]]> ]]>Cisco’s growing again, and CEO John Chambers has called the beginning of a tech recovery. But don't assume this is the proverbial rising tide that's going to lift all boats.
First the good news: Cisco (CSCO) turned in a bang-up quarter. For the three months that ended on October 29, the seller of networking gear managed $9 billion in sales and 35 cents per share in profit, both of which outpaced even the most optimistic analyst expectations. Even better, Chambers said the current quarter will also shape up nicely – a promise that sent Cisco stock up a healthy 3% after hours.
But even in Cisco’s celebration, there were hints of caution. Though he signaled good results for this quarter, Chambers wasn’t willing to set sales and earnings targets for the rest of fiscal 2010, saying it’s too soon to assume that this recovery has legs. He asked analysts to maintain their ho-hum expectations for Cisco's financial performance, despite his apparent optimism – basically requesting that they keep the bar low, even though he feels more confident that he can clear it.
That’s the most important takeaway for anyone who might be tempted to read a full-blown tech recovery into Cisco’s good numbers. Yes, Cisco is doing well. For the entire tech sector to have a strong 2010 – and for Cisco to sustain its winning streak – we’ll need to see a convincing turnaround in fundamentals like U.S. unemployment and consumer spending. The jury’s still out on those, and will be until well after the receipts are in from the holiday shopping season.
Even Cisco's blowout quarterly results revealed signs that things are still rough out there. Not every customer group is bouncing back; governments awash with stimulus cash and enterprises that had postponed purchases proved to be big spenders during the quarter, but plenty of other key groups still looked weak.
For example, the phone and cable companies who buy Cisco routers spent nearly 10% less than a year ago. Retailers and other businesses also spent less. In Asia, non-government accounts remained soft. And orders in developing economies were down nearly 30% from last year.
In an interview after the earnings call, Cisco Chief Financial Officer Frank Calderoni told Fortune he feels very confident in Cisco’s ability to meet its financial targets, and said he was particularly encouraged by the rebound in enterprise spending; since it was among the first categories to suffer in the downturn, he's hopeful that its return signals a full recovery. But he's not letting himself get too worked up about it just yet. “Many outside of Cisco are seeing some challenges, talking about a mixed environment,” he said. “Because everybody’s not seeing improvement, we just want to focus on the current quarter where we have visibility.”
Translation: it’s still foggy, so Cisco is treading cautiously. Investors would be wise to do the same.
]]>New software transforms your phone into a GPS device – and a pretty good one, too
Navigon's MobileNavigator app for the iPhone has features some standalone units lack. Photo: Navigon.
As my wife will tell you, I have a comically bad sense of direction. I once got lost driving home from the mall.
This makes me a prime candidate for a GPS device. I’ve used a few for brief stints, mostly on long road trips, but never got into the habit of using one for everyday errands. There are a couple of reasons for that. For one, it’s a hassle to dig the thing out of the glove compartment. For another, entering an address on most of these things is a crazy-making experience.
My perspective changed recently, though, when I bought a new GPS unit for $70. Well, that’s not exactly what happened. I actually downloaded a GPS-based iPhone (AAPL) app for $70.
Yes, 70. Seven-zero. I’ll be the first to admit that it sounds crazy to pay that much for software that runs on a phone. The overwhelming majority of phone apps out there cost between 99 cents and $10.
Why would I pay so much for an iTunes download? Well, this directionally challenged consumer needed another GPS device. We had one in the newer car that my wife usually drives, where it did me absolutely no good. I had been compensating by using Google Maps (GOOG) on my phone to find my way to meetings in a pinch, but wasn’t comfortable – or safe – to keep glancing over to prepare for the next turn.
So in late August I took the plunge and went shopping for navigation software on the iTunes app store. At the time, there were two main options: TomTom’s app was $100; Navigon’s was on sale for $70. Both had gotten decent reviews, but I was drawn to Navigon’s for its ability to speak street names; rather than say, “Ahead, turn right,” it can say, “Ahead, turn right on Embarcadero.” It also has the bells and whistles we've come to expect from GPS units: points of interest, gas stations, restaurants. I decided to go with Navigon.
I was prepared to have serious buyer’s remorse. For $69.99 (plus another $30 for a windshield mount) this had to be good.
And it is. I’ve loved Navigon’s MobileNavigator software since I bought it. It’s actually better than the few standalone GPS units I’ve used. I can pull addresses from my phone’s contact list to set a destination and avoid the hassle of tapping through annoying menus. It shows me highway signs, indicates the best lanes to move into, and warns when I’m pushing too far past the speed limit. Best of all, my phone is always in my pocket – so I have navigation help even when I’m not in my car. On a hectic day trip to Southern California recently, I used MobileNavigator in a rental car to find my way from LAX to an out-of-the-way spot in Santa Monica. (Next time, though, I'll have to remember to bring the iPhone charger; by the time I got home, the iPhone's battery was all but dead.)
From the look of things, it won’t be long before a lot more phones start doubling as GPS devices. Smartphone customers seem to see value in the software. A few examples: MobileNavigator (now $90) is the #3 top grossing app on iTunes. AT&T (T) has begun selling a navigation service that works on dozens of phones in its lineup. And Motorola’s (MOT) Droid, a smartphone that’s arriving next week on Verizon’s (VZ) network, comes with free turn-by-turn directions via the latest version of Google’s Android operating system.
That’s not so great for companies like TomTom and Garmin (GRMN), who make a lot of money selling standalone GPS devices – their stock prices took a hit this week on the announcement of Google’s free software. But for wayward travelers like me, GPS navigation in phones is a killer app.
]]>
]]>Online jukebox Lala hooks up with Facebook and Google. Together, can they mount a serious challenge to Apple?
Lala's Nguyen aims to challenge Apple's iTunes. Photo: Lala
Apple rules music retail for now: iTunes passed Wal-Mart (WMT) last year to become the top-grossing music store in the world. But that doesn’t mean things will stay that way.
The latest challenge to iTunes comes from Bill Nguyen, the serial entrepreneur who founded Lala.com.
Palo Alto-based Lala is an online jukebox with 8 million songs; you can buy the rights to stream a radio-quality version of any song for 10 cents or download a higher-quality version for 99 cents. He says he’s averaging about $67 per year from paying customers.
By itself, Lala poses no threat to the iTunes juggernaut. But now it’s teaming up with Google (GOOG) and Facebook, arguably the two hottest properties online. Late today Google is expected to announce a partnership with Lala that should drive massive amounts of new traffic to the service.
And just last week, Lala announced that it will team up with Facebook and its 300 million users to push a new form of music distribution: song gifting. Soon, Facebook’s legions of social networkers will be able to do more than chat, update and poke — they’ll be able to buy each other songs, right within Facebook’s payment system.
We caught up with Nguyen soon after the Facebook announcement to ask about his vision for digital music, and why he dares to take on iTunes and Apple (AAPL).
Fortune: What’s the elevator pitch on Lala. What business are you in?
Nguyen: We’re a music service. But I think what makes us different from some other music services is we focus so much on helping you discover new music by using social behavior. There used to be such great radio and MTV that would help us find music, and a lot of those sources don’t really exist in the same way anymore.
So how long did it take this deal with Facebook to come together?
We’ve been having conversations with a lot of different partners about how to make Lala a part of what they do. There’s a lot of music out there — there are 8 million tracks. A lot of companies say, “there are 8 million tracks, come to our site and knock yourself out.” The reality is none of us have the time or the patience or even the knowledge to find what we want to listen to.
So we’ve been working for the last couple of years to try to add context. We launched a service with CMJ, we launched something with Pitchfork, we launched something with the guys at Billboard. And the reason why we did that is, those guys are curators. They were telling people what was good. In summer of this year, the conversations really picked up around, how can you connect with some much bigger websites? We’ve been talking to Facebook for almost a year about how to take advantage of all the amazing social features they have on their site. It’s been an ongoing process.
You’re going to be selling 10-cent song streams and 99-cent downloads. Right now you deliver about 5 million songs a month. What do you expect these new partnerships to do for your business?
It takes music and makes it a new product, in the same way that ringtones did. You buy ringtones to tell everyone else what you like, not for your own personal listening. So I describe it as jewelry, in a way. Gifting is like that. It’s a really cool way of expressing how you think.
We think what’s exciting about gifting is, people don’t have to even give us money. They can use the payment system already built into Facebook, which people are already using for everything from games to personal gifts already. It’s kind of like a greeting card. When you get it, it’s inside of your feed and you can listen to it.
So the social aspect is what makes this different from iTunes.
It is. We live in this age that I think is the best time for music, ever. It’s so much easier to create music because there are digital tools like pro audio. There are really no limitations for distributing your music like there used to be. You really don’t need a label or a studio to get your music out there. But iTunes doesn’t help you find out what to listen to. It just gives you the top lists. [Editor’s note: The latest versions of iTunes actually do include “genius” song recommendations based on your interests.]
Why are virtual gifts such a big deal?
Gifts are driven by events. I can give someone a song because I want to say something to them, personally. We think it’s so much more targeted than just browse and collect your music. It’s a very personal thing. And what’s nice about it is, it’s already happening. It’s not a new business model. Virtual gifts on the web are actually a really big business. It’s everything from what Facebook’s doing to Zynga with games. We think giving music is so much more tangible. People might not know what a virtual carnation is, but they definitely know what a song is.
How will the economics work for Lala? How much will you make from each sale?
I got in trouble for talking about it. I’m not allowed to talk about it anymore. But we’re happy with the relationship. One of the unique things about the Facebook relationship is they’re handling the billing and the credit card transactions. It’s a great deal. We’re really happy about it.
I’ve seen you quoted as saying it’s similar to the split that Apple does on apps in iTunes, so you get 70%, Facebook gets 30%.
I’m really not allowed to talk about it anymore.
You’ve also been working on some mobile stuff. What can you tell me about the iPhone app?
That’s a really good way to segue into some of the things we’ve been doing. On a mobile, it’s really not easy to get a song over the air. There are no free streaming services on the mobile platform [for streaming specific songs]. When you buy a song on Lala, whether it’s Facebook or anything else that we do, that music will be instantly available on a mobile device. That will be beginning with the iPhone.
It’s streaming. You’re hardly going to know the difference between that and an MP3 file. It’s flawless. There’s smart cacheing so it’s available offline for you if you’re in a bus or lose the connection. It’s pretty amazing.
]]>
(AAPL) (HPQ) (MSFT) (DELL)
]]>Remember how cloud computing was supposed to kill client/server? Turns out it’s more of a wedding than a funeral.
First, some background: The hype surrounding cloud computing in recent years has been nothing short of wild. If you believed the popular wisdom, the traditional computing model was toast. Businesses were going to stop loading specialized programs onto workers’ PCs and buying expensive software and servers for data centers.
Instead, we’d have the cloud. Service providers like Salesforce.com (CRM) and Amazon (AMZN) would own the hardware and software, and let companies plug in over the Internet and use it on demand.
Things aren’t working out that way. A survey commissioned by Avanade, a joint venture between Microsoft (MSFT) and Accenture (ACN), shows that enterprises are taking a more cautious approach to cloud computing. While 62% of the 500-plus executives surveyed said they plan to increase their use of cloud-based software over the next year, they had no intention of simply shipping their proprietary data out to some third-party service provider n the process. Some 80% of U.S. enterprises will instead embrace what’s being called a “hybrid” cloud model – they’ll let third parties handle basic stuff in external clouds, but keep vital information on company-owned servers inside the firewall.
Meanwhile, tech titans are also taking aim at the “everything in the cloud” crowd. According to a CNET report, Hewlett-Packard CEO Mark Hurd this week said that security is a major issue that doesn’t get enough attention in the cloud debate; if HP CIO Randy Mott told him he wanted to put the company’s financial records in the cloud, “I’d say, ‘Go back to work, we’re not doing that.’” Oracle (ORCL) CEO Larry Ellison has also taken shots at cloud boosters.
It might be tempting to dismiss all this as self-serving resistance from the old-school techs – but even the biggest cloud cheerleaders are now embracing the hybrid concept. On a stage near the Oracle Openworld conference last week, Salesforce CEO Mark Benioff embraced Dell (DELL) CEO Michael Dell to announce a partnership to sell customers on the hybrid cloud idea – an initiative called “The Best of Both Worlds.”
For Benioff, who until now has marketed Salesforce with a “Software is Dead” slogan, that’s quite a shift. But since enterprises aren’t about to ditch their client/server IT investments and put all their secrets on the Internet, it’s also a wise one.
]]>(AAPL) (MSFT)
]]>Is it time to dust off the party hats?
From the cheery headlines accompanying the latest round of tech earnings, you’d think so. Google (GOOG) CEO Eric Schmidt declared last week that, “the worst of the recession is behind us.” IBM (IBM) actually boosted earnings targets for the year. Taken along with the stimulus potential of Windows 7, Microsoft’s (MSFT) critically acclaimed PC operating system that launches this week, some say happy times are here again.
Not so fast. As we head into week two of this round of tech earnings, it’s important to keep in mind what these numbers show, and what they don’t.
What they show is this: we seem to have dodged the worst-case scenario. In those dark post-Lehman days at the beginning of the year it seemed the global economy was headed off a cliff, and nary a big tech CEO dared predict a recovery in 2009; as stock prices plunged and customers bolted, the sunniest forecast most would offer was carnage this year, followed perhaps by less carnage in 2010.
Now it’s a different story. Since the March market rebound and some calming statements from Fed Chairman Ben Bernanke, the suits have changed their tune. Intel not only reported a blowout quarter, but also pointed to a healthy holiday season; even embattled Advanced Micro Devices (AMD) said it expects a modest rise in sales. No one knows exactly what Apple (AAPL) will say when it reports earnings this week, but it probably involves an obscene volume of iPhones. In a turnabout from a year ago, all across Silicon Valley executives are whispering about an upbeat Q4.
So what’s not to like? Well, what these numbers don’t show is sustained revenue growth – the stuff that healthy earnings, stock prices, and economies are built on. IBM’s quarterly sales were down from a year ago, as were Intel’s. Other companies saw modest increases, but it’s too soon to tell whether the credit belongs more to a mounting recovery or to easier comparisons with last year – remember, things got bad right at the end of the third quarter, making these reports look impressive by comparison. Even the holiday season numbers won’t shed much light on whether this is a strong tech recovery or a weak one; last year’s Q4 numbers were so horrible that it won’t take much to blow them away.
No, to get a true read on the strength of this recovery, we’ll have to wait until April, when the big techs start reporting Q1 numbers. By then the euphoria of averted disaster will have worn off, and we’ll see if consumers and businesses have anything left to spend after the holiday season.
If sales slow down dramatically, we could be in for something like the uninspiring “L-shaped recovery” that Oracle (ORCL) CEO Larry Ellison predicted last month. If they continue chugging along despite high unemployment and foreclosures, then those party hats might be in order.
]]>
Vista was too bloated for many corporate PCs to handle when it arrived three years ago. Its successor, Windows 7, is a better fit. Photo: Microsoft.
Rewind three years. One of the harbingers of doom for Windows Vista, Microsoft’s much-maligned operating system, was a survey that showed half of corporate PCs were too old or anemic to upgrade from XP to Vista. In other words, to get the new software, companies would have to spend a fortune on new computers.
Most never made the upgrade: 92% of PCs in the United States and Canada are still running XP, according to Softchoice, an IT consulting firm.
So it’s a good omen that Softchoice, the same firm that issued that fateful Vista study, is singing a very different tune about Windows 7. This time, its survey of 450,000 corporate PCs in the U.S. and Canada shows that 88% can handle the upgrade.
That matters because with today’s tight IT budgets, some companies will look to install Windows 7 on PCs they already own rather than buy new ones.
“Corporations, more now than ever, are trying to stretch a buck,” says Dean Williams, services development manager for Softchoice. And this time, they can. “Hardware requirements are not nearly the issue that they were three years ago when Vista was launched – it’s like night and day, really.”
Stats like this are fueling optimism in the tech world, since a popular new Microsoft (MSFT) OS can jump-start sales of other gear and services. Softchoice is among the hopeful: it offers software that helps companies plan their OS upgrades, and this survey seems to indicate that there’s demand for its services.
PC industry titans expect healthy sales of new Windows 7 PCs, too. Intel (INTC) CEO Paul Otellini said this week that the new OS has inspired some big companies to look at buying PCs again. Todd Bradley, executive vice president of Hewlett-Packard’s (HPQ) PC group, told Fortune last week that he expects Windows 7 to help retail sales this holiday season.
But for the tech industry, here’s the best Windows 7 stat of all: the average corporate PC is now four or five years old, since companies have delayed purchases in a down economy. That’s ancient by IT standards – old enough that it’s more expensive to maintain them that it would be to recycle them and buy something new.
]]>