The Bloor Perspective: Cisco cheer, Microsoft licensing and IBM wrestling with Oracle

This week Robin Bloor and his team of analysts explain the significance of Cisco's latest numbers, how to approach new Microsoft licences, and the great database battle...

Networking equipment manufacturer Cisco has recently announced its third quarter results, beating the expectations of Wall Street and bringing new hope to high-tech investors. Those same investors have seen many companies produce less than promising results in recent weeks. At the height of the internet boom Cisco was, quite literally, the internet driving force as customers bought its routers and other products, barely giving the company's competitors a second glance. Last year things came crashing down as the company posted its first loss in 11 years of public trading. It paid the price for having a massive inventory for demand that never appeared. Twelve months on and things are different. The company has recorded net income of $729m, in contrast with a net loss of $2.79bn in that troubled third quarter last year. The company has worked hard for this - cutting research and development, sales and marketing and general administrative costs. It took a $1.17bn restructuring charge and a $2.2bn write-down to take care of the inventory problems. Staff paid the price too as headcount fell. Cisco has to be admired for this turnaround, especially considering the backdrop of difficult economic financial conditions. To put this into perspective the company's revenues have increased while its top 10 US-based rivals have seen their combined revenue fall from $11.2bn to just $7bn. CEO Chambers remains cautious. Perhaps he is reflecting what might have been if the company had not become so complacent in the first place. That said, it's a good indicator that the IT market is slowly starting to recover. *Microsoft licensing options* This time last year Microsoft announced it would be making significant changes to its licence offerings. The plan was to make life simpler and to offer users more choice by bringing in a new 'software assurance' programme to replace existing one-shot upgrade offerings with a small number of new support and service contracts. However, customers considering committing to the new software assurance offers have discovered Microsoft has placed a non-trivial hurdle in their path - only software from the company's current licence range will be eligible for support under the new system. At this time only Office 2000, Windows 2000 and later versions are deemed current. Microsoft recognised many organisations are not operating software at these current versions and put in place a tool to allow those that want to upgrade to the latest versions - Upgrade Advantage. It is clear every organisation needs to sit down now and work out what licensing options make sense for them, especially those considering upgrading any or all of their existing Microsoft programs. These decisions must take into account a company's plans for the future use of Microsoft products, expected refresh cycles and the deployment of existing platforms. Is it better to own software perpetually (through the use of Enterprise, Select or Open License Agreements) or to lease (through Enterprise or Open Subscription Agreements) for a fixed period? Microsoft's 'get current' period ceases at the end of July - Upgrade Advantage available up to 31 July. After that date, for any organisations that have not enrolled on one of the company's software assurance programmes, the only path available to use the latest Microsoft software versions is buying full licences as and when required. Upgrading will not be an option. For some organisations it may make economic sense to use Upgrade Advantage while it is available. For others it will not. The point is that it is worthwhile taking the time to work out options and calculating the costs. Time is tight but cash is even tighter. *IBM's database coup* IBM has finally managed to oust Oracle as the number one database vendor according to Gartner's latest assessment of the market. IBM claimed 34.6 per cent of market revenue in 2001 compared with Oracle's disappointing 32 per cent. This is a coup for IBM, albeit hardly an unexpected one. The acquisition of Informix was virtually guaranteed to take IBM over and above Oracle. Drawing any conclusions about better technology or sales teams is, frankly, rather pointless. The rest of the market was pretty much as expected. Microsoft squeezed a few percentage points out of the market as a whole, taking its share up from 14 to 16.3 per cent. And Sybase took 2.6 per cent. Breaking the database market down along platform lines changes the picture fairly dramatically. Oracle is the undisputed leader in the UNIX space with what appears to be an unassailable lead. In 2001 it held 63.3 per cent of the UNIX database market, a drop from the 66.2 per cent it held in 2000. But this still left it startlingly clear of the pack. The nearest challenger was IBM but it could only rustle up 24.7 per cent, compared with 21.1 per cent in 2000. The Windows and NT market wasn't a great surprise either. Microsoft led the way with 39.9 per cent of the market, up on the 34.5 per cent it had in 2000. And Oracle was in close behind with 34 per cent, a drop from the 38.1 per cent it held in 2000. IBM managed to steal almost a whole point taking it to third place in the Windows database market with 20.7 per cent. Do the Gartner figures really tell us a lot? Certainly Microsoft has something to cheer about, having finally asserted its right to the mid-range, mid-system, Windows database crown. And IBM certainly has something impressive to headline its press releases. Whether or not IBM is actually happy with this on a business level however is a moot point. Over the past few years, probably starting around 1998, IBM has spent somewhere in the region of $2bn to push its database products back into the spotlight. One billion dollars of that has gone on pure-play marketing, the other billion has gone on Informix - which at the time of IBM's acquisition held around 4 per cent of the market. In 1999 IBM held 29.9 per cent of the database market, in 1998 30 per cent. So that, rather loosely and unscientifically, means IBM has bought 4.6 per cent of database market revenues for $2bn. Given the database market as a whole is reckoned to be worth somewhere in the region of $9bn a year, that isn't a huge return. Obviously, IBM will be reckoning this is a long-term investment - but that's still an awful lot of money to recoup and no one can expect Oracle to stand still on this fight. Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com.