The all-wireless workplace is wreaking havoc among cable and wiring device manufacturers, accustomed as they were to years of fast growth due to Ethernet overbuilding. The salad days are over and the stark new world is one with fewer wired ports and more wireless users. Like other businesses, cable and wiring device companies need to grow to survive. To do so they have to find new, expanding market opportunities. Were you such a manufacturer, how would you cope? Hold that thought.
The economic turmoil roiling the economy is also impacting the networking market, putting immense pressure on smaller niche players. Within the wireless world a Darwinian cleansing is in full swing. Aruba and Cisco, the two leading enterprise wireless LAN vendors, have pulled away from the pack, leaving the remaining vendors to fight for business, recognition, funding.
Where only a year ago an IPO looked like a viable exit path for many of those vendors, that door is now firmly closed. Bridge loans, where available, are anathema to existing investors who are rightfully fearful about losing alpha position to new creditors should the venture go belly up. Even venture capital partners are taking a very hard line with portfolio companies, refusing to invest new funds and telling companies to spend every dollar/yen/euro/yuan as if it were their last – because it might well be. Were you a niche wireless LAN vendor, how would you cope?
The confluence of interests between the cable and wiring device vendors – in search of a growing market but at risk of misstepping in a new field in which they are not expert – and weak wireless LAN vendors panicked for an exit strategy - makes for strange bedfellows. And poor strategy. The reason the weak wireless LAN vendors are in such poor shape is because their products / architecture / messaging / support was/were not up to snuff; something a new owner can't change that overnight or without significant investments. Instead of sliding down the drain and out of the gene pool, struggling wireless LAN vendors are being scooped up in nets trolled by cable and wiring device manufacturers that believe they’ve caught a bargain. Sadly for them, and their shareholders, the results prove otherwise.
On 16 July 2008, upon completing the acquisition of Trapeze Networks, John Stroup, Belden’s President and Chief Executive Officer, was quoted in a press release as saying:
“Belden’s strategy is to provide our customers with the world’s most reliable signal transmission solutions for mission-critical applications, encompassing wireless systems as well as optical fiber, copper cable, and related connectivity products. Mobility is a requirement among our enterprise customers, and today’s wireless technology provides the performance and security that make wireless an indispensable component of the enterprise network. The acquisition of Trapeze Networks uniquely positions Belden to address the enterprise market with a full complement of signal transmission solutions. We are eager to introduce Trapeze Networks’ technology to Belden’s enterprise customers.”
Fast forward to yesterday when Belden announced its 4th quarter and full year 2008 results, including the Trapeze wireless division they acquired on a trolling expedition. Customers just aren't buying into the wired+wireless synergy story, this despite Belden being a first class cable manufacturer. Belden's operating loss in 2008 was $342.2 million, and the net loss was $361.0 million, $8.08 per diluted share. The earnings report stated that Trapeze revenues for the 12 month period were only $13.7M, resulting in an operating loss of $54M.
The fact is that not all wireless LANs are created equal – the 30 January 2009 posting in this blog highlights that point. Acquiring companies and customers alike that compare competing solutions side-by-side, mano-a-mano, and check performance across a wide range of clients and with a range of interference sources will see the differences. Marketing literature is not a sound basis for comparison. Or acquisition.
As for wired+wireless double-play strategies, consider this. Most enterprises use Cisco wired networks at the core, but the largest enterprises use Aruba wireless LANs as an overlay. Why do they do this when Cisco offers a wired+wireless solution? Gartner analysts Mark Fabbi and Alan Mac Neela summarized it best in Exploiting the Enterprise Networking Commoditization Curve when they noted that networks are not homogeneous systems but rather building blocks. They recommend that users select the best building blocks for each element of the network – core, edge switching, wireless LAN, etc. – and resist pressure to buy a single-vendor solution. Why? Because no one single vendor excels across the range of building blocks. Aruba excels at building wireless LANs. Niche wireless LAN vendors don't, a sad lesson that Belden is learning the hard way.
So set aside the false promise of wired+wireless synergies and look instead for best-in-class building blocks. That way you'll catch the genuine article.