage; they do not know how the network is connected and hope everyday that nothing breaks the network.  If the network does break, their first reaction is to undo whatever was done to break the network and hope that fixes the problem.  Router, switch and firewall upgrades break the network all the time.  The mystics of the data center/networking world are the certified internet engineers.  These are people with special training put on the planet to perpetuate and extended the over paying for networking products because no one else knows how to run the network.

Intended network design has changed little in twenty years.  I look back in my notebooks at the networks I was designing in the early 1990s and they look like the networks that the big networking companies want you to build today.  If you are selling networking equipment for CSCO, JNPR, BRCD, ALU, CIEN, etc, you go to work every day trying to perpetuate the belief that Moore’s Law rules.  You go to work everyday and try to convince customers to extend the base of their networks horizontally to encompass more resources, vertically build the network up through the core and buy the most core capacity you can and hope the over subscription model works.  When the core becomes congested or the access points slow down, come back to your vendor to buy more.  When you read the analyst reports that say JNPR is now a 2012 growth story that is code words for “we are hoping customers come back and buy more in 2012.”  Keep the faith.  Keep doing what you are doing.  Queue the music…don’t stop believin’.

Tonight we are going to get results from AKAM.  I will be curious to see the results and commentary because I think AKAM is another company looking at the evolution of the network and thinking this is not the network from 2000 or 2005.  The internet is no longer built vertically to a few core peering points.  Content is no longer static.  State is now distributed across the network and state requires frequent if not constant updating.  Content is no longer little HTML files, it is long form content such has HD video which other people are calling this Big Data.  AKAM created amazing solutions for Web 1.0 and into Web 2.0 when the web was architected around the concept of a vertically built over subscription model.  AKAM distributed content around the network and positioned content deeper in the network.  That is not the internet of today.

As always…thanks for reading.  I am very humbled by the emails I get from people I have never met.

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **

July 2011 Tech Earnings 1.4: JNPR

I will update this post in the morning, but we have JNPR up after the close.  I posted a copy of my JNPR chart below.  This is a pretty big earnings event for JNPR coming after the mid-quarter sell-off. The stock is below all the key MAs (50, 150 and 200).  It is basically trading on the 20MA and above the 600MA. If you are JNPR long, you need to be adding to your position at this level hoping that stock reacts positively after the report thinking that instead of selling off after the report, the leadership team induced a pre-report sell off without pre-announcing.  If the leadership team guides lower and the stock breaks the 600MA that would be a problem.  GM guidance will matter.  Stock continues to hold the trend line from the March 2009 low.  I think a beat and raise would get the stock to $34, but a lower guide and this stock will see $25.

/wrk

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

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **