Network World’s top columnists tells what makes each of these 10 companies the biggest power players in IT.
AT&T: THE CARRIER COLOSSUS
By Frank Dzubeck, Industry Commentary
AT&T keeps getting bigger but still is managing to execute on all cylinders. It is earning accolades from financial analysts and seeing its stock price rise (buoyed by a potential 10% dividend increase and a $10 billion stock buyback).
During the last nine months, AT&T’s wireline business revenue exceeded $43 billion. The last nine months’ revenue for Cingular Wireless, which AT&T expects to own fully after it acquires BellSouth, exceeded $27 billion. Projecting revenue for this last calendar quarter at $16 billion for AT&T and $10 billion for Cingular results in a staggering $96 billion annual run-rate. Voice revenues (54.5%) still drive AT&T’s balance sheet, but data revenue (28.5%) is growing from quarter to quarter.
Look at these statistics for perspective on AT&T’s stature: Its global backbone network comprises more than 535,000 fiber route-miles handling 7.6 petabytes of data traffic per business day; it hosts 30 Internet data centers on four continents, five global network operations centers and 10 global customer-support centers; and it has almost 100,000 access points in 150 countries, as well as strategic relationships with 190 carriers.
Throughout its divestitures, mergers and acquisitions, AT&T never lost its corporate-customer focus. During 2006, AT&T expanded its security portfolio to more than 10 services and launched 24 services directed at corporations. Among the carriers, AT&T now has one of the broadest portfolios for corporate-customer services, with options for everything from application management to managed security. Particularly noteworthy for 2006 was the extension to 23 cities of its Opt-E-MAN virtual private LAN service, which has received Cisco QoS certification.
During 2006, AT&T acquired USinternetworking, an application service provider. In 2007, AT&T intends to focus the wholly owned subsidiaries of Sterling Commerce and USi at the corporate service-oriented architecture marketplace.
Although the future looks rosy, one key issue stands in the way of even bigger success — the BellSouth acquisition. AT&T still awaits approval from the FCC, which opted not to discuss the issue at its Dec. 20 meeting. Presuming the deal gets the OK after the new year, integrating the BellSouth operation will be a dominant challenge for 2007.
Regardless, AT&T is well positioned with management, resources, services and strategy to make 2007 an even bigger and more successful year.
Dzubeck, president of Communications Network Architects, can be reached at fdzubeck@commnetarch.com.
CISCO: THE INDUSTRY JUGGERNAUT
By Frank Dzubeck, Industry Commentary
A company as powerful as Cisco deserves a metaphor. You could call it a juggernaut battleship crashing through the waves of the marketplace, seemingly unreachable by the competition. Or, because the network industry seems to have a love/hate relationship with Cisco, you could compare it with the New York Yankees (except there is no network industry equivalent in sight for the Boston Red Sox).
No matter how cynical these metaphors seem, they accompany a message of respect and admiration. The fact is, the industry is rank with competitive jealousy because Cisco is besting the competition on two basic financial fronts: revenue growth, at 18% vs. 14% for the industry; and operating margin, at 27% vs. 10% for the industry.
During the last few years Cisco’s revenue has grown at a healthy 13% to its present level of $28.5 billion for fiscal 2006. Financial analysts have even greater expectations for fiscal 2007, when organic revenue growth is projected to be 14.7% to $32.7 billion. Most interesting is the slow but steady shift in the source of this revenue.
While Cisco continues to receive 85% of its revenue from products and 15% from services, its revenue from routing and switching products is declining and its revenue from advanced technology products — such as those for home networks, storage-area networks, IP telephony, wireless LANs and security — is increasing. Advanced technology products accounted for 16% of Cisco’s revenue in fiscal year 2005 and for 20% in 2006, and now is running at 23% for 2007. The company’s advanced technology strategy is working brilliantly to diversify its revenue stream, protecting it from the next market bubble.
As it shifts to advanced technologies, Cisco must have a comprehensive strategy for enterprise services. Now, for example, it has life-cycle services that help enterprises both prepare and optimize their networks; technical services that keep networks operating efficiently and up-to-date; and remote operations management services. Plus, it has 35 deep products and services for numerous vertical markets, including financial services, healthcare and manufacturing.
Although Cisco spends more than $3 billion per year on R&D, all eyes are on its mergers and acquisitions. It has acquired more than 100 companies since its inception, including nearly 12 in 2006. Now that it has learned to finance acquisition through debt (Scientific-Atlanta, for example), no IT company with a significant installed base and revenues is safe.
With all this, a constant stream of criticism is directed at Cisco. Customers complain about prices and product reliability, partners about external competition, value-added resellers about low margins, and the competition about predatory marketing and sales practices. In truth, it is simply jealousy, the wake of power.
Dzubeck, president of Communications Network Architects, can be reached at fdzubeck@commnetarch.com.
EMC: the house that storage built
By Howard Anderson, Yankee Ingenuity
By rights, EMC shouldn’t exist. It began life selling memory cards via telemarketing, morphed into the technical leader in disk storage while IBM, StorageTek and HP were asleep at the R&D switch, and then built on its unique ability to acquire strong niche companies and not screw them up.
Can EMC extend its storage dominance into the right new areas of IT? Competitors have awakened from their technical slumber, and upstarts are nipping at its core market, itself a victim of Moore’s Law. EMC has to sell 30% more storage each year to grow 10% in revenue, as the cost per bit drops 13% to 15% a year, compounded.
Look at EMC from a customer’s point of view. A CIO of a financial services company put it this way: “I have over 100 vendors in my shop. Every time I turn around my IT people are off to some users’ meeting, usually in Florida. I want fewer vendors, and I want more from them!”
What is he really saying? First, that he is tired of being the systems integrator for all these disparate parts and he wants vendors that can make all of their parts work seamlessly together. Second, he is saying that “piece parts vendors” with just a slightly better solution will be on the outside looking in. And third, he implicitly is throwing down the gauntlet to EMC: Are you ready to become a truly strategic vendor — with entire solutions — or just a tactical one?
Therein lie EMC’s strategy and its challenge. Early technology made the firm, so it had to be first-rate in engineering. Now it is mastering two new disciplines — financial engineering and technical integration. It has bought a gaggle of firms since 2003, pretty much saying it would rather buy good technology — which brings with it a customer base and a trained sales and service organization — than spend 10 years trying to make it. And with the Nasdaq still down and the stock market acting rationally, acquisition finesse becomes a valued skill.
Make no mistake about it: If EMC is going to move into the rarified altitude of a strategic vendor, acquisitions aren’t a nice-to-have, they are a have-to-have. To most IT honchos, storage is boring, right? But it isn’t boring if you are a financial industry CFO and know you’d better keep every e-mail since the beginning of time or be in violation of your compliance requirements. And storage isn’t boring if data backup can’t get you to recovery management.
What is Act 2? EMC is vulnerable, because it cannot match the hordes of IBM and HP consultants helping customers find their way. So it must pick tangential areas for expansion intelligently. The first new areas were those where storage is integral, such as content management, through the Documentum acquisition, or enterprise storage management, through the purchase of Legato Systems. Now ,with the RSA Security purchase, EMC has moved into security and recovery management and opened another door into the corporation.
EMC gets more than half its business from areas other than storage and is calling itself an information infrastructure company, which tells us — nothing.
But it can see the issues: Corporate networks are complex databases that cry out for help and need root-cause analysis to fix; corporate officers want to drive down the cost per transaction and increase availability; corporate customers want to push the right data down the pipe for new Internet applications.
There are only a few really strategic vendors to corporations — IBM, HP, Oracle, SAP and Cisco. Dell is a special case (and an EMC partner). EMC has the opportunity to play right up there with IBM and HP, if it keeps its storage users happy — which means big R&D spending — if it can buy the right companies at the right price, and if it can integrate the product lines seamlessly.
Anderson, founder of Yankee Group and co-founder of Battery Ventures, is the William Porter Distinguished Professor at MIT. He can be reached at handerson@mit.edu.
HP: LOTS OF DIRTY LAUNDRY, BUT STILL POWERFUL
By Mark Gibbs, Backspin
Until September, HP’s public face was looking pretty good. Under the leadership of CEO Mark Hurd, HP was starting to see a revitalization of its business that could have made it bigger than IBM. HP’s marketing and sales were going great guns, and the company seemed to be doing everything right. But that rosy outlook was about to run into a brick wall.
When the smelly stuff hit the whirling blades, what emerged was a pretty pathetic and sordid tale of board-level silliness that defied belief. On discovering a boardroom press leak, the board’s chairperson, Patricia Dunn, instigated an investigation to find the guilty board member. This was no less than a witch hunt, involving illegal data-gathering, surveillance and covert investigation. “Colossally stupid” is how the California attorney general wound up describing the affair.
As a result of this whole mess, one director was ousted, Dunn stepped down to become a director, and Hurd became chairman. Despite the furor and much to everyone’s surprise, the company’s share price experienced an unabated rise over the entire last year, and the boardroom fracas hardly made a ripple on the chart.
Hurd’s sales and marketing strategies really are working. According to Yaser Anwar, a contributer to StreetInsider.com, “Nearly 80% of HP’s profit increases over the last two years can be attributed to its Enterprise Servers & Storage and Personal Systems Group divisions, due to revamped product lines, cut costs and set prices to maximize profitability rather than revenue.”
HP is set on a strategy that focuses on profitability, and its products show a real technical and marketing edge in the server and blade markets. While those edges can — and most likely will — be eroded over the next year or so, HP won’t be standing still; unless there are major market disruptions, the company should be able to maintain its growth and at the least keep its market share.
The company’s biggest threat is Dell. To address that threat, HP is starting to make aggressive moves that could change its relationship with its sales network. As reported in Europe, HP is planning to bypass resellers and is test-marketing an approach that will let it go directly to its largest 120 customers in Holland. This bold, and potentially highly profitable, move carries the risk that U.S. resellers may lose their commitment if they think HP might eventually cut them out of the loop.
HP also is moving forward aggressively in its network management business. The company’s recent acquisition of Mercury Interactive gives it a whole new customer base to mine. And Mercury’s application development management products nicely complement HP’s OpenView network management software.
And HP showed its shrewdness with the three-year, $300 million enterprise deal it recently signed with Microsoft. With 2006 sales of $91.7 billion, HP is already bigger than Big Blue and this deal will provide a huge leverage in enterprise sales.
HP’s board-level problems are not over, and in the next few months we can expect to see various directors being held accountable for their misdeeds. Still, HP’s customers, OEMs and resellers seem convinced that the company has what it takes to satisfy enterprise needs — at least for now.
Undoubtedly HP’s board-level problems are nowhere near over, and in the next few months we can expect to see various directors being held accountable for their misdeeds. Despite that, it seems HP’s customers and OEMs are convinced that the company has what it takes to satisfy enterprise needs. As for resellers, they’re still on board, too — at least for now.
Gibbs is an independent consultant. He can be reached at backspin@gibbs.com.
