Buys and Bye, Byes

Oracle Corp. announced it has acquired Ksplice Inc., a provider of zero downtime software, while Dell Inc. said it is buying Ethernet networking supplier Force 10 Networks Inc. and Intel Corp. stated its intent to acquire networking ASIC maker Fulcrum Microsystems Inc. On the down side, Research in Motion Ltd. (RIM) and Cisco Systems Inc. reported they were laying off staff.

Focal Points:

• Oracle has acquired Ksplice, a three-year-old software startup that has developed technology for hot patching of security updates for the Linux kernel without requiring a reboot. The terms of the deal were not disclosed. Oracle executives claim the company will incorporate the zero downtime update technology into Oracle Linux and make it available for free to Oracle Linux Premier Support customers. The company does not plan to support the use of Ksplice technology with Red Hat Inc.'s Red Hat Enterprise Linux or SUSE Enterprise Linux. Ksplice has a current customer base of 700 companies and has performed more than two million updates on over 100,000 servers to date. Oracle states it has more than 7,000 customers using Oracle's Enterprise Linux. Meanwhile Dell is buying Ethernet networking supplier Force 10 Networks for an undisclosed sum. Force 10 is a privately-held supplier with almost $200 million in annual revenues, operates in approximately 60 countries, and gets 80 percent of its revenues in North America. The company has more than 1,300 customers. Force 10 has an Open Cloud Networking technology, including a 40 Gbps Top-of-rack Ethernet switch and a 40 Gbps line card for its ExaScale core switch.    
• Intel announced it has signed a definitive agreement to acquire Fulcrum Microsystems, a privately-held fabless semiconductor company that designs Ethernet switch silicon for data center network providers. The terms of the agreement were not made public; however, a total of $102 million in venture capital poured into Fulcrum since its inception in 1999. The company has a broad product line, including the FocalPoint family of chips for Ethernet switches and routers (Layers 2 through 4 in the network stack), which now support 10 Gbps and 40 Gbps Ethernet speeds. Additionally, Intel delivered strong second quarter results. For the first time Intel surpassed $13.0 billion in revenues, a gain of 21 percent ($2.3 billion) from the previous year's quarter. Net income on a GAAP basis was only $3.0 billion, a mere two percent increase over the year-ago quarter. Each of Intel's three major business groups saw solid revenue growth. The PC Client Group was up 11 percent year-on-year; the Data Center Group expanded by 15 percent; and the catch-all Other Intel Architecture Group soared 84 percent. On the down side, the Atom processor and chipset revenue shrank 15 percent to $352 million. 
• In an attempt eliminate $1 billion in annual operating costs, Cisco announced a restructuring plan that calls for 6,500 employees to be cut from the company's 72,000-strong global workforce. That works out to about 9 percent of the company's full-time employees. In addition, the company is selling off a set-top box manufacturing plant in Mexico with 5,000 employees to Chinese manufacturing Foxconn Technology Group for an undisclosed amount. Similarly, RIM is cutting its workforce by approximately 10.5 percent. The company plans on releasing 2,000 employees from its current 19,000-strong workforce.

Experton Group believes Oracle's purchase of Ksplice should be seen as a major commitment of the vendor to its Linux operating system, which it hopes to drive its customers to as part of its optimized vertical stack strategy. Customers should expect to see additional moves aimed at differentiating Oracle Linux from competitors. Unanswered is the question of how committed the vendor is to its Sun Solaris platform. Meanwhile, Dell continues to fill in the blanks, as it attempts to become a full service provider. However, competing against the likes of Hewlett-Packard Co., IBM Corp. and Oracle takes a lot more than just technology. Dell will have to make some significant advances to its enterprise sales and support capabilities to keep up with the competition. The good news for customers is that the vendor will work to maintain its low-cost advantage in an attempt to use that to leverage its base. Intel's gains demonstrate the strength of the IT sector even though the overall worldwide economy remains relatively weak. Corporate capital can be expected to continue to be used to improve productivity, which will contain workforce expansion. Users can expect to see further Cisco restructuring and potential sell-offs over the next 12 to 24 months. RIM is under greater pressure than Cisco and is losing its customer base, especially in North America. The company misjudged the shift in the smartphone market and will be greatly challenged to protect its base.

IT executives should take advantage of the opportunities that are occurring due to market segment shifts, and work with key providers to obtain better pricing, service level, and terms and conditions commitments.