ACG Research

ACG Research
We focus on the Why before the What

Friday, October 19, 2012

Google-Motorola: Can This Marriage Be Saved?

Stock plunge, premature earnings release, Motorola's losses, what more could go wrong for Google?

To say that yesterday was not a good day for Google would be a gross understatement. RR Donnelly, its financial printer, released Google’s Q3 results in the middle of the day (East Standard Time), rather than after the markets closed. In addition to the embarrassing snafu, Google’s profits were well below expectations. Since Wall St. hates surprises, the double whammy caused the company’s stock price to decline 8% on 6 times the normal volume. 

Much of the media attention is focused on the weakness in advertising revenue. Total activity is up, but the cost per click is declining, in part driven by the move to mobile, which commands a lower price and potential competition from Facebook. Only a few analysts and reporters focused on the more than half a billion dollar GAAP loss from Motorola this quarter. 

I have been consistently (since its announcement) saying that the Google-Motorola wedding was not a match made in heaven (read the original blog here). My analysis focused on how Google’s poor track record with hardware, its potential conflict with its customers and how the cultures did not fit. (Yes, I may be wrong in the long term if Google can successfully expand its Kansas City gigabit fiber experiment nationwide and have a captive market for its CPE, but that is a big if). 

The company’s results to date have been validating my position. The Home segment was down over 3% Y-Y, which will likely reinforce its market share losses. Interestingly, my comments about the Home segment were more pronounced for the mobile segment, which was down 27% Y-Y this quarter. Since I do not focus on mobile handsets directly, I did not write much about the mobile segment. In hindsight, this is not a surprising outcome given how competitive the handset space is and how aggressive Samsung has been in its battle with Apple. 

Year-to-Year Change


Google is facing serious issues in its main business and the distractions of a half a billion loss from Motorola, weakness in the handset business, and the slow decline in the home segment are not helping it financially or strategically. Maybe it is time for a divorce? 

David Dines

The Opportunity in Evolving IP Services

The next-gen of IP services is now emerging and offering a new set of features such as personalization and better management of flow-based traffic that will enable service providers to emphasize service monetization, employ better network scaling, and more efficiently utilize resources in their business models. In his most recent FierceTelecom article, Michael Kennedy discusses IP monetization, usage management, and optimization services and why these new feature sets are important SPs. Click here to read.

Michael Kennedy

Thursday, October 11, 2012

Juniper’s Response to New Service Provider Economics

Today’s networks are all about optimizing performance and realizing maximum revenue. Service providers need products and services that decrease complexity and integrate services on one platform.  Juniper answers SPs’ request with its Network Optimization Services portfolio.

I’ve had the opportunity to meet with both providers and vendors during the past few months, and unanimously, they have told me that networks and monetizing them is their number one priority. This is no surprise, especially with core network traffic growing in excess of 50 percent per year and new services such as content-rich digital media, cloud and mobile placing new requirements on the network. Services and products, consequently, must scale rapidly and meet demanding network performance objectives with the lowest possible total cost of ownership and maximum ARPU.

Vendors have been responding to meet market requirements and during the last few months have announced a number of new products and services that meet SPs’ performance requirements. The most recent comes from Juniper. With its Network Optimization Services offering, Juniper has consolidated services on the MX Series 3D Universal Edge Router and one operating system, Junos®.  This consolidation supports service providers’ business goals by significantly lowering the cost to implement and operate the network and by improving return on network and service investments (to download Dr. Michael Kennedy's TCO, click 

I had the opportunity to put Mike Marcellin, SVP, Juniper, in the HotSeat and talk about the MX 2020, the most recent addition to the MX family, and Juniper’s Network Optimization Services.  The following gives you a quick view of the financial benefits of Juniper’s Network Optimization Services:

According to Mike, the MX “not only produces positive economics, it also offers investment protection.”  To find out how and why, listen to Ray Mota and Mike Marcellin discuss how service providers can use their networks to drive revenue. Click here for the HotSeat.

Wednesday, October 10, 2012

Dropping the Bomb on Huawei and ZTE

The “Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE” report concludes that these two companies should be banned from doing business with the US government and recommends that private companies shun them as well.

The U.S. House of Representatives’ Permanent Select Committee on Intelligence just released its scathing report on Huawei and ZTE, two of the world’s largest and fastest growing telecom equipment vendor. The report emphatically concludes that both of these companies are a threat to U.S. national security interests and because of the vulnerabilities in the telecommunications supply chain pose a significant risk.  

During the investigation, Huawei and ZTE, instead of cooperating fully, obfuscated, provided unbelievable, unsubstantiated and contradictory answers. Their evasiveness led the committee to conclude that both companies are hiding “the influence of the foreign government in company activities and decision making process.” The committee also stated it has every reason to believe that Huawei and ZTE will continue to ignore US intellectual property (copying patented products with impunity) and business laws/practices.  To be fair, ZTE is a public company and is more transparent. 

Accordingly, the committee recommended excluding Huawei’s and ZTE’s equipment in government agencies and departments and urged that the private sector follow suit. They also called for the US government to investigate the unfair trade practices and intellectual property violations and proposed that Congress pass laws to address these risks.

A day late?

Although the U.S. House of Representatives’ Permanent Select Committee on Intelligence report banning Huawei and ZTE from the US market is reverberating throughout the telecom world, will it change the telecom landscape significantly in the long term or will it be just a temporary detour? 

In the short term, this report spotlights and temporarily deters China’s attempt to enter into the US. Carriers and enterprises, already cautious, will not want to jeopardize their government contracts. Outside of the US, it will somewhat slow China’s penetration in western markets in the short to medium term (in emerging markets, it will likely not have much effect). 

The long-term outlook is less clear and depends on how much China is willing to abide by western market standards and to what extent governments are willing to enforce market rules. To date, many customers and governments have benefited from the ethically challenged business practices and are willing to look the other way. At some point, there may be a backlash. Another key factor is their actual support and security track record. A major security incident related to these companies’ equipment that could have been avoided would bolster the US’ position. 

The bottom line? 

China is protesting that this report is politically motivated — that stands to reason given national security is at stake and laws are being broken — but given China’s lack of cooperation and transparency, the committee really had no other choice. It should come as no surprise that the committee had ample, credible evidence backing up the allegations. (Many of the allegations of misconduct, including bribery, espionage, and beaconing, have been verified to me privately by people with first-hand knowledge.) When China stonewalled the committee’s investigation, it is easy to see why they came to these conclusions and followed up with targeted and specific recommendations. Sorry, China, but lip service does not cut it.

The long-term solution for China is to actually disentangle the private sector from the government and military; show transparency about corporate ownership and decision making; and abide by the same rules of commercial engagement as its western counter parts.

David Dines

Tuesday, October 2, 2012

Why Service Providers Should Consider IPoDWDM for 100G and Beyond

Many service providers want to integrate packet and optical using IP over DWDM (IPoDWDM) technology. ACG has investigated how a specific vendor, Cisco Systems, is delivering solutions to help with these challenges. The Cisco IPoDWDM (IP over DWDM) 100 GE core network solution combined with Cisco’s coherent detection technology provides the transmission capacity required in service providers’ core networks while also minimizing total cost of ownership.

ACG Research analyzed the TCO of the Cisco IPoDWDM 100 GE solution. The IPoDWDM 100 GE optics are shown to have 15% and 29% lower TCO for short-reach and long-reach configurations, respectively, when compared to traditional grey 100 GE optics. The benefits of Cisco’s coherent detection technology eliminate the costly and extensive Raman amplification or regeneration required of other vendors’ solutions. On a traditional 20 wavelength system, for example, Raman amplification would add a 20% higher cost, and regeneration would add an 81% higher cost than Cisco’s solution. Click here to download the whitepaper.

Michael Kennedy

Cisco’s Vision for the Elastic Core

High traffic growth, service diversity, cloud services, escalation of service threats and low core utilization are creating challenges for service providers’ core networks. Although Cisco leads in market share in core routing, it has upped the stakes and embarked on a new vision for an elastic core.

Cisco’s Open Networking Environment framework, which features an elastic core that includes massive multi-chassis scale, continuous (hitless) operation, cloud intelligent networking and carrier-grade network services, addresses operators’ requirement of network value. Cisco’s vision brings the value of the network to applications thus enabling operators to monetize and accelerate service creation.

ACG Research investigated three Cisco software-based initiatives for the core: Anti-DDoS managed service using the CRS CGSE services module, Demand Engineering for optimization of routes and cloud services workload location, and nLight providing integration and optimization of the optical and packet layers network-wide.  Each of these initiatives produced significant total cost of ownership and return on investments.  To find out how much, click here to download the whitepaper

Michael Kennedy

MX is the Future: Juniper’s Response to Service Providers' Economics

Today’s networks are all about optimizing performance and realizing maximum revenue. Service providers need products and services that decrease complexity and integrate services on one platform.  Juniper answers SPs’ request with its Network Optimization Services portfolio.

With its Network Optimization Services offering, Juniper has consolidated services on the MX Series 3D Universal Edge Router and one operating system, Junos®. This consolidation supports service providers’ business goals by significantly lowering the cost to implement and operate the network and by improving return on network and service investments.

To see how much return on investment is achieved, ACG Research compared network upgrades for three hypothetical mobile operators. The comparisons include a traditional appliance-based network, a hybrid approach using both router-based services and appliance-based services, and a fully converged infrastructure based on Juniper Network Optimization Services.

Contrasted with traditional appliance-based service delivery methods, Network Optimization Services on the MX Series 3D Universal Edge Router helps network operators reduce the number of single purpose network elements in their networks, which reduces complexity, cost, and risk. Just how much does it do that? We found that  the Network Optimization Services demonstrated up to 42% lower total cost of ownership, 75% lower environmental emissions, and produced 1.5 times higher return on investment than the other service delivery methods. Click here to download the whitepaper. 

Michael Kennedy