Lippis Report 147: What I Learned At Interop

nicklippis.jpgThis past Interop in Las Vegas was one of the best I have attended, since even before the economy took a noise dive in 2008. The tone and level of excitement of the industry’s growth potential was refreshingly up beat from the hundreds of IT and vendor executives I talked with. While the size of Interop is a small fraction of what it was in the late 1990s, (70k attendees with over 600 exhibitors to ~ 15K attendees with ~ 200 exhibitors) it still provides a pulse of the networking industry. In fact, Interop has come full circle, back to being a networking event even though it has added other topics. You have to give Dan Lynch credit for creating such a long lasting venue for our industry. Congratulations to Cisco, Arista Networks, HP/3Com, Mallonx for winning best of show in their respective categories and for Arista for winning Best of Interop. In this Lippis Report Research Note I provide the key industry themes that were evident at Interop this year.

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The following are my observations of Interop 2010 in LV.

Network Infrastructure Takes Center Stage: Even though Interop provided attendees with thirteen educational content areas including cloud computing, IT security, Enterprise 2.0, etc., it’s the changes taking place in the network infrastructure business that was front and center, loud and clear. The following was the topic of conversations throughout Interop:

• Cisco’s introduction of its Best of Show winning Aironet 3500 Series Access Point with CleanAir technology,
• Arista Networks’ introduction of and winning Best of Show and Best of Interop for its Arista 7500 10Gb modular Ethernet cloud computing switch,
• HP’s closing of its acquisition of 3Com and winning Best of Show for its TippingPoint Virtual Controller,
• HP’s planned acquisition of Palm,
• Avaya’s reassertion in the network business with the introduction of its Ethernet Routing Switch 8800, WLAN 8100 and Advanced Gateway 2330,
• Voltaire’s new Vantage™ 8500, 10 GbE Layer 2 core Ethernet switch,
• Force10’s open network automation demonstrations and 40GbE module

With the above announcements and accomplishments, two thoughts come to mind. First is that Interop is finally back to core networking issues, and second, the above announcements provide a window into the huge changes that are taking place in our industry.

New Industry Structure Emerges: The networking industry has been consolidating for some time now and will only continue. Corporations have some $2T in cash and equivalents on their books, which will be put to work acquiring companies and investing in growth markets. The big growth market in our industry is the fundamental change IT is starting to progress through. HP’s actions last week provided a preview of what’s to come.

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HP stole the headlines last week with their shorter then expected closing of their 3Com acquisition, in addition to their intent to purchase Palm. HP realizes that the IT industry is structurally changing away from fixed desktop computing accessing corporate applications hosted in data centers, to mobile computing accessing applications hosted in corporate data centers and cloud computing facilities. The big winner in this transition is networking, as without it, cloud and mobile computing will not happen. Palm gives HP a smartphone platform to participate in the mobile computing market while 3Com expands its corporate networking portfolio significantly.

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HP vs Cisco: The buzz at Interop around HP was how it will compete with Cisco. The HP executives and booth personnel were the most energized I have ever seen. HP views their competitive advantage along the lines of innovation, open network architecture and economics. Thinking it through however, HP’s focus will be more on supply chain efficiencies to drive down their cost of producing networking gear close to server economics while leveraging their massive and productive channel to gain market share.

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The supply chain efficiency is a great idea, but will take at least a year if not more to deliver. The thinking here is that a 40 Watt power supply is the same, independent of its final designation, as long as it powers a server, router, etc. So can HP redesign their product lines for common components where they gain huge cost efficiency thanks to volume purchasing? Perhaps, but this will take time. Their channel strength should deliver results in the short term. If HP executives are correct and that the market wants a strong number two networking provider, then its channel should produce fairly quickly. If it doesn’t, then this premise is questionable. HP networking is about $5B now; if it doesn’t grow faster then the industry by a significant amount next year, then something is wrong.

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Remember HP is competing with a $40B powerhouse that is Cisco Systems, which has a massive and productive channel too that are energized to sell, not only networking gear, but also unified communications, Cisco’s new server platform UCS and video equipment. As for innovation, HP is a great operational company therefore expect them to take cost out of their products. Nevertheless, Cisco is the innovation king, thanks to its systemic incorporation of innovation in product development, plus its ability to integrate acquisitions quickly and materially. Cisco does not only innovate in its products, but around them, offering architected solutions. Examples of this are everywhere, including its borderless network architecture, EnergyWise, UCS, the new 3000 series stackables, Power over Ethernet Plus, its’ ISR G2, the Nexus line of data center switches, its’ approach to integrated network security, etc.

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Here’s an example of the power of innovation. A client and Lippis Report subscriber has funded a new $20M data center. During their due diligence, they visited Dell, HP, IBM and Cisco. This CIO will go with Cisco’s UCS. The reason is that during the customer visit, Cisco first described the major direction and trends in data center virtualization and cloud computing in such a way that my client said “Cisco looked into the future and designed UCS to exploit these changes while all the other vendors were selling their old blade systems”. Now this is significant, as this CIO only purchased equipment from market share leaders, that is, he would buy from HP for servers, Dell for desktop systems, Cisco for networking, Avaya for communications etc. Cisco’s innovation in UCS changed his long-standing principal of buying only from market share leaders and will buy UCS for this new data center. So the basis of competition between Cisco and HP will fall into three categories; innovation, supply chain management and channel productivity.

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A Mobile and Cloud Computing IT Model Is Disrupting The Status Quo

The Interop announcements above were aligned with this new world order of IT. For example, Arista Networks delivers a massively powerful 10GE switch for cloud spec data centers and high performance data center environments. Clearly investment in cloud infrastructure is a growth market which motivated Voltaire to enter the Ethernet market and leverage its Infiniband experience to deliver converged I/O for both Infiniband and Fiber Channel Over Ethernet (FCoE). As computing is in a rapid technology innovation stage thanks to server virtualization, networking has lagged in its ability to automate network changes brought on by VM moves. This has motivated Force10, F5 and Infoblox to demonstrate innovative approaches to automating network changes so that network administrators do not have to be involved in the process of VM moves and/or the provisioning of new IT services as demand is increased and/or decreased.

It’s clear that HP networking products has gained awareness and will receive consideration. As HP opens the consideration door, Avaya wishes to enter too with its refreshed and new data networking products. Avaya is now lead by experienced IP networking executives that understand voice and data. The Nortel channel also understands voice and data. Ever since Avaya closed its acquisition of Nortel, those channel partners that put selling Nortel gear on hold, have started to come back. They are comfortable now as stability, R&D funding and a strong financially viable company has emerged.

The networking industry is an upside down pyramid with Cisco at the top followed by a few others in the billion-dollar range. Then there are a number of $100M sized firms followed by a few start-ups. The successful firms will be the ones that embrace the new world order of IT that is being brought on as IT leaders de-emphasizes desktop computing and invest in mobile plus cloud computing.

4 Debates over Lippis Report 147: What I Learned At Interop

  1. Dan Lynch said:

    Gee, Nick, I think someone once said “The network IS the computer”. And the industry keeps coming back to that. With the resurrection of Timesharing (whoops, Cloud Computing) we see networking infrastructure as the central issue: moving data securely to where users want it. A simple desire, but a very tough one to fulfill as we see security as the stumbling block to high speed data movement. Oh, the technology arrives to physically move bits faster and faster, but not always with the intended end points.

  2. Nick Lippis said:

    Hi Dan

    Thanks for the post. The industry has a lot of work to do to make cloud computing happen in an interoperable way. I love the analogy to time sharing BTW. Thanks for creating such a long lasting venue for the industry. I think it’s time to create a new one to organize the industry around cloud.

  3. Nick Lippis said:

    The IT industry rushes toward a new world order at at Interop http://bit.ly/9TEGiU

  4. Nick Lippis said:

    The IT industry rushes toward a new world order at at Interop http://bit.ly/9TEGiU