Category Archives: Cloud

2012 Themes and Forecast

January 1, 2012 – 9:55 pm by Don Douglas (CEO)

The past few years I have stuck my neck out on the line and come up with Themes and Predictions for the upcoming year.  2011 was no different as I not only hit on different technology trends I also tried to predict which companies would and would not be taken over this past year.  I had a lot of fun doing this and it is almost scary how well things worked out for these selections.  You can go back and read my 2011 Themes and Forecast if you like but for now take a look at the stocks I removed from the M&A possibilities list and notice that every single stock not only was not acquired but all of them except Fortinet was down on the year with the average loss being much worse than the market at -17.3%.  This was a really good basket of stocks to have avoided, they were overpriced and this prediction was on the money.

Closing Price Closing Price Percentage of
Company Symbol 1/4/2010 12/30/2011 Change
Adtran ADTN   36.28 30.1 -17.03%
Fortinent FTNT   17.49 21.81 24.70%
Extreme EXTR   3.21 2.92 -9.03%
Juniper JNPR   37.16 20.4 -45.10%
F5 FFIV   132.07 106 -19.74%
Riverbed RVBD   37.28 23.25 -37.63%
          -17.31%

Of the 8 companies I mentioned that were likely to be acquired 5 had either been acquired, merged or signed agreements to be acquired before the end of 2011.  One company split itself in to two pieces and I believe the other two are still in play to be acquired.  If you would have purchased this basket of stocks you would have scored a 21.3% gain easily beating the market in general by a wide margin.  If you could have somehow purchased shares of Skype or MySpace on the secondary market or simply avoided Sprint which was the real stinker of the group you could have done much better.  Take a look at how the M&A list performed below:

Last Trade
Closing Price or Price Percentage of
Company Symbol Acquired 1/4/2010 1/4/2010 Change
XO XO Yes 0.69 1.4 102.90%
Global Crossing GLBC Yes 13.01 22.38 72.02%
Sprint S no 4.45 2.35 -47.19%
Blue Coat Systems BCSI Yes 30.24 26 -14.02%
Tekelec TKLC no 11.8 10.93 -7.37%
NTELOS   * Company Split in to two pieces for modest gain
Skype   Yes Privately Held – Investors made large gain
My Space   Yes Privately Held  
          21.27%

So to recap the highlights of last year’s forecasts M&A was definitely hot in 2011, the economy muddled along with uncertainty being a dominant theme, Apple did obtain the largest cap in the world shortly before the passing of Steve Jobs, smart phones and tablets continued to invade corporations at a rapid pace and Microsoft got it right with Lync being a breakout product for them.

So what about 2012?  Here we go beginning with M&A.

1)      M&A – I think M&A will cool down some after the blistering pace of 2011.  Most likely we will see smaller deals done as tuck-ins to round out the portfolios of larger entities.  The market is definitely ripe for IT service provider consolidation, security related entities, wireless players and for some more strategic cloud acquisitions where I expect the carriers to be active.

  • IDCC – If you haven’t heard of InterDigital before don’t feel bad as they are not a household name, however, many of the brands you know and love have to utilize their patents.  With so many companies being taken off the board in 2011 including the acquisition of Motorola by Google the InterDigital wireless portfolio looks might impressive and the stock is trading just a little above its lows for the year.
  • NOK – See a pattern beginning to emerge here?  Here is another undervalued wireless play.  This is also a major partner of Microsoft trying to compete with the market leaders Apple and Google.  This stock is trading close to or slightly below book value.  I think this stock could head lower first since Lumia has not done well but keep an eye on them.
  • RIMM – I will not stoop to insulting die hard Blackberry users as I still have one or two friends that love them.  The problem for RIM is that one or two die hard customers here or there is not going to help them recover quickly enough.  But there is some good news.  Even though Apple and Google have been declared winners of the smartphone wars this will not stop Microsoft and others from continuing to try.  The market is just too big for them to walk away from.  Just look at HP’s ill-advised purchase of Palm not so long ago.  Sooner or later Microsoft, HP, Oracle, IBM, Amazon, Dell or someone else will decide that the market is just too big not to have a player in the game and with the market cap getting smaller by the day and no debt there is a good possibility that someone finally makes a play for the company this year.
  • Here are a few more names that have good potential to be taken over in 2012:  InterNAP, Netflix, Sprint, Riverbed, Zix and Tekelec.

2)      Dot Com Implosion 2.0? – Though having real products, many of the Web 2.0 companies we know, love and hate have seen stratospheric growth and valuations.  While these are real companies unlike what we saw 10 years ago we now have some very big expectations to fill.  There are a number of high profile companies readying to come public and one has to wonder if the valuations that are being thrown around are realistic.   Just looking at the performance of recent IPOs in this space has to make one cautious at this point.  Perhaps the Facebook IPO will tell the story.

3)      Voice Recognition goes Mainstream – I know you have already heard more than enough about Siri but the bottom line is that everyone has been playing with this technology for years.  Microsoft has made huge investment along with a number of other companies and yet none of them has had the success that Apple has in such a short time.  This consumer driven technology will now find its way through every business.

4)      Windows 8 – Given that enterprises are still upgrading to Windows 7 the biggest impact of Windows 8 may be on either side of the desktop.

  • Since it will enable PCs and Tablets to turn on instantly and potentially run all day, finally the Mac Air will have some legitimate competition.  I have also heard developer chatter about a number of Windows 8 powered tablets that have the power of a PC inside enabling a much wider range of applications than current tablets.  Look for Windows 8 to drive Ultrabook and sophisticated tablet sales.
  • The Server side of the house will also benefit as Microsoft is boasting a greatly upgraded hypervisor.  While Hyper V3 will probably not match everything vmWare can do it should pressure pricing and provide end-users with more options.

5)      iTV – When was the last time you were really excited about a television?  I think there are legs to the iTV story in 2012.  Just look at Jobs own words on this the television experience as penned by Walter Isaacson in his biography of Steve Jobs.  Here’s what Jobs said: “I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it.”  I am willing to believe he cracked it and that the first product ships before year-end.

6)      M2M – While Machine 2 Machine (M2M) potential has been discussed for some time we are finally seeing a number of products begin to enter the market and fill a niche.  Even more interesting is that these offerings are beginning to be integrated with other multi-function devices meaning that this technology is about ready to go mainstream.  Look for a wide variety of products to deliver additional value to businesses across the marketplace but beginning with verticals.

7)      Smart Wallet – Mobile enabled payment solutions definitely have interest.  With both Android and iOS devices expected to come with Near Field Communications (NFC) chips built-in we could this technology gain momentum in the US very shortly.

8)      HTML 5 – With Flash biting the dust there will be a mad rush to HTML 5.  This will make many websites much more friendly to end-users.  The prediction is that the HTML 5 will cut down on the need to design customer downloadable apps.  This could make it easier for enterprises to deploy solutions but I don’t see the app store going away anytime soon.  There is too much profit motive and the benefit of control for it to disappear.

9)      Education – Will be greatly impacted  by the tablet explosion – look no further than our local librarians giving lessons on how to utilize your tablet with the public library system.   Even more amazing than the technology itself is the incredible amount of talent that can be pooled and captured on a single platform to make learning easier.  If you haven’t watched a Khan Academy lesson with your children or for your own benefit you just don’t know what you are missing.  http://www.khanacademy.org/ – They have topics on anything you could imagine including math, science, history and art with more lessons being added all of the time.

10)    Security – 2011 got us talking about custom malware attacks that seemed almost like something out of a spy thriller.  Expect even more custom attempts in 2012.  PII also will gain increased visibility as states, companies and consumers all become more concerned.

What do you see happening in 2012?

Posted in Business, Cloud, Technology, Telecom

Being Green Part III: Interesting Thoughts on Paper versus Cloud

March 4, 2011 – 3:36 pm by Don Douglas (CEO)

This is my third installment of “Being Green.” In it, I reference two fairly recent pieces of research to show how conflicting these reports can be. One illustrates the benefits of reducing paper and moving to digital services, while the other hits on the impact of rising greenhouse gas emissions due to increased data center usage.

Helping to Reduce Paper

First the good, if 20% of us switched to electronic services, it would save more than: 151 million pounds of paper, avoiding the creation of nearly 1.5 million gallons of wastewater, save 1.8 million trees, eliminating the production of nearly 4 billion pounds of greenhouse gases and avoiding the use of nearly103 million of gallons of gasoline each year. Nice, right?

Yet even with these benefits, consider a counterpoint (though not an apples-to-apples comparison) below.

Cloud Update

The cloud is now getting attention from an unusual source. Greenpeace, in a recent report, links growth in the cloud to future sharp rises in greenhouse gas emissions and is calling on companies such as Facebook, Yahoo and Google to do more to help the environment. This report seems to lump data center services into the cloud. Though data centers represent just a small percentage of worldwide power consumption, Greenpeace estimates that the amount of power consumed by the world’s data centers and telecom networks will triple from 2007 to 2020.

So what do you think? Is a digital world really better for the environment or not?

These types of reports are often somewhat vague and leave readers pumped up one way or the other… until they read yet another piece of research with yet another perspective. The point is, nothing is ever quite as simple as it seems. And herein lies an example of unintended consequences—reports and statistics such as these don’t fully show how all variables are factored and what the offsets are on either side. Continued misinformation and confusion result.

My advice is to understand multiple perspectives, but tune out the noise and continue to focus on solutions that offer multifaceted benefits along with good ROI.

Posted in Business, Cloud, Green

2011 Themes and Forecast

January 3, 2011 – 4:21 pm by Don Douglas (CEO)

Last year I stuck my neck out with “10 Themes and Predictions for 2010” and got quite a few things right.   I did fall short in two areas, though, as I thought we would see substantial new taxes on telecom to assist with huge deficits (it hasn’t happened in the U.S. yet, but notice they are at least discussing this measure overseas:  http://www.cn-c114.net/575/a550527.html ).  I also thought we would see a number of tech mergers, and though I was on the money that this would occur, not one of my candidates was acquired.  I would like to point out that I wasn’t totally wrong about the companies I mentioned; every one of them was undervalued, and though no other company decided to gobble them up, investors sure did.  I bet there are more than a few companies who would have liked to acquire one of these, but now the valuations make it much harder so I’m removing most of them from the likely-to-be-taken-over list. They are no longer undervalued, in my opinion.

    Closing Price Closing Price Percentage of
Company Symbol 1/4/2010 12/31/2010 Increase
Adtran ADTN $22.70 $36.21 59.52%
Fortinet FTNT $18.00 $32.35 79.72%
Extreme EXTR $2.90 $3.09 6.55%
Juniper JNPR $27.18 $36.92 35.84%
F5 FFIV $53.98 $130.16 141.13%
Riverbed RVBD $23.85 $35.17 47.46%
      Average 61.70%

 

This year I will stick my neck out a bit further and get a little more specific with some additional themes and predictions.  I look forward to your feedback.

 1)      M&A Continues – Though I mentioned this last year, there are still some really interesting pieces on the board throughout technology in general and in the telecom space.  Most of the companies mentioned below will, in my opinion, either need to acquire someone or be acquired to stay viable. 

  • XO –  Icahn tried to take it private a while back and does have majority control. They have some nice assets especially in some of their fiber-rich markets.  The question is what does Icahn want to do with this? 
  • Global Crossing – Some of the best international assets and routes are held inside this company.  Keep in mind they have had a ton of financial issues in the past but have had the benefit of bankruptcy to clean some of this up.  On the downside, this company is still losing money and sports a negative book value.  Global Crossing would be a great asset for a number of companies trying to move upstream in the Global Enterprise space.
  • Sprint – After completing what is perhaps one of the worst mergers of all time, the acquisition of Nextel wiped out billions of dollars of equity, added to debt, brought on a string of losses, caused additional customer support problems, destroyed employee morale, diverted investment from other key aspects of their business, and I could go on.  However, you can see that there are improvements being made and even with the $15 billion in debt (if you subtract cash on the books) this company still trades at less than book value.  Given that they are one of the major wireless players, would it really be surprising for the company to be reunited with Embarq at CenturyLink at some point or perhaps acquired by Google (which has been floated a couple of times)?
  • Here are a few more names that I think are likely plays due to growth in the cloud, fiber assets or just ripe for consolidation:  Blue Coat Systems, Tekelec, NTELOS, Skype and MySpace.

 2)      Continued Uncertainty – As the recession rolls on (or at least its close cousin, the jobless recovery), it will begin to alter purchasing and business decisions differently even than previous years.  Companies will begin taking gambles they would not have even considered three to five years ago.  As companies are already operating very lean due to the recession, IT and other leadership will be pressed to continue to find ways to cut cost.  This will lead to opportunity for some but also cause many businesses to make risky choices that may not have been thoroughly vetted.

 3)      Microsoft Goes Three for Four –  After scoring hits with Kinect and Windows 7 in 2010, Microsoft finally makes inroads on the Telecom side. Though Windows 7 Mobile may be a bust, some studies have shown that up to 30 percent of Enterprises plan to deploy Lync server in some form or fashion.  There are still issues to be addressed but Microsoft appears to have finally gotten many things right.

  • Virtualization supported in Lync Server
  • Requires fewer physical servers (many configurations will need only one server compared to four in OCS 2007)
  • Lync will provide single client instant messaging, web conferencing, presence, voice, voice mail, etc. vs. having separate clients in OCS 2007

 4)      Smartphones and Tablets Outsell Notebooks and Desktops – This isn’t the demise  of the desktop as we happen to be in a major upgrade cycle due to Windows 7.  However, phone upgrades are happening at a much more rapid pace than desktops and laptop replacements.  Pricing and ease of use makes smartphones and tablets available to a huge audience.  Almost every manufacturer has added some form of a smartphone to their line ups and there are very few plain phones left that can even be purchased today.  In talking with several customers, I have noted that many executives are planning to purchase large numbers of tablets for their organizations in 2011.  This makes me believe that we will see a slew of mobile computing applications for business on tablets by the end of 2011.  I don’t think there is any doubt why RIM and others are rushing to get their tablets out.  The question is whether they are too late with Apple already having first-mover advantage.

 5)      Security – Security will continue to be move up the IT agenda as general socioeconomic strains expose additional needs and requirements.  Mobile security breaches and management will become a major focus. 

 6)      Compliance – Look for compliance and standards to be a major cloud driver in 2011.  Many players are working as hard as they can to achieve multiple levels as quickly as possible. 

 7)      New addictions and ailments will be linked to high social media and mobile device usage.

 8)      Apple obtains largest market cap of any company in the world during 2011.  How does this happen, even with Exxon potentially having much higher oil as a tailwind?  We’ll see iPad momentum with new models, Verizon and potentially other carriers get the iPhone soon, a continued Mac-Halo Effect and the sleek Mac Air.  You never can discount what Apple might have coming down the pipeline.  Even from a valuation standpoint, when you subtract Apple’s cash from the stock price, you get a very low PEG ratio.

 9)      Mobile Photo Sharing – Social media photo sharing gains momentum in 2011 with almost every device coming with a camera. Timing couldn’t be better for applications like Instagram http://instagr.am/.

 10)   Crowdsourcing – Continues and gains major momentum crimping traditional agencies and attracting considerable talent from a large talent pool of disenchanted and displaced workers.

Let me know what think will happen in 2011 or if there are any additional technologies that are especially interesting. 

In the interest of full disclosure, I do own shares in some of the companies mentioned in this BLOG.

Posted in Business, Cloud, General, Technology, Telecom

Cloudy with a Chance of Rain

August 20, 2010 – 1:38 pm by Don Douglas (CEO)

Everywhere you turn people are talking about the cloud. I recently returned from an advisory board meeting and one of the key topics was the public cloud. Points of discussion included a variety of technologies and whether there was truly a market for many offerings currently on the drawing board. Others expressed nervousness over security and SLAs.

I firmly believe in the cost and flexibility advantages of the cloud model, especially when serving the needs of the SMB. But whether you believe the cloud hype is just the coming of ASP 2.0 or you are actually entertaining moving processes to a cloud provider, there are more than a few things to consider. Before continuing, let me state that our organization currently utilizes public and private cloud services, offers them to clients, has participated in the development of SAAS products, and has assisted in the implementation of these offerings.

While the ASP model never quite had the success Gartner predicted, it did lay the foundation for many SAAS “software-as-a-service” providers. Many of these early adopters had good success specifically in the CRM market where several companies have done rather well. That said, many providers (including some that have been around for a while) still seem to have some major issues to overcome. While recently interviewing and vetting a couple of potential vendors with interesting solutions, we became alarmed at their lack of a detailed security posture. One did some application testing with an open source tool but then tried to interpret the results without outside assistance. Another claimed they had never found any issues. Yet another had a rather small staff with limited training in security. Also of concern was the fact that they relied on a third party to host their application. When one of the underlying hosting vendors was contacted, they would not share how they patched their servers, whether they did penetration testing, how often this testing was being done if it was being done at all, how the system was backed up, what would happen in the event of a breach, etc. When we discussed this with the cloud provider, they were surprised at our concern and said that no other customers had brought this up yet. We loved the software and even offered some guidance on how they could correct the issues. So far both parties have been quiet.

What to Ask Cloud Providers

Based on these experiences and others, here is a quick checklist of things I think every cloud provider should be asked. Based on their responses you can make a decision with your eyes wide open.

1) Check to find out if they regularly test their applications and environments (including servers, OS, routers, firewalls, etc.).

2) Check to see if they use an outside vendor to help them analyze and audit these results.

3) Find out how and when they implement fixes when a problem is found. If they say they haven’t found any problems, this is a major warning sign that they are not doing enough.

4) Check to make sure all sensitive data is encrypted.

5) Find out if the vendor is seeking or has obtained any type of accredited standardization such as SAS 70 or ISO 27001.

6) Is the company financially stable? In this economy, it is better not to take chances with a company that might be forced to cut corners.

7) Understand the SLAs and what they really mean to your business.

8) Check to see if they have any customers using the service that require serious compliance measures to be operative such as HIPAA or PCI, and see if they have satisfied these requirements.

As a final note, understand that one of the biggest potential “gotchas” of the public cloud is the unknown. Since public cloud technology is relatively new, this in itself is a risk. Many publicly debate how well a public infrastructure can actually be secured and still serve the needs of the many at an affordable price point. At this point there really aren’t any industry-wide data handling and security standards for cloud providers. There are legal issues that haven’t even had precedent set yet. Many compliance measures such as HIPAA and Sarbanes-Oxley where not written to address public cloud architecture which makes it difficult to enforce them in these solutions. Until these issues are addressed, the public cloud computing movement will not be able to reach its full potential.

Posted in Cloud, Computing, SAAS