SiliconBeat

Last last year, in my annual prediction column, I included one far-out, wacky suggestion: Cisco Systems would buy Dell.

Though admittedly a long shot, my rationale was that Hewlett-Packard was moving into networking with its purchase of 3Com. That made it a direct competitor with Cisco. Both companies want to fight for big corporate customers, but HP has an advantage by simply being bigger. Though PCs are a dicey business, the best way for Cisco to level the playing field would be to buy Dell.

I’ve put that out of mind until the last few weeks when a series of events got me thinking that it could make sense. And now there’s a twist: Could Oracle be interested in Dell? I posted a short thought about this on Facebook yesterday after Oracle officially announced it was hiring Mark Hurd, the ousted CEO of HP. They now have a co-president with extensive experience running the largest PC maker in the world. Imagine what Hurd could do with Dell? And what delicious revenge it might be for him to take on HP in the PC business?

A year ago, I would have never thought about Oracle buying a PC company. But now that they’ve done the unthinkable and plunged headlong into hardware by buying Sun Microsystems, how much crazier would it be to see them buy Dell? In fact, yesterday, Quentin Hardy of Forbes also mused about the possibility of Oracle buying Dell:

“The last big Oracle buy was Sun Microsystems. At the time, people liked the software Oracle got from that deal, but wondered what to do with the hardware. Sure, it could sell high-performing Sun servers loaded with Oracle database and application software, but at what acquisition cost?

That deal makes more sense if Oracle adds to its hardware offerings with a comprehensive desktop and laptop offering. Dell has that, along with servers, storage, and a little network switching. More important, it has extensive corporate relations in selling to different parts of a corporate base than Oracle now touches.”

The company in the middle now is Dell. Following their loss in the 3PAR bidding, they are a wounded duck. They have a market cap of $24.4 billion, and annual revenue that fell last year to $52.9 billion.

By comparison:

• Cisco has a market cap of $117.4 billion and annual revenue of $36.1 billion.
• HP has  a market cap of $82.9 billion and annual revenue of $114.b5 billion in 2009.
• Oracle has a market cap of $120.4 billion and annual revenue of $26.8 billion.
• Microsoft has a market cap of $206.23 billion and annual revenue of $62.5 billion.
• IBM has a market cap of $158.5 billion and annual revenue of $95.8 billion.

I mention Microsoft only because of something Oracle founder Larry Ellison said a few years ago when he predicted the IT industry would consolidate. Ellison said there would be a handful of giants left at the end of the day, including Microsoft, HP, IBM, and a couple others. (I don’t remember the exact list, but I think there were five).

In any case, he wanted to make sure Oracle was one of the few giants left. And so he said Oracle needed to acquire large numbers of companies to boost its revenues and size to keep pace with companies like Microsoft. Being bigger would allow the company to spread costs such as R&D over a wider base, Ellison said.

That rationale remains as true today as it was then. Dell, first and foremost, needs to get much larger to remain competitive with HP. The fastest way to get there is acquisitions. But we’ve seen that Dell doesn’t have the resources to go toe-to-toe with HP. In fact, HP could simply starve Dell by outbidding them time and time again.

No, the best option for Dell at this point is to be acquired. But by which company?

HP probably couldn’t buy Dell without getting hung up on anti-trust issues. But if Cisco bought Dell, you would have a company with close to $90 billion in annual revenue, a number that significantly closes the gap with HP. And if Oracle bought Dell, you’d have a company with more than $60 billion in annual revenue, still only about half HP’s revenue, but closer.

Over at Silicon Valley Watcher, Tom Foremski wondered whether Oracle might buy HP:

“Yes, it is a big pill to swallow however, it would enable Larry Ellison, CEO and co-founder of Oracle to perform an end run in the massive global IT market and also leave a substantial legacy on his upcoming retirement.

If there is one thing we know about Larry Ellison is that he is motivated by big goals. Is this one too large for him?”

While I see Tom’s logic, I still find this scenario to be unlikely. Oracle has a lot of money, but it would probably need to make a hostile, all-cash bid for HP, which would be way too expensive. It would have to borrow massive amounts and take on big debt. Oracle’s stock wouldn’t be that attractive to HP shareholders, given that until the last couple months, Oracle and HP stock prices have tracked pretty close together:

However this plays out, expect lots of drama over the next few months. There’s no love lost between these companies. And with the economy stagnant, big players have clearly decided that acquisitions are the way to grow.

The news (or at least the leaks and rumors) surrounding Palm seem to be only getting worse. Today, reports have emerged that Asian wireless companies HTC and Huawei declined to bid on Palm. The speculation now is that Chinese PC maker Lenovo is the front runner.

At the same time, Palm CEO Jon Rubinstein insisted the company could remain independent. In an interview with the Financial Times, Rubinstein suggested Palm might license its WebOS, the mobile operating system that runs the Palm Pre and Pixi, to other companies. But how much would you pay to license an OS from a company that seems caught in a death spiral?

No, it seems a sale of some sort is more likely. When you start blaming your partners for your troubles, as Rubinstein did in the FT piece, things aren’t likely to improve any time soon. Palm has Goldman Sachs and Frank Quattrone’s Qatalyst Partners on the case to find a buyer. And I have to believe there has to be a price at which Palm would be valuable to someone.

After all, Palm has a solid mobile operating system, although it’s struggled to attract developers to match the applications ecosystems of Apple’s iPhone and Google’s Android platform. But I’m guessing in part that developers are reluctant to jump in with two feet and create things for a company with such an uncertain future. A sale to someone with deep pockets could turn that around.

Here are my thoughts about who is left in the running, or should be:

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One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

Here’s why I think this is a big deal.

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Last fall, the Financial Accounting Standards Board (FASB) approved changes to the way many high-tech companies will recognize revenue. We saw the first of what will be many earnings reports affected by this when Apple reported on Monday results of its fiscal first-quarter earnings.

Other companies likely to be affected include such heavy weights as Cisco Systems and Tivo.

Often such changes take months for companies to adopt. And in this case, companies have until 2011 to adopt them. But this one is different because it will give companies a significant bump in short-term revenue. So many are racing ahead. As such, investors need to watch carefully to see if a company adopted the new standard, and if they reconciled old numbers to take the new standard into account.

On Monday, Apple disclosed the accounting change up front for this year, and also adopted it retrospectively for the past two years and reconciled past earnings in an amended annual filing. Companies are not required to do adopt it for past years. So good for Apple. Many companies may only make the change going forward, making comparisons harder.

This change is not trivial. To see the impact on revenue, look at the revised numbers from years past. The change bumped revenue for Q1 2009 (last year) from $10.2 billion (0ld) to $11.9 billion (new). As far as I can tell, the company didn’t disclose what the current quarter revenue would have been under the old standard.

Still, that didn’t stop the company, in a press release, from crowing about the big numbers:

“If you annualize our quarterly revenue, it’s surprising that Apple is now a $50+ billion company,” said Steve Jobs, Apple’s CEO. “The new products we are planning to release this year are very strong, starting this week with a major new product that we’re really excited about.”

That’s true. But under the old standard, Apple’s annualized revenue wouldn’t be quite as high. It would probably be four or five billion less, though still over $50 billion.

So what’s going on? For the details, read on. Read the rest of this entry »

Back on Sept. 17, Palm released its long-awaited earnings. They were eagerly anticipated because these would be the first full quarter that included the performance of the Palm Pre. Ever since, analysts and investors have been trying to figure out whether the numbers were good news, bad news, or something else entirely.

This head scratching was reflected in the news coverage of the earnings. The Mercury News had a first-day headline that said “Pre Sales Give Palm A Boost.” But within a couple of days, the consensus seemed to turn against Palm, with analysts and others questioning just how good the numbers were, and worrying about the company’s outlook. Four days later, the Motley Fool wrote: “Palm Discovers Its Limits.”

The confusion was largely due to a change in accounting methods. More on that in a second. But once we take a closer look at the numbers, it seems clear to me that Palm seems to be setting itself up to be sold. And that would likely need to happen sometime in the next six to 12 months.

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(l to r: Charney, Terman, Cerf)

Last week I spent an evening at the Computer History Museum in Mountain View attending the IEEE’s celebration of the 40th anniversary of ARPANET. The event featured a panel with three prominent names:

• Dr. Lew Terman, 2008 IEEE President and CEO
• Vint Cerf, Vice President and Chief Internet Evangelist, Google
• Howard Charney, Senior Vice President, Office of the President, Cisco

While delving into some of ARPANET’s history, the panel explored the future of the Internet. And I left with a few stray ideas worth noting:

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Cisco Systems, which hopes to grab a share of the sports industry business by providing network technology to stadiums, has signed up to be a sponsor of the 2012 Games.
London Olympic officials announced on today that the San Jose networking giant will replace bankrupt Canadian technology sponsor Nortel Networks. Nortel, as a “tier one” sponsor, had committed $65 million in cash and services. Cisco, on the other hand, will be a “tier two” provider, which means the company will kick in about $20 million less, according to organizers, the Associated Press reported.
“We continue on a path to deliver the most connected Games possible. We part with Nortel on good terms,” London 2012 CEO Paul Deighton said in a statement. “Nortel acknowledges our fixed deadlines and our desire to have a single supplier for our entire network infrastructure have been impacted by Nortel’s decision to move towards standalone businesses. This is in no way a reflection of their capabilities — this is all about meeting our fixed deadlines.“
Organizers hope to raise as much as $1.13 billion in sponsorships. So far, it has commitments of nearly $810 million.

Cisco Systems said it would be booking a one-time tax charge of about $130 million to $150 million in its current fiscal 2009 fourth quarter after a ruling Wednesday by the U.S. Court of Appeals for the Ninth Circuit in a case between Xilinx and the Internal Revenue Service related to stock-based compensation expense.

Although not named in the case decided, th Read the rest of this entry »

On Friday, ground will be broken on the Southwest Hall Lawn of the University of the Pacific’s Stockton campus to kick-off construction of the John T. Chambers Technology Center (artist rendering of the project pictured), a $12 million dollar facility that will serve as the new home to the university’s school of engineering and computer science.

The 24,000-square-foot center, which is to include Read the rest of this entry »

The server wars have been fully engaged.
Cisco System executives this morning talked up their move against erstwhile partners – Hewlett-Packard and IBM – with their new Unified Computing System. They doled out details about their virtualization and data center vision, memory capacity and processing power.
But the power of the purse – promises of slashing corporate costs over the long term – was at the top of the talking points. The bad economy was their friend.
Several executives spoke in a talk-show setting during a Web cast aimed at customers.
Cisco says its solution for a 320-blade server configuration is 30 percent cheaper than a similar legacy system — $2.5 million compared with $3.6 million.
Cisco, which has been called an Internet “plumber,” not an architect of data center systems by HP, is giving companies “the ability to embrace innovation while driving down costs,” said Soni Jiandani, Cisco’s vice president of marketing for its server access virtualization group.