Posted by: Peter Burrows on November 21
After years of rumors, Calix Inc. finally filed to go public today.
Here's the filing, which is sure to put CEO Carl Russo back in the spotlight. Besides being one of the funniest, most free-wheeling executives one is likely to meet, he's also famous for having sold start-up Cerent Inc. to Cisco Systems in 1999 for $7 billion. Cerent had already filed for its IPO before Cisco came calling, paying one of the frothiest valuations of the late 1990s.
But while Russo may have been the front-man for Cerent and now for Calix, the founder of both companies was Mike Hatfield (He actually had a few co-founders on Cyan). While less well-known, he's got a sterling record when it comes to knowing where the puck is going in networking. After stints at former high-fliers DSC and AFC during the formative days of the Information Superhighway, he created Cerent in 1997 to build optical networking gear used by phone companies to move massive amounts of voice and data traffic through the "core" of the Internet that connects major cities and regions.
Of course, demand for networking gear of all types crashed just a year later with the Net Bust, as it became clear that far too much capacity had been built. Nonetheless, Hatfield founded Calix just months later to take a crack at what had long been considered the least appealing part of the networking market: the so-called "access" gear that delivers traffic over "the last mile," from the phone companies' central offices located in towns and neighborhoods to each subscriber's home. Traditionally, companies competed hard to make a thin profit on this more commoditized gear. But Hatfield sensed that Calix could attract a lot of attention if its boxes helped phone companies deliver more than just phone service. After all, cable companies were trying to add phone service to their menu of offerings, and Calix' gear would let phone companies add TV and other services to their basic voice plans. According to its IPO filing, the company had $250 million in revenuees in 2008, though it lost $12.9 million on the year (so evidently Calix hasn't been as successful at figuring out how to fatten those margins on access gear.)
So if Cerent was about the "core" and Calix was about the "edge," guess where Cyan is aiming? That's right--at "the middle mile." This is gear that connects the central offices to the core network. While most venture capitalists are still loath to invest in any networking start-ups (Hatfield figures they lost $2 billion on them during the Net Bust), he figures this section will be the next big chokepoint on the Internet. The reason: millions of people are now routinely consuming and sending high-definition video and other weighty digital fare, to a broader range of devices, such as the iPhone. But much of this middle mile still contains huge amounts of old copper lines rather than higher-capacity fiber-optics. Cyan's gear is designed to help carriers make the most of what they have, as they move to networks more capable of handling the load.
More than technology, Hatfield says Cyan is one of a new generation of networking companies with much lower-cost business models. That's critical, because carriers can't afford to just keep buying more of the same pricier gear as Net traffic continues to soar. While it has typically cost hundreds of millions of dollars to build a cutting-edge networking company in the past, he thinks Cyan will cost a tenth as much. It's not just that consumers are demanding so much more bandwidth, but that they're not willing to pay for it. "Today's bandwidth hogs are the consumers of the future," he says."Consumers aren't going to pay ten times the money for ten times the bandwidth," he says. See a video interview with Hatfield, with the site Light Reading, here.
He says Cyan's costs are so much lower because it relies on open source software and off-the-shelf communications chips--rather than proprietary code and chips (sounds like Arista, which I wrote about in the magazine a few weeks back). Evidently, Cyan is off to a promising start. Hatfield says the company already has more than 20 customers, and more are on the way thanks to the Federal broadband stimulus program.
Posted by: Olga Kharif on November 20
T-Mobile USA's parent Deutsche Telekom is looking for U.S. partners to help fund the U.S. wireless carrier's network build-out, according to a report from Reuters and a German newspaper. Potential partners may include Clearwire, MetroPCS or Leap, according to the report.
Neither of these partners may have the funds for such a deal, however. Clearwire has just raised more than $1.5 billion in funding; but that's less than half of what it needs for its own network build-out through 2013, according to analysts. MetroPCS and Leap are still small companies, struggling to keep growing amidst rising competition. MetroPCS's subscriber additions in the third quarter were less than a third of what they were a year ago.
Yes, it is possible that all these struggling, smaller competitors will decide to band together and to fund one network, to be used by all -- say, Clearwire's. Most of them address a different market segment, so they won't compete with each other too much: T-Mobile goes after the hip, young crowd (though it's also pursuing prepaid customers). Clearwire offers mobile broadband services for laptops. MetroPCS and Leap have made their names on prepaid wireless plans.
But I would argue that what T-Mobile USA needs is to be paired up with a cash-rich, well-to-do giant, instead. After all, you put a bunch of struggling companies together, and you often end up with a large struggling company.
It seems to me that DT should, instead, look in a different direction -- to AT&T, for example. AT&T is healthy and has the funds to help T-Mobile out. It also currently uses the same type of networking equipment as T-Mobile, and could help T-Mobile migrate to next-generation technology more smoothly. While such an alliance could, potentially, raise the anti-trust flag, a deal could, perhaps, be structured in such a way as to overcome such concerns.
Posted by: Aaron Ricadela on November 19
Dell missed even modest expectations for its fiscal third quarter ended Oct. 30, but CFO Brian Gladden pointed to a sequential rise in fourth-quarter sales helped by the launch of Windows 7.
In its Nov. 19 earnings report, Dell said sales fell 15% to $12.9 billion. Net income fell by 54% to $337 million, or 23 cents per share after excluding certain one-time items. Wall Street analysts had expected Dell to earn 28 cents a share on sales of $13.1 billion. A year ago, Dell reported earnings of $727 million, or 37 cents per share, on $15.2 billion in sales.
Shares of Dell fell by nearly 6% in extended trading after the report. At the end of regular trading Nov. 19, Dell’s stock closed down 19 cents, or 1.2%, at 15.87.
The weakness was spread across nearly all of Dell’s businesses. Sales to large businesses bore the brunt of the declines as information technology departments continue to keep a tight rein on costs. Nearly 80% of Dell’s sales are to businesses and government customers. “We are losing share in the aggregate” because of a heavy reliance on commercial sales, Gladden told reporters during a conference call after the results were announced.
Dell didn’t see much benefit from Microsoft’s launch of its new Windows 7 operating system on Oct. 22, since Dell’s quarter ended eight days later. In the two weeks leading up to the launch, customers put off PC purchases to avoid buying machines with older software running on them, Gladden said. “We built a little backlog as a result, and we’ll ship through that in the fourth quarter,” he said.
Dell’s gross profit margin came in at 17.3%, or 18.3% after excluding one-time expenses related to the closure of a plant in North Carolina. Shaw Wu, an analyst at Kaufman Bros., said he was expecting an 18.6% profit margin in a Nov. 19 research note.
Dell’s consumer sales fell by 10% during the quarter, but Gladden said Dell “walked away from some retail business during the quarter” that wasn’t acceptably profitable in order to preserve margins.
Turn back to BusinessWeek.com later tonight for a full report on Dell’s third quarter, and a look at what’s ahead for the company.
Posted by: Aaron Ricadela on November 18
Salesforce.com Chief Executive Marc Benioff has never been shy about borrowing a bit of other companies’ mojo. On Nov, 18, he introduced the software company’s latest product, a business collaboration tool that takes pages from the playbooks of Facebook and Twitter.
Salesforce will begin selling the new software, called Chatter, next year at a price of $50 per user each month. The software works with Salesforce’s core customer management software to display “profiles” of employees and posts about projects they’re working on or customers they’ve visited. “I know more about these strangers on Facebook than I do about my own employees and what they’re working on,” Benioff said during a speech at the company’s Dreamforce conference in San Francisco. “I know when my friends went to the movies, but not when my VP of sales visited our top customer.”
Chatter pushes Salesforce, expected to reach $1.3 billion in revenues this year, into the crowded field for collaboration software. Salesforce is trying to expand beyond the customer management software that’s been its bread and butter. Microsoft’s SharePoint Server, an IBM product called Atlas that works with its Lotus e-mail software, and Google’s recently introduced Wave all offer business users the ability to share information and hold conversations on the Web.
Software developers will be able to use Chatter to build their own applications, Salesforce said. The move comes as some of the tech industry’s largest vendors are releasing tools that let programmers create cloud computing applications delivered over the Internet. Microsoft on Nov. 17 launched Windows Azure, software for letting Windows developers build cloud computing applications using familiar Microsoft technologies. Google and Amazon.com also offer tools for developers to build cloud applications.
Look for updated coverage on BusinessWeek.com, including excepts from an interview I’ll conduct with Benioff later today.
Posted by: Stephen Wildstrom on November 18
With network neutrality rules in the works and an investigation into handset exclusivity deals underway, the Federal Communications Commission has not been a great favorite of the wireless industry of late. But today the FCC threw carriers a badly wanted sop with new rules that require state and local governments to speed up action on applications for wireless tower locations.
The unanimous "declaratory ruling" made good on a promise FCC Chairman Julius Genachowski made in an otherwise coolly received speech at an industry conference in early October. Under the new rules, state and local governments must act within 90 days of receiving an application for a co-location, that is, a tower site to be shared with other operators, and 150 days for other applications. Carriers have complained that governments are frustrating their efforts to improve coverage by sitting on tower applications indefinitely.
The FCC also ruled that state or local governments may not use the fact that wireless service is available from another carrier as ground for rejecting an application. And they may not require a zoning variance for every cell site.
