Nikos Theodosopoulos

Tech
Nikos Theodosopoulos
Tech
Contributor since: 2013
Company: NT Advisors LLC
In addition if you look at the commentary from the last conference call, the company mentions how edge routing is being impacted by traditional/older products. It seems to me that Cisco needs a refresh at the edge and customers to figure out how to compare/deploy their two different core offerings before they can resume solid overall growth in service provider routing
It is fair to say that the ASR has done well in the past but at a declining rate of growth as Juniper has launched the MX2020. I believe what you will see is a further slowing of Cisco's ASR growth in the near term quarters. Lets see what happens when Cisco reports on February 12th.
I find Dell'Oro is an outstanding firm in industry analyst reporting. They cover several of the markets that both Cisco and Juniper compete in (e.g. routing, switching, security etc.). Anyone looking for quality industry reports on such areas should consider Dell'Oro in addition to the ones you mentioned.
I do not have a conviction one way or another on 4Q earnings, but peers like JDSU, JNPR and ERIC have generally performed ok in 4Q. Risks I would be concerned about are ALU has more emerging market exposure than most peers, and it has a history of inconsistent results. Hopefully the new CEO and CFO have lit a fire under the company to be more consistent.
I view the new CEO as a positive catalyst for the company. He seems to be working diligently in right sizing the company, driving a results driven culture and meeting with customers frequently. On top of that, capital spending in telecom seems to be on a rebound this year. Its not clear longer term how ALU will do, but I am hopeful it will continue to well in 2014.
I have not done this analysis, but I think to do it properly one has to look at total media based advertising (i.e. on-line, TV, radio, newspaper) and see how on-line has been eating into the total media ad market. One has to look out 5 years and estimate what % of the total ad market will on-line own. The bull case on these stocks is on-line continues to take away from traditional media advertising dollars.
The Microsoft CEO selection will be important. From what I read in the press, I would not view the selection of the Ericsson CEO as positive for the company. Perhaps the internal candidate Satya Nadella would be the best choice of the ones discussed in the press.
I think the market is pricing in that Splunk, Workday and FireEye will grow as fast as CRM and VMW did when they were at the same revenue base. That basically means these companies will grow sales from $200M to $1B in about 3 to 3.5 years. CRM and VMW were the exceptions in terms of this growth. For example, VMW was a play on server virtualization which experienced rapid growth and acceptance in the market and they ended up dominating the market. Citrix, however, did not see the same level of adoption and growth in desktop virtualization software. Splunk is currently the main supplier of big software for searching, monitoring and analyzing machine generated big data. With the growth of unstructured data (e.g. social media feeds and data from Internet connected sensors), I think the company will experience similar growth to prior leading disruptive companies. Workday is selling cloud based software for HR and finance management to corporations and so far has shown a resemblance to the growth of Salesforce.com which was disrupted the customer relationship management market by moving it to a SaaS model. FireEye is seeking to move advanced persistent threat security to a cloud based solution. Historically, the comparable companies in the security market sold special purpose appliances. I hope that helps.
As I mentioned in a prior reply, my cost basis for these three stocks is much lower and I have continued to move my stop losses higher as the stocks have moved higher. Its fair to say that given the additional appreciation in 2014, I may chose to close the positions in the near future.
I like Splunk for the longer term but may seek to take profits given high valuation
The Internet things will be a long term trend that will dramatically increase the number of entities that are connected to the web (e.g. appliances, sensors in auto, machines, wearables etc…). I don't see this is a factor impacting the stock over the next year or so.
Thanks for all the comments. Some quick replies below:
1. The purpose of the article was to evaluate what Cisco's strategy might be when the CEO said in the press Cisco plans to disrupt the wireless infrastructure market. I was not trying to suggest Cisco would be successful or not, but rather what they may developing.
2. If Cisco is pursuing C-RAN, my guess would be they invested or funded a start up that is working on special processors for such a market that perhaps could run on standard servers or even some derivation of Cisco's UCS offering.
3. The value of C-RAN to an operator is efficiency of baseband processing as it becomes more centralized, lower energy consumption and less interference among cells. C-RAN has already been identified as a function within the NFV framework, so operators are thinking longer term C-RAN can be implemented via software features on centralized baseband processors.
In my article on Cisco on May 17th, I mentioned Cisco is likely to acquire a security company. Now that they acquired Sourcefire in Security and Meraki in Enterprise Mobile, I do not see any glaring holes in their main lines of business. Acquisitions of start-ups are still likely in areas in the are of Mobile Customer Experience and Analytics, but I do not see another large acquisition in 2013 on the order of Sourcefire and NDS. There are articles suggesting Cisco is looking at Blackberry, but I would be surprised Cisco acquired them as they already failed in their consumer efforts in the past and Cisco does not like to buy declining businesses with declining market share. There may be some elements of Blacberry Cisco would look at (e.g. patents), but I doubt they would acquire the entire company.
Yes, Insieme is also targeting Arista. I put Arista in the category of companies mentioned above under "more open switching platforms that offer more robust software operating systems than Cisco has traditionally offered". Cisco is very focused on trying to stall the growth of Arista given its success so far in the data center as a disruptor in the switch market and Insieme is a key part of the attack plan on Arista.
Thanks for the comment. It is definitively early days in the SDN market and predicting the ultimate outcome for Cisco and others is difficult at this time. It will be certainly interesting to watch!
This is difficult to answer at this point as it will depend on how one of these companies decides to make a bold move against the other. So far, the strategic moves have been low risk in terms of financial, cultural and integration risk (e.g. Cisco buying WHIPTAIL and VMware buying Nicira).
I do not think Juniper would acquire Palo Alto to resolve the lawsuit. Juniper is seeking significant monetary damages and other legal action against Palo Alto. Also, Juniper is in the middle of a CEO search. I doubt the company would make a large acquisition during a CEO a transition that has yet to be determined.
It's fair to say ALU is the riskiest one mentioned. Other names in the sector will likely be less volatile and risky.
I think Cisco may do something in security, although it may be public or private as there are innovative start-ups in the market Cisco typically prefers to acquire leading start-ups that are disruptive with a fairly mature product. So anything is possible here.
Stan. I am not a technician, but the way the stock traded the day after earnings on high volume and valuation support in the $13-$15 level does suggest it is likely washed out for now unless there a significant miss due to OPNET in the next quarter or two. So I tend to agree with your view. The only thing I would say is that given the acquisition of OPNET, I think Riverbed becomes a tougher acquisition candidate. Companies that might have acquired the company for the WAN Optimization business (e.g. F5, Citrix etc...) might balk now that they own OPNET. Same is true for companies that might have interest in OPNET (e.g. JDSU, etc...) as they may balk given they probably do not want a WAN Optimization business.
Thanks for the comment. Jerry is a talented CEO and has broad experience. The new board members are positive additions as well. Lets see if this is a short term issue or a larger issue around underestimating the integration effort of OPNET.
Thanks for your comment. As a one time competitor to Riverbed your insights are valuable and appreciated. I agree with you that Performance Management has some good growth drivers. In addition, SDN will enable new forms of performance analytics that perhaps Riverbed could exploit in the future. I also think Riverbed has some talented executives and Board of Directors that can steer the company back to growth. The point I was trying to make is that networking companies oftentimes are enticed by the growth aspect of fairly large acquisitions in new markets and often underestimate the due diligence and integration aspects of the deal. Examples include Brocade/Foundry, Juniper/Netscreen and Blue Coat/Packeteer etc... Time will tell how Riverbed executes on the OPNET acquisition. Lets see if they do a better job than most in this industry.
Fair points in that the stock is down over 35% since the OPNET deal was announced and several networking/security companies had a weak 1Q given macro issues. The next two quarters will be telling as RVBD will integrate sales plans and the heavy lifting of the integration of OPNET takes place. Currently, the company is at a $0.85-$1.00 run rate in earnings, which puts the stock in the $13-$15 range in my view until they can show sustainable growth and integration of OPNET.
Thanks for the comment. OPNET did better than expected in 1Q, although the guidance for next quarter seemed a bit lower than expected and it will be the quarter RVBD integrates sales. I think RVBD made the big acquisition of OPNET given they saw the slowing and maturing of the WAN Optimization business. They now have to integrate OPNET and show it can live up to the synergies they expected when they did the deal. They still might be able to pull it off, but my point is this will be a significant integration and this is not the core competency of the management team. Good news is they brought in some new board members from larger companies to help in the process.
I appreciate your comment. Could you elaborate a bit on your comment? Would welcome your view. My main point is Riverbed has made a large acquisition and has since missed a couple of quarters. Now it may be coincidental to macro IT spending issues, but I felt that the company is now stretched a bit given the new size and markets. I also think sometimes entrepreneurs that build companies are not experienced in executing large acquisitions to take high growth companies that have matured to the next level.
Thanks
It is certainly true switches and routers do not go away with SDN. I also think there will continue to be differentiation in these products in the future even when SDN emerges. However, it does appear that some of the Web2.0 companies have unique traffic requirements that allow them to use their own switches based on merchant silicon. Its early for SDN, so final outcome hard to call for sure at this time.
Thanks for the clarification and I should have mentioned the updated amount and terms. My point was the fact the company had to offer its patents as collateral for this deal, may have cost Ben V. his job as CEO
Thanks for the reply. There is some hope at ALU, but I think there biggest problem is they have tried to stay a full service equipment provider. I agree with you on routing and vectoring (access) technology, but the company just does not have scale in mobile. Light Radio is a nice concept, but at this point it is not helping revenues and profitability in the Mobility unit. The other thing I like about ALU is Jean Monty has joined the board. He turned around Nortel in the 1990s and left it in great shape until his successors messed it up. He was a great addition and could help ALU in my view.
Thanks for the reply. ALU can either be the next "Nortel" or "Motorola". If they keep going at the current plan, it is likely they may be sinking ship and be the next "Nortel" If they try some bold divestment of businesses and focus on few areas, maybe there is a chance the "ship does not sink"
You ask good questions. I do not have accurate data on how many employees in the Mobile Unit and Enterprise Unit are union employees. I think a sale of the Mobile Unit would require the buyer to also deal with this issue, which is an obstacle to a sale. In Mobile, ALU just does not have global scale to be profitable being fourth in the market.