Tag Archive for IBM

Whats Up With Cisco?

Whats Up With Cisco?What is up with Cisco? Their fiscal results for the recently closed 2017 Q3 showed revenue of $11.9 billion, a 1% decline in revenue, compared to the same quarter last year. This is the 6th consecutive down quarter. The networking goliath also issued downward guidance for 2017 Q4. They estimated a revenue declines of 4-6% year-over year.

Cisco logoOn the earnings call, Cisco CEO Chuck Robbins blamed several factors for the lower guidance. He cited:

  • “a pretty significant stall right now” in the U.S. federal public sector
  • Service provider revenues were down in Mexico.
  • United Kingdom business is being dampened by currency issues.
  • Middle East, there is “pressure… relative to oil prices.”

Then there are the layoffs. Cisco buried the announcement in a footnote in the company’s SEC 8-K report that 1,100 more layoffs are coming, on top of the 5,500 announced Layoffsin August 2016.

In May 2017, we extended the restructuring plan to include an additional 1,100 employees with $150 million of estimated additional pretax charges.

According to SDXCentral, the Cisco CEO stressed several times on the earnings call, that the company is transitioning to more software and subscription-based business. He declared,

I am pleased with the progress we are making on the multi-year transformation of our business.

These weak fiscal results and the move to a subscription-based business have led to speculation about what the Cisco business will look like in the future. TechTarget speculates that Cisco may go so far as to separate the Network Operating System (NOS) from the hardware. They contend that such a move would be a dramatic departure from Cisco’s traditional business model of bundling high-margin hardware with its NOS. The author believes that market trends will likely force the vendor to release an open NOS.

Cisco Catalyst 3750-E.TechTarget cites reports from the The Information that a hardware-independent NOS called Lindt is coming. Reportedly Lindt will run on a white box powered by merchant silicon. According to the article, a number of market trends are driving the move to a hardware-independent NOS.

The first market trend forcing Cisco to release a hardware-independent NOS is the company’s declining dominance of the Ethernet switch market. Since 2011, the company’s share has dropped from about 75% to less than 60% last year, according to the financial research site Trefis. The decline is important to Cisco’s bottom line because switches accounted for 40% of Cisco’s product sales in 2016, 30% of net revenues and 20% of the company’s $162 billion valuation, Trefis reported.

Infrastructure as a ServiceCisco’s weakening performance in switching is tied to the second market trend forcing Cisco to release a hardware-independent NOS. It’s customers are turning to public cloud providers, such as Amazon (AMZN) Web Services, Microsoft (MSFT) Azure and IBM (IBM) SoftLayer, for their IT infrastructure. The more enterprises subscribe to infrastructure as a service, the less networking gear they need in their data centers.

The shift to cloud providers is found in the latest numbers from Synergy Research Group. Revenue from public cloud infrastructure services is growing at almost 50% a year. In the fourth quarter of last year, revenues topped $7 billion.

Cloud providersThe third market trend forcing Cisco to release a hardware-independent NOS is the trend where enterprises that were Cisco’s largest customers are joining cloud providers in building open networking hardware and software to replace inflexible proprietary systems that lock them to a vendor. Those companies include large financial institutions, like Bank of America, Goldman Sachs and Fidelity Investments, and communication service providers, such as AT&T (T), Deutsche Telekom and Verizon (VZ).

The technology shift is driving an enormous amount of spending on IT infrastructure. Worldwide spending on public and private cloud environments will increase 15% this year from 2016 to $42 billion, according to IDC. Meanwhile, spending in Cisco’s core market of traditional infrastructure for noncloud data centers will fall by 5%.

Arista NetworksWhile Cisco is ignoring the trend away from proprietary hardware, the article says Cisco’s rivals are embracing it. Juniper Networks (JNPR) and Arista Networks (ANET) have released a version of their NOS for white boxes favored by cloud providers and large enterprises. Both companies reported year-to-year revenue growth in switching last year. Even Cisco’s patent lawsuit against upstart Arista was set-back by the courts.

Rohit Mehra, an analyst at IDC hypothesized that Cisco’s resistance to change is likely due to fear that giving customers other hardware options would accelerate declining sales in switching. “There would be potentially some risk of cannibalization in the enterprise space,” he added.

Cisco insists its customers are not interested in buying networking software that’s separate from the underlying switch. The Cisco spokesperson told TechTarget:

Cisco insists its customers are not interested

The vast majority of our customers see tremendous value in the power and efficiency of Cisco’s integrated network platforms, and the tight integration of hardware and software will continue to be the basis of the networking solutions we offer our customers

TechTarget adds that Cisco doesn’t say the article is wrong. Instead, the company falls back on a corporate cliché for refusing to discuss a media report. “We don’t comment on rumor or speculation,” a Cisco spokesperson said.

The networking market is evolving away from the hardware that Cisco depends on for much of its valuation. Cisco will resist changing its market approach for as long as possible. But in the end, the company will have to become a part of the trend with an open NOS capable of running on whatever hardware the customer chooses.

Mergers and acquisitionsRather than change its model for selling networking gear, Cisco has spent billions of dollars on acquisitions over the last few years to create software and subscription-based businesses in security and analytics. But Cisco’s software push has yet to pay off with 5 conservative down quarters.

Finally, Cisco just recently patched a flaw in IOS software that affected more than 300 models of its switches. Despite issuing an advisory on March 17, Cisco did not release the patch for this vulnerability until May 8, 2017. The Cisco vulnerability was part of the Vault 7 WikiLeaks dump of alleged CIA hacking tools.

Alleged CIA hacking toolsThe vulnerability, rated a critical 9.8 out of 10 by the Common Vulnerability Scoring System, is in the Cluster Management Protocol, or CMP. could allow a remote, unauthenticated attacker to reload devices or execute code with elevated privileges. This vulnerability can be exploited during Telnet session negotiation over either IPv4 or IPv6.

Related articles

Ralph Bach has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

Linux Turns 25

Linux Turns 25Linus Torvalds released the first Linux operating system kernel on Oct. 5, 1991. On Oct. 6, 1991, Torvalds began arguing with volunteer developers who would go on to make Linux an open-source powerhouse and eventually a household name. Today the Linux community is upwards of 86 million users strong.

Linux Turns 25As part of celebrations to mark Linux’s 25th birthday the Linux Foundation has published its annual Linux Kernel Development Report (PDF reg required). According to the Register, the report concludes that Linux is in great shape, “There may be no other examples of such a large, common resource being supported by such a large group of independent actors in such a collaborative way.”

The independent actors have a lot to collaborate on. The report notes that the first versions of the Linux kernel comprised about 10,000 lines of code. Now it’s nearing 22 million and growing at a rate of 4,600 lines a day.

Wall StreetWhile Linux may have started out as a hobby OS, that changed in the early 2000’s. At the turn of the century, Wall Street banks demanded Linux support for their enterprise application servers says Tech News World.

“That was a moment that broke down resistance to Linux in the big IT vendors like BEA, IBM and Oracle (ORCL). That hole in the dam was the start of a flood,” said Cloud Foundry CEO Sam Ramji. “Today Linux is the home of operating system innovation.”

LinuxAporeto Virtualization Expert Stefano Stabellini, who has been a Linux user and open source advocate since the 1990s explained the transition. “… back when I started with Linux in the ’90s … [companies] did not understand it. They thought that open source was unsustainable, and Linux was niche and hobbyist.” He says that now everything has changed. Every company has an open source strategy now. “Microsoft (MSFT) was the biggest foe and now is a strong ally. Linux is the most widely adopted operating system of all times.

Dice points out that the most active contributors to the growth of Linux have included (in descending order) Intel (INTC), Red Hat, Linaro, Samsung (005930), SUSE, IBM (IBM), and various corporate consultants. Google (GOOG), AMD (AMD), and Texas Instruments (TXN) also ranked in the top 15.

rb-

So my first pass at Linux was Red Hat Linux 5.0. when Novell bought into Linux. Yeap I was a Novell CNE 5 way back in the day.

The last couple of projects I have been involved with have used Linux and not Windows, CMS, IVR, PAFW’s and storage.

Ralph Bach has been in IT for fifteen years and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

How Much Cash Do Tech Firms Stash Overseas

How Much Cash Do Tech Firms Stash OverseasA new report (PDF) from charity Oxfam says American companies stash a significant part of their cash overseas to take advantage of more favorable tax laws in other countries. They claim that tech companies take particular advantage of this practice, also known as “tax havens.” Oxfam which is crusading to get the U.S. government to crack down on this practice says tax havens costs the United States more than $100 billion a year in lost tax revenue.

Off shore tax havenThe Business Insider brought us this Statista chart, based on the Oxfam report. Tech firms are hoarding nearly $500 Billion overseas. The chart shows how much money major US tech companies have stashed overseas, and how many subsidiaries they have set up in countries that Oxfam defines as tax havens, “which can be characterized by secrecy, low- or zero-tax rates and the almost complete lack of disclosure of any relevant business information.”

Money held offshore by tech firms

While tech is the most prominent sector on Oxfam’s list, the article claims tech is not alone — large companies in other sectors like General Electric ($119 billion), Pfizer ($74 billion), Merck ($60 billion), and Exxon Mobile ($51 billion) also have lots of money stashed overseas.

TAX HAVENThere’s nothing illegal about this practice. But Oxfam believes it contributes to income inequality, and is urging U.S. lawmakers to make it harder for companies to use international tax laws to their advantage in this way.

Overseas tax havens have been the focus of recent revelations about tax scams by wealthy individuals, based on the leak of the “Panama Papers,” documents from a single Panama-based law firm, Mossack Fonseca, involving 214,000 offshore shell companies. The firm’s clients included 29 billionaires and 140 top politicians worldwide, among them a dozen heads of government.

rb-

List list looks a lot like the one for the top lobbying spender firms. I wrote about the tech titans lobbying efforts just a couple of weeks ago here.

RankFirmCash $ held off shoreLobbying rankLobbying $ spending
1Apple181.1B104.5M
2Microsoft108.3B78.5M
3IBM61.4B114.6M
4Cisco52.7B142.7M
5Alphabet/Google47.4B116.6M
6HP42.9B
7Oracle38.0B134.5M

Ralph Bach has been in IT for a while and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

 

Hey Tech Spender

Hey Tech Spender-Update 04-26-2016- As if to prove my point, Democratic Presidential candidate Bernie Sanders just named Verizon one of America’s Top Ten Tax AvoidersVZ has a corporate tax rate of -2% for the last 6 years according to the post.

Just in time for the U.S. tax deadline, the Business Insider has a report which details the amount of money the tech titans spent on bribing lobbying the politicians in DC. Thanks to one of the small bits of transparency in the gooberment, the U.S. House of Representatives requires companies to file  government lobbying records. You can search their disclosures here at the Office of the Clerk of the House. (rb- Use this while you can, its likely to be shutdown at any time by politicians with things to hide.)

LobbyingThe most aggressive tech spender on lobbying in 2015 was Amazon (AMZN) according to research by Consumer Watchdog. The company spent $9.07 million (a company record) on lobbying in 2015, an incredible 91.4% surge from its 2014 spend dedicated to influencing federal regulations last year according to BI. Amazon lobbied Washington about:

LobbistsDespite Amazon’s aggressive lobbying, Google (GOOG) topped the list of tech companies for the second year in a row. Google spent $16.6 million in 2015 vs $16.83 million in 2014. The biggest spending tech firms spent over $122M lobbying Washington politicians. Here’s how the tech titans stacked up their money.

  1. Google: $16.6 million in 2015 vs $16.83M in 2014.
  2. Comcast (CMCSA): $15.63 million vs $16.8M in 2014
  3. AT&T (T): $14.86 million, up from $14.56M in 2014
  4. Verizon (VZ): $11.43 million, up 1.9% from $11.22M in 2014.
  5. Facebook (FB): $9.85 million from $9.34M in 2014, a company record.
  6. Amazon (AMZB): $9.07 million up 91.4% from 2014 .
  7. Microsoft (MSFT): $8.49 million vs $8.33M in 2014.
  8. Time Warner Cable (TWC): $6.8 million in 2015, down 13.2% from 2014.
  9. T-Mobile (TMUS) $6.14 million, up 1.7% from 2014.
  10. Apple (AAPL): $4.48 million in 2015 compared to $4.11M in 2014.
  11. IBM (IBM): $4.63 million, a 6.5% decrease from $4.9M in 2014.
  12. Intel (INTC): $4.55 million in 2015, up 19.7% from $3.80M in 2014.
  13. Oracle (ORCL): $4.46 million in 2015, down 23.5% from $5.83M in 2014.
  14. Cisco (CSCO): $2.69 million compared to $2.35M in 2014.
  15. Yahoo (YHOO): $2.84 million in 2015 vs $2.94M in 2014.

LobbyingBI reminds us that these may seem like big numbers, they’re a tiny part of these companies’ overall expenditures — in the third quarter of 2015, Google spent $3.47 billion on traffic acquisition costs (such as the price of its deal to remain the default search on Apple’s iPhone), and another $6.93 billion on other operating expenses.

rb-

I haven been writing about the tech’s industry lobbying efforts since 2010. Many of the names have remained the same, ATT, Verizon, Google, IBM, Yahoo and Intel have been bribing lobbying the gooberment for a very long time.

However just 5 years ago, Apple and Facebook were barely in the lobbying racket.  In 2015, they both ranked in the top in lobbying spending.

 

Ralph Bach has been in IT for fifteen years and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

 

Tech Titans Dodge Taxes

Tech Titans Dodge TaxesA recent report by the Center for Tax Justice on the use of tax havens in 2014, identified the 500 largest American companies hold more than $2.1 trillion in accumulated profits overseas to avoid U.S. taxes. The report found that one quarter of that amount (549.7 billion) is hoarded abroad by ten tech companies alone, as the chart from Statista illustrates.

Greedy AppleAmong the tech titans hoarding cash, Apple (AAPL) has parked the largest amount of cash outside the United States. The article notes that the iPhone maker has stashed a whopping $181 billion overseas. That is almost twice as much as second-ranked Microsoft (MSFT) ($108.3b) and roughly three times the total of IBM (IBM), which ranks third in the tech-list with foreign cash holdings of $61.4 billion. Cisco (CSCO), ranked fourth, stands out with as many as 59 tax haven subsidiaries.

The top twenty tech firms in the order of the amount of money hoarded overseas in 2014 to cheat the taxman in 2014:

  1. Apple
  2. Microsoft
  3. IBM
  4. Cisco
  5. Google (GOOG) $47,400 millions
  6. HP (HPQ) $42,900 millions
  7. Oracle (ORCL) $38,000 millions
  8. Qualcomm (QCOM) $25,700 millions
  9. Intel (INTC) $23,300 millions
  10. EMC (EMC) $11,800 millions
  11. Western Digital (WDC) $9,400 millions
  12. Xerox (XRX) $8,500 millions
  13. Ebay  (EBAY) $7,900 millions
  14. Cognizant Technology (CTSH) $6,121 millions
  15. Agilent Technologies (A) $5,700 millions
  16. Micron Technology (MU) $4,910 millions
  17. Broadcom (BRCM) $4,850 millions
  18. Symantec (SYMC) $3,600 millions
  19. Computer Sciences (CSC) $2,552
  20. Amazon (AMZN) $2,500 millions

Statista notes that the study found the number of tax haven subsidiaries is not directly connected to the amount of taxes Taxes paid by corporationsdodged by a company. On the contrary, some companies now report fewer subsidiaries in tax haven countries than they did in 2008 while reporting significant increases in the amount of cash they hold abroad.

The study offers two possible explanations for this occurrence: First of all some companies may choose not to report all of their subsidiaries because the SEC’s penalties for failing to do so are pretty lax and secondly companies could simply consolidate more income in fewer offshore subsidiaries, often in structures dubbed “Double Irish”.

This chart shows how much money U.S. tech companies hold in offshore subsidiaries to avoid U.S. taxes.
Infographic: U.S. Tech Companies Hoard Billions in Offshore Tax Havens | Statista
You will find more statistics at Statista

The CJT claims U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to the tax code. Rather than paying their fair share, many multinational corporations like Apple, Cisco, Google, and Intel use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox. Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year.

Congress is brokenCongress, by failing to take action to end to this tax avoidance, forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.

The CTJ recommends the following steps to stop the abuse of offshore tax havens by the tech titans and restore fairness to the US tax system and alleviate pressure on America’s budget deficit and improve the functioning of markets.

End incentives to shift profits and jobs offshore. The most comprehensive solution to ending tax haven abuse would be to stop permitting U.S. multinational corporations to indefinitely defer paying U.S. taxes on profits they attribute to their foreign subsidiaries. Ending “deferral” could raise nearly $900 billion over ten years, according to the report.

Loop holesReject the Creation of New Loopholes. Reject a “territorial” tax system. The JCT estimates that switching to a territorial tax system could add almost $300 billion to the deficit over ten years.

Close the most egregious offshore loopholes. Policy makers can take some basic common-sense steps to curtail some of the most obvious and brazen ways that some companies abuse offshore tax havens.  Close the inversion loophole by treating an entity that results from a U.S.-foreign merger as an American corporation if the majority (as opposed to 80 percent) of voting stock is held by shareholders of the former American corporation. These companies should be treated as U.S. companies if they are managed and controlled in the U.S. and have significant business activities in the U.S.

Patent TrollStop companies from shifting intellectual property (e.g. patents, trademarks, licenses) to shell companies in tax haven countries and then paying inflated fees to use them. This common practice allows companies to legally book profits that were earned in the U.S. to the tax haven subsidiary owning the patent. Limited reforms proposed by President Obama could save taxpayers $21.3 billion over ten years.

Stop companies from deducting interest expenses paid to their own offshore affiliates, which put off paying taxes on that income. This reform would save $51.4 billion over ten years, according to the JCT.

Increase transparency. Require full and honest reporting to expose tax haven abuses. Multinational corporations should report their profits on a country-by-country basis so they can’t mislead each nation about the share of their income that was taxed in the other countries.

Michigan based companies dodging the taxman in 2014 have hoarded almost $55 Billion according to the CTJ. With just a 1% tax on the withheld income we could probably get the roads fixed. On the list ranked by millions held off-shore by Michigan based firms according to the CTJ are:

  1. Dow Chemical $18,037 millions
  2. MichiganGeneral Motors $7,100 millions
  3. Stryker $5,878 millions
  4. Whirlpool $4,900 millions
  5. Ford $4,300 millions
  6. Autoliv $4,000 millions
  7. TRW Automotive $3,400 millions
  8. BorgWarner $2,700 millions
  9. Kellogg $2,200 millions
  10. Lear $1,200 millions
  11. Penske $711 millions
  12. Visteon $245 millions
  13. Kelley Services $111 millions
  14. Conway $32 millions
  15. Masco $12 millions

Ralph Bach has been in IT for fifteen years and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.