And while some people called to question that assertion, there’s no question that something interesting is clearly happening at Vidyo. Today it will get only more interesting.

You may remember how, in that previous story, I mentioned that Vidyo had raised a $22.5 million Series D round of funding led by QuestMark Partners, with Menlo Ventures, Rho Ventures, Star Ventures and Four Rivers Group all participating. Vidyo left that round open and now Juniper has joined it though the precise amount is not being disclosed.

Today, Vidyo says its total capital raised has reached about $97 million, and that Juniper Networks is making a strategic investment by way of its Junos Innovation Fund. While Vidyo isn’t exactly saying what the terms of the investment are, it’s pretty easy to do the math. (Earlier I had portrayed this as a $97 million Series D. Clearly I got a little confused. Sorry about that.)

The investment round will basically help Vidyo boost its go-to-market activities, but it will also give Juniper a big benefit by allowing Vidyo to integrate its videoconferencing products with Juniper’s numerous offerings. That will likely give it some new competitive plays against rival Cisco Systems, which has considerable video offerings. We’ll see how that turns out.

Video Conferencing Seen as Important and Growing Sector

Hackensack, NJ – May 22, 2012 – Vidyo, Inc., the world’s fastest-growing video conferencing company, today announced that Juniper Networks, the industry leader in network innovation, is joining as a strategic investor through its Junos® Innovation Fund, alongside lead investor QuestMark Partners and other existing investors Menlo Ventures, Rho Ventures, Star Ventures, and Four Rivers Group. Though terms of the investment were not disclosed, Vidyo has raised $97M to date to accelerate its growth. The investment from Juniper Networks enables Vidyo to increase its go-to-market activities and integrate its video conferencing products with Juniper’s numerous offerings.

According to numerous analysts, Vidyo is disrupting innovation in the video communications and collaboration market, driving the industry forward with its paradigm-shifting platform. Vidyo delivers telepresence-quality conferencing to more than 1850 enterprise, healthcare, education, and government customers. Juniper Networks is leading the charge to architecting the new network based on a unique single architecture and single operating system, Junos®, that ensures performance, reliability and security without compromise and at the scale customers demand.

“As the use of video in the enterprise and on end devices continues to expand, our customers are seeking new ways to improve video delivery,” said Jeff Lipton, vice president, Venture and Strategic Investments, Juniper Networks. “Vidyo is an emerging player that is driving innovation in software-based videoconferencing, and we believe its leading technology will improve the experience and economics of video communications alongside advances in networking technologies.”

“Juniper Networks’ strategic investment in Vidyo is a solid endorsement of our vision and a recognition of how rapidly the videoconferencing market is expected to grow in the near future; Infonetics Research states the market will reach a cumulative $22 billion over the next 5 years,” said Ofer Shapiro, Vidyo’s co-founder and CEO. “We see Juniper as a kindred spirit, itself a pioneer in its industry, having revolutionized networking for over 16 years. Their investment validates the approach we have taken to successfully create new video conferencing markets and deliver superior value, accessibility and scalability to our customers and partners. We are extremely honored that such a world-renowned leader recognizes the unique strengths and proven abilities of Vidyo that are driving the video communications industry forward.”

The Vidyo Difference

The Vidyo communication and collaboration platform is software-based, highly flexible and can be easily customized for individual enterprise and vertical market video conferencing needs. The patented VidyoRouter™ architecture introduces Adaptive Video Layering™, which dynamically optimizes the video for each endpoint leveraging H.264 Scalable Video Coding (SVC)-based compression technology and Vidyo’s IP. Adaptive Video Layering eliminates the MCU and offers unprecedented error resiliency, low latency rate matching thus enabling natural, affordable, high-quality video to work over the Internet, LTE and 4G networks. The platform allows users to quickly leverage the latest hardware innovations, new consumer devices and partner applications that utilize Vidyo’s APIs, such as the recently announced partnership with Philips and AMD in the Healthcare industry. Vidyo has been active driving H.264 SVC and SIP videoconferencing interoperability in various standards bodies since 2005.

About Vidyo, Inc.
Vidyo, Inc. pioneered Personal Telepresence enabling natural, HD multi-point videoconferences on tablets, smart phones, PCs and Macs, room systems, gateways, telepresence solutions and affordable cloud-based broadcast solutions. Headquartered in the US, with 12 additional international offices, the company has more than 225 employees and has to date raised $97M. Learn more at www.vidyo.com, on the Blog or follow @vidyo on Twitter.

But after a major company-wide restructuring and the divestiture of several non-core businesses, CEO John Chambers (pictured here at D5) is finding that turning the massive Cisco ship around — something he seemed to have started two quarters ago, and which continued last quarter, isn’t coming easy.

There’s the global economy to worry about. All that messy complicated news coming out of Europe about sovereign debt and cuts in government spending around the world has a way of eating into technology budgets both at Cisco’s government customers and at its large enterprise customers.

Cisco’s guidance for the quarter ending in July was especially worrisome for investors, who promptly sent Cisco’s share price plummeting by more than 8 percent in after-hours trading. Cisco called for revenue to grow between 2 percent and 5 percent, which works out to sales in the range of $11.4 billion to $11.8 billion, well off the consensus forecast of $12 billion.

Guidance on earnings was equally disappointing. At 44 cents to 46 cents a share, the midpoint lags the consensus by two cents.

So what’s going on? I asked Chambers about it in a phone interview with AllThingD held after the conclusion of Cisco’s conference call with analysts.

AllThingsD: John, the markets clearly don’t like very much what they saw today. So, from a high level, what happened — good, bad and indifferent — with this quarter?

Chambers: The first thing from a high level is that we’re executing pretty well on our vision and strategy, and we did exactly what we said we would do. We guided for growth of 5 percent to 7 percent for the year and for the first nine months we’re at 7.5 percent [revenue]. We said profits faster than revenues, and we’re at 9.5 percent. Earnings per share increasing 13 percent year over year for the first nine months and gross margins down just 1 percent primarily on product mix. We’re winning versus our key competitors and winning at a pretty fast rate. When you’re number one or two in most product categories, holding your own in switching and making it very challenging for the Huawei’s of the world, the Junipers and Hewlett-Packards … Juniper and HP we’re pulling away from and we’ll see if we can maintain it. Huawei, for the first time we’re getting much better and competing against them and understanding their weaknesses. And if you look where we are in terms of the bigger picture, we’re in the right markets. We’re in the mobility market. We’re in video. We’re in the cloud market. We’re in the social networking segment. We’re pulling them all together, and our customers are buying the architecture in a pretty good amount. Even in service providers, where most people thought they would never move toward having preferred vendors, we’re seeing something close to that at some service providers and at many of them they are starting to think about going all-Cisco.

So on things we can control and influence I think we’re in pretty good shape. In terms of the market, I’d like to add another couple of points [of growth] in service providers, another couple of points from commercial customers. The public sector is at 3 percent. I’d take that for the year, but we think it’s going to be flat, give or take a couple points.

The issue is the enterprise. And there the problem is not that they don’t have the money or that they don’t understand that it’s important to get productivity. It’s that they’re uncertain. When they are uncertain, that’s because of economic issues primarily because of Europe. And uncertainty on government policy. Then you see people deciding not to invest. And that affects not only capital spending but jobs.

So I think the market understood what we’re saying and I think most people would give us credit for being a very good indicator of what the point in time change is. But this is not necessarily a given for what is going to happen in the second half of the year. I’m just trying to be as transparent as I know how.

The July quarter is usually your seasonally strongest. Given that your guidance was relatively weak compared to the consensus, what are we to make of the quarter coming up? Is it a secular weakness or mostly the economy? Are your competitors just taking it on the chin worse that you are?

Let’s look at Juniper. It’s down 6 percent a year and routing down 9 percent. Huawei is growing 11 percent a year, but its service provider segment is growing only 3 percent. HP’s networking business is back to the levels in their switching business to what they were when HP first bought 3Com. There’s an explosion in the data center business, it’s to the point that companies who have been there a long time like IBM or HP, we’re growing 67 percent and their servers are flat or slightly down. So the results speak for themselves in terms of what we’re doing right in some areas. But we’re learning to tie things together in a way that saves customers money, saves them time to market and allows them to achieve their business goals quicker. That is the game we’re playing for. The major thing we’re after is getting the enterprises spending again. Customers — almost uniformly — are saying that my business is okay, not great, they expect it will go up gradually, and that they’re probably going to spend more in the second half of the year than they did in the first. But immediately as a follow-up to that, they all say that’s true only if they’re not surprised by something from the economy. That’s the kind of uncertainty we’re seeing, and in talking with my peers in the industry who are in similar markets, they can finish my sentences. The question is whether it’s temporary or is it a blip? We just don’t know yet.

So given the restructuring we’ve been talking about for the last year or so, is Cisco the right size? Your overall headcount is down more than 8,000 from a year ago, but it’s up by more than 1,300 since the last quarter. Are you at the right size or are there more changes coming?

Out of the 1,353 people we added, the vast majority were either advanced services or engineers. We needed more engineers. The additions were around either building products or converting services. In terms of our organization structure, we re-did Cisco. We’ve learned from what we did well in the past, and you wouldn’t see the turnaround as quickly as we did if the structure weren’t so strong. But we needed to restructure how our customers buy, and how we build products. We needed to be nimbler and simpler in how we get decisions done. And that is a journey. In the past we tended to get a market transition, good or bad, and take off on a good one or address a bad one, and we would end up gaining market share almost always coming out of these. We’ll see if we do it again this time. But we weren’t constantly reinventing ourselves to avoid hitting the next wall or the next inflection point. That is what we’re trying to do. This is a continuous journey. While we were four or five inches around the waist, I think there’s still more work to be done in our middle levels. I think you’ll see us address that in the next year or two. Does that mean we’re going to adjust the market given that the market may have slowed? I’m not sure it has yet, we’ll know in a couple of quarters which way it’s going. The answer is, not in a major way. It’s too early to say which way this market is going. We’re not going to over-react or under-react.

You just made a major acquisition with NDS, about $5 billion. You still have a lot of cash on the balance sheet. What’s your stance on acquisitions?

Ongoing at Cisco we will do innovation through internal development, including internal start-ups, through strategic partnership, and acquisitions and intergrating all of the above. NDS is one of multiple moves that we will make, not just in the video space for us, but it was also a major cloud play for us and a major social media move if we do this right. It plays right into the sweet spot of our service providers and content providers. Our ideal target has not changed: 100 engineers with a product that is just about to come to market, where our customers say that if they were owned by Cisco they’d buy a lot of it. The $5 billion price is higher than what we’ve traditionally paid, but it’s on the order of Stratacom and Tandberg, for which we paid about $3 billion each. But our ideal target is smaller, and you’ll see us continue to be selectively active in the market.

You’re said to be heavily focused on gross margins. One point that came up on UCS: You say it’s growing like crazy, off a low base, but one of the analysts pointed out this week that it has the overall effect of bringing down the gross margin a bit. How are you addressing that?

That’s true on specifics. UCS by itself, even with a premium versus our peers, is going to be below our gross margin of 65 percent. So, by definition, as you add more of those it has a major effect on gross margin. When you combine UCS with our Nexus 2000 and 5000 switches the blended version gets the margin higher, though still not as high as the overall gross margin. Our challenge on gross margin, and the reason why we’re going to focus aggressively on each gross margin area this year, is that it’s more of a product mix issue than it is an issue of pressure on gross margins on any specific product. In terms of the base for UCS, it’s getting close to a $2.5 billion run rate and probably closer to $3 billion by now. So the base is getting larger, and in North America our market share is close to 20 percent and globally our best guess is 14 percent as best as we can tell. So that’s pretty good execution.

At this point, as he did last time we talked, Chambers asked me what song I’d pick to musically illustrate Cisco’s quarter, sticking with a tradition started a few quarters back and continued last quarter. I told him I wanted it to be a surprise, but that I think he’d like it.

This quarter, I dedicate to Cisco Ringo Starr’s “It Don’t Come Easy.” The hard work of transformation done, Cisco is finding that, despite being leaner and meaner, it has still got some way to go and finds itself in a tough market. In the video below, Ringo performs with fellow Beatle George Harrison at the 1971 Concert for Bangladesh. As everyone at Cisco knows, nothing worth having comes easy.

Revenues were $11.6 billion, up 6.6 percent from the year-ago quarter, while per-share earnings on a non-GAAP basis were 48 cents, versus 42 cents a year ago, up 14 percent. That’s essentially right in line with what the consensus of Wall Street analysts had expected Cisco to report: $11.58 billion in sales, and 47 cents in per-share of earnings, with a penny-per-share beat on the EPS front.

I’m going quickly through the numbers, but here’s the announcement in full so you can look for yourselves. I’ll be dialing in to the conference call shortly and will be talking to CEO John Chambers after that.

Cisco shares are headed lower in after-hours trading. As of 4:45 pm ET, shares are down 48 cents to $18.30, or 2.5 percent.

Update: Cisco just issued its guidance on the conference call. CFO Frank Calderoni says that Cisco expects to report revenue to grow 2 percent to 5 percent year over year in the fourth quarter. It also expects to earn a gross margin in the range of 61 percent to 62 percent on a non-GAAP basis. Operating margins should be 26.5 percent to 27.5 percent, up about a point from the year-ago quarter. EPS will be 44 to 46 cents a share. The outlook is lower than the consensus of 49 cents.

On this, the shares have continued to fall after hours. Cisco shares are now, as of 5:02 pm ET, down more than 8 percent, or $1.55, to $17.23. Investors clearly don’t like what they see. Tomorrow looks like it’s going to be a rough day.

SAN JOSE, CA–(Marketwire -05/09/12)- Cisco (CSCO)

Q3 Net Sales: $11.6 billion (increase of 7% year over year)

Q3 Net Income: $2.2 billion GAAP (increase of 20% year over year); $2.6 billion non-GAAP (increase of 11% year over year)

Q3 Earnings per Share: $0.40 GAAP (increase of 21% year over year); $0.48 non-GAAP (increase of 14% year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended April 28, 2012. Cisco reported third quarter net sales of $11.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion, or $0.40 per share, and non-GAAP net income of $2.6 billion, or $0.48 per share.

“We delivered solid results this quarter with record revenue and non-GAAP earnings per share,” said John Chambers, Cisco chairman and CEO. “We are successfully executing against our long-term strategic plan of growing profit faster than revenue, and in a cautious IT spending environment, we continue to outperform our competitors.”

Chambers continued, “In a world of clouds, video and mobile device proliferations, the role of the intelligent network has never been greater and our value proposition with our customers is the strongest it has ever been. Our vision and strategy is focused on the right market transitions, and I want to thank our shareholders, employees, customers and partners for their ongoing commitment to Cisco.”

GAAP Results

Q3 2012 Q3 2011 Vs. Q3 2011
—————- —————- —————
Net Sales $ 11.6 billion $ 10.9 billion 6.6%
Net Income $ 2.2 billion $ 1.8 billion 19.8%
Earnings per Share $ 0.40 $ 0.33 21.2%

Non-GAAP Results

Q3 2012 Q3 2011 Vs. Q3 2011
————— ————— —————
Net Income $ 2.6 billion $ 2.3 billion 10.9%
Earnings per Share $ 0.48 $ 0.42 14.3%

Net sales for the first nine months of fiscal 2012 were $34.4 billion, compared with $32.0 billion for the first nine months of fiscal 2011. Net income for the first nine months of fiscal 2012, on a GAAP basis, was $6.1 billion, or $1.13 per share, compared with $5.3 billion, or $0.94 per share, for the first nine months of fiscal 2011. Non-GAAP net income for the first nine months of fiscal 2012 was $7.5 billion, or $1.38 per share, compared with $6.8 billion, or $1.22 per share, for the first nine months of fiscal 2011.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 5.

Cisco will discuss third quarter results and business outlook in a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Other Financial Highlights

Cash flows from operations were $3.0 billion for the third quarter of fiscal 2012, compared with $3.1 billion for the second quarter of fiscal 2012, and compared with $3.0 billion for the third quarter of fiscal 2011.

Cash and cash equivalents and investments totaled $48.4 billion at the end of the third quarter of fiscal 2012, compared with $46.7 billion at the end of the second quarter of fiscal 2012, and compared with $44.6 billion at the end of fiscal 2011.

During the third quarter of fiscal 2012, Cisco repurchased 27 million shares of common stock under its stock repurchase program at an average price of $20.28 per share for an aggregate purchase price of $550 million. As of April 28, 2012, Cisco had repurchased and retired 3.6 billion shares of Cisco common stock at an average price of $20.47 per share for an aggregate purchase price of approximately $74.3 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.7 billion with no termination date. During the third quarter of fiscal 2012, Cisco also paid a cash dividend of $0.08, or $432 million.

Days sales outstanding in accounts receivable (DSO) at the end of the third quarter of fiscal 2012 were 31 days, compared with 31 days at the end of the second quarter of fiscal 2012, and compared with 37 days at the end of the third quarter of fiscal 2011.

Inventory turns on a GAAP basis were 11.5 in the third quarter of fiscal 2012, compared with 11.1 in each of the second quarter of fiscal 2012 and the third quarter of fiscal 2011. Non-GAAP inventory turns were 11.1 in the third quarter of fiscal 2012, compared with 10.8 in the second quarter of fiscal 2012, and compared with 10.3 in the third quarter of fiscal 2011.

Select Global Business Highlights

Cisco announced its intent to acquire NDS Group Ltd., a provider of video software and content security solutions. The acquisition is expected to help Cisco’s ability to transform how service providers and media companies deliver next-generation video experiences to subscribers.
Cisco completed the acquisition of privately held Lightwire, Inc. Lightwire develops advanced optical interconnect technology for high-speed networking applications. The acquisition is expected to allow Cisco to deliver cost-effective, high-speed networks with the next generation of optical connectivity.
Cisco acquired privately held ClearAccess, Inc. The acquisition enhances Cisco’s network management capabilities and enables service providers to better deliver, manage and monetize their services.
Cisco announced strategic investments in Brazil to foster innovation, transformation and socio-economic development.

Cisco Innovation

Cisco announced it has updated its cloud-ready switching portfolio to enhance network virtualization with simplicity and scale.
Cisco announced a successful demonstration and validation of its coherent 100G dense wavelength division multiplexing solution, exceeding 3,000 km in reach without the need for regeneration. This distance is 50 percent farther than any non-Raman alternative solution on the market today.
Cisco introduced the industry’s first carrier-grade, end-to-end Wi-Fi infrastructure to deliver next-generation hotspots. The technology is designed to deliver seamless mobile experiences and enables operators to support a continuing expansion of mobile traffic, devices and new services.
Cisco announced innovations across the Cisco Unified Computing System® (UCS) that quadruple memory capacity, double switching capacity and simplify management for large-scale Cisco UCS® deployments.
Cisco introduced new Linksys Smart Wi-Fi Routers with app-enabled capabilities for new home experiences. The three new routers offer wireless performance and support for Cisco Connect® Cloud.
Cisco announced it expanded its small business product portfolio with new wireless access points, routers, switches, unified communications and partner-managed service offerings.
Cisco and NetApp announced FlexPod was the first data center infrastructure solution to be validated by Microsoft for the updated Microsoft Private Cloud Fast Track 2.0 program.

Select Customer Announcements

TELUS announced it has deployed key components of the Cisco Videoscape™ platform to extend its Optik TV services to mobile devices.
Cisco announced it has been chosen by Fastway Transmissions Private Ltd. to facilitate cable digitization deployment across its customer base in India. Fastway is expected to deploy more than two million next-generation digital set-top boxes from Cisco during the next two years.
Magyar Telekom rolled out 4G LTE services with Cisco mobile internet solutions. Magyar Telekom is Hungary’s largest telecommunications company.
IPLAN chose Cisco technology for its newest data center which is expected to be launched in June 2012. IPLAN is a leader in telecommunications and cloud computing services for small and medium-sized businesses in Argentina.
Videotron launched its enhanced illico digital TV service with Cisco’s HD set-top box platform. Videotron is a leading Canadian telecommunications operator providing communications and broadband entertainment services.
Peru Credit Bank implemented the Cisco Unified Communications system to increase business flexibility and reduce costs.
Kabel Deutschland (KD) selected Cisco CRS-3 routers for its Internet Protocol Next-Generation Network core to meet demand for video and broadband services. KD is Germany’s largest cable operator.
Netelligent announced that it will collaborate with Desktone, Inc. to offer cloud-hosted virtual desktops. These cloud-based solutions will include Cisco UCS, the Desktone desktops-as-a-service (DaaS) platform and NetApp storage systems.

Editor’s Note:

Q3 FY 2012 conference call to discuss Cisco’s results along with its business outlook will be held at 1:30 p.m. Pacific Time, Wednesday, May 9, 2012. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).
Conference call replay will be available from 4:30 p.m. Pacific Time, May 9, 2012 to 4:30 p.m. Pacific Time, May 16, 2012 at 866-493-8039 (United States) or 203-369-1749 (international). The replay also will be available via webcast from May 9, 2012 through July 20, 2012 on the Cisco Investor Relations website at http://investor.cisco.com.
Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 9, 2012. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco

Cisco (CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

The consensus of Wall Street analysts has Cisco reporting $11.6 billion in sales, and 47 cents per share of earnings.

The big question, writes analyst Sanjiv Wadhwani of Stifel Nicolaus in a note to clients on May 7, will be around margins. Last quarter, Cisco gave guidance for gross margins — a key measure of profitability — with a narrow range of 61.5 percent to 62 percent, while operating margins were guided to the range of 27 percent to 28 percent. Wadhwani thinks that guidance may stand up as pressure on Cisco’s supply chain from the Thailand flooding, favorable pricing on switching products, and a less-aggressive posture from Hewlett-Packard’s networking arm are all providing a little breeze at Cisco’s back.

Yet one product in Cisco’s stable may, in success, be hurting margins overall: Cisco’s Unified Computing and Servers line (UCS) tends to carry a lower gross margin, Wadhwani writes, and so may eat into its overall gross margin. The product line — which combines computing, storage and networking into a single product offered to corporate and service-provider data centers — had 10,000 customers worldwide last quarter, and was showing “positive momentum” in Wadhwani’s checks. “Overall, we believe that there is intense focus on margins internally, which should allow the company to report an in line margin quarter,” Wadhwani wrote.

Cisco has been operating “with more confidence and aggressiveness with its refreshed product line, making it tougher for competitors,” writes Shaw Wu of Sterne Agee in a note to clients issued May 7, and has been a lot of the reason that Juniper and Alcatel-Lucent have missed expectations recently. He expects Cisco to give guidance for the quarter ending in July that’s more or less in line with consensus expectations. He also sees Cisco benefiting from Apple’s next iPhone: “We believe this could mark the fourth quarter in a row where Cisco does not guide down expectations further building investor confidence. We see Cisco benefiting in the second half of 2012 from the continued build-out of 4G LTE wireless infrastructure ahead of the iPhone 5 refresh likely in the September-October time frame.”

I’ll be covering Cisco’s earnings announcement later today. Having dedicated songs to CEO John Chambers two quarters in a row now, I’m going to have to scramble to see what song fits today’s results, because I just know he’s going to ask.

Vidyo just completed what it is calling a record-setting year with billings up 82 percent in fiscal 2011 led by a 115 percent surge in both the North American and Asia Pacific markets. It ended the year with 1,850 customers, up from 1,000 the previous year.

In September, the company landed a $22.5 million series D round of venture capital funding led by QuestMark Partners, with Menlo Ventures, Rho Ventures, Star Ventures and Four Rivers Group participating, bringing its total capital raised to north of $97 million.

Compare Vidyo’s fortunes with those of Polycom, whose shares tumbled by more than 20 percent in a single day earlier this month after it announced a nasty earnings miss. The shares are down nearly 57 percent from this time a year ago. On a conference call earlier this month, Polycom’s CEO Andy Miller complained of slow sales in key markets including North America and several Asian countries.

Could Vidyo be the one causing all that trouble for Polycom? It certainly looks that way. Vidyo’s technology is based around a piece of hardware called a Vidyo Router that is installed in a customer’s data center. I’ve already written about the Brady Bunch Effect I once noticed during a meeting with Vidyo. The company’s VidyoPanorama product (pictured), for example, can support as many as 20 screens at a resolution of 1080p with 60 frames per second and sells for 20 percent of the price of a similar system from the bigger companies, and supports smart phones tablets. Sounds like a disruption to me.

But if you don’t trust me take the word of Baird Equity Research, who in late 2011 declared Vidyo a disruptor who “appears uniquely advantaged to democratize video conferencing and is unhindered by an installed base that is tied to a traditional hardware-based architecture.”

Vidyo’s technology is also showing up in a lot of places where you won’t see its name. It is the power behind Google+ Hangouts, and is proving popular in tele-health applications like the ones operated by the Ontario Telemedicine Network.

In fact, the Dutch electronics giant Royal Philips Electronics, a.k.a. Philips, will announce today that it is collaborating with Vidyo and working its unique Adapative Video Layering technology to deliver a better video experience in medical applications.

Adaptive Video Layering is basically Vidyo’s secret sauce. It works by constantly watching the network’s underlying conditions and then adapting to meet them. If there’s a lot of interference, the Vidyo system throttles up and down on the picture and sound it’s trying to deliver based on the condition of the networks, but it also adapts dynamically to the device that’s being used: It supports Apple’s iOS devices and also Google Android devices. The deal amounts to a pretty strong vote of confidence by a $29 billion company.

So I stand by what I said last June about the videoconferencing business getting interesting. In fact it looks like an honest-to-goodness market disruption is under way.

Murphy has spent the last eight years at Riverbed, and before that spent about seven years at places like Mercury Interactive, EMC and BlueArc. He’s joining Nicira just as it’s getting off the ground for real. It has been hiring an impressive roster of people away from companies like Cisco and Juniper for several months.

Nicira is backed by investments from Andreessen Horowitz, Lightspeed Venture Partners and NEA, plus personal investments from VMWare founder Diane Greene and venture capitalist Andy Rachleff. I first noticed it when it hired Alan Cohen away from Cisco as its vice president of marketing.

It aims to be the vendor of a new networking technology that’s built specifically for the age of cloud computing. While the pipes through which bits flow in and out of data centers have gotten faster, there’s a need to make them smarter and more flexible, not unlike virtual servers in that data center. Adding Nicira’s software to a server creates the ability to “spin up” virtual networks as readily as you might virtual servers in order to meet surging demand. Nicira calls it an NVP, or network virtualization platform. AT&T, eBay, Fidelity Investments, Rackspace and the Japanese telecom giant NTT are all using Nicira, the company says.

One early customer is Rob Legato, the visual effects supervisor who won an Academy Award for his work on the Martin Scorsese-directed hit motion picture “Hugo.” Legato will be talking about ioFX with Fusion-io chief scientist and Apple co-founder Steve Wozniak at a conference in Las Vegas next week.

Fusion does some cool stuff with flash memory. Here’s the part where I roll out the old metaphor that has served me so well: In pretty much any computer, you can think of the processor as a fast-moving, highly efficient, type-A personality, constantly in a hurry, and always waiting impatiently for the rest of the system to give it more work to do. The slowpoke in the deal is the hard drive, which, though it’s already spinning at a super fast rate, just can’t get data to the processor fast enough. So the processor sits around, tapping its foot and looking at its watch, waiting for the other parts of the system that feed it data to work to keep up.

In high-performance computing, where there’s more data to be crunched than in most average computing situations, this is sort of a big deal. You want the processor to be as busy as possible — mainly because the systems are so expensive, and you want to get your money’s worth out of them — but also because jobs get done faster.

So Fusion-io’s stock in trade is a series of insert cards that bring flash memory right up next to the processor. The flash chips grab great big armloads of data and hold on to it, handing it off to the processor in a way that keeps it happy and busy and not impatiently waiting — at least not so much.

We’ve seen the technology brought to bear at places like Credit Suisse, which added Fusion’s flash cards to its trading systems. And its technology is also used in data centers belonging to Facebook and Apple.

On top of that, Fusion has relationships with all the big server vendors: Hewlett-Packard, IBM, Dell and SuperMicro all sell systems with Fusion-io on board.

Workstations are essentially heavily tricked-out PCs that are used primarily in two professions: Animation and special-effects work for movies and TV and computer-assisted design and modeling, used by folks who design buildings and cars and planes and pretty much anything else you can think of. They have the same problem that servers have — agitated processors constantly waiting for the rest of the system to catch up with them.

At this point, none of the workstation vendors are offering the card as an option, but if you’ve got a professional workstation — like, say, an Apple Mac Pro, which has three PCI Express slots — you might add one of these cards and speed up your work. In the meantime, the company is working with workstation vendors to get the ioFX insert cards certified. My guess is there will be more than a few visual artists who won’t bother to wait.

Fusion-io shares are up almost 11 percent — or $2.64 — to $27.30, as of 11 am ET; not so much on this news — workstations are kind of a low-volume market — but on an analyst report from Piper Jaffray suggesting that Cisco Systems may be close to a deal to add Fusion-io’s flash technology to its Unified Computing System platform.

The report goes on to suggest that Cisco could, over the next three or four quarters, become one of Fusion’s bigger customers, along with Facebook and Apple, and could account for more than 10 percent of Fusion’s business — which could, in turn, lead to a doubling of revenue this year. For the record, sales were $197.2 million in Fusion’s fiscal 2011. Do the math.

Obviously, that’s not the part that surprises me. But here is the bit that did: When you add up all those expenses over a server’s lifetime, labor costs amount to about 70 percent of the total, according to IBM. If you had asked me, I would have guessed the cost of power would outweigh the cost of ongoing labor. Silly me.

I talked with IBM’s Steve Mills about this earlier this week. He’s Big Blue’s senior vice president and group executive for Software and Systems. It’s not uncommon, he says, for a company to take weeks or even a month between a server’s arrival and its deployment.

IBM today announced a hardware system it calls PureSystems that can cut that deployment time to hours and reduce the lifetime labor cost associated with the server by about one-third.

Basically what IBM is doing here is bringing to bear its expertise in services. Having done so well running IT services for a few thousand different companies, it has learned a thing or two about efficiency.

And it makes perfect sense when you consider that much of IBM’s $107 billion in revenue is derived from its services business. Now it’s taking some of that learning and applying it to its hardware and software business, which accounts for about 40 percent of sales.

The key feature, Mills told me, is something called the Flex Systems Manager, which is some IBM-made software that automates a lot of the set-up and maintenance work that traditionally has to be done more or less manually by one or a team of IT managers. “The purpose of the code is to do discovery. … Can I locate every piece of hardware in the frame? What are the rules for configuring it? Can I locate all the software I need and what are the rules for configuring that?” Mills told me.

All that data has been gathered into a single screen that makes the relevant information available at a glance. Mills says the system can be up and running within four hours of arriving at a company’s loading dock. That’s a bold claim.

It’s all based around patterns that IBM has seen over and over again for different types of deployments and configuration options. See them often enough and you can develop software scripts that take a great deal of the manual labor out of the process.

Sometimes companies have their own unique or wonky business processes that even someone as experienced as IBM hasn’t seen before. If that’s the case, a company can craft its own pattern and translate that into software that can automate a process that’s unique to its business or internal rules.

IBM has also teamed up with 125 independent software vendors or ISVs to develop their own patterns that clients can quickly download in order to get up and running. (IBM put out a video on that, which I’ve taken the liberty of embedding below.)

It’s also pretty diverse from a computing standpoint. IBM being IBM, the system has different hardware options, including processors from Intel or its own Power line of chips. There are also three OS options: Windows, Linux and AIX, IBM’s proprietary flavor of Unix. There’s also a wide choice of virtual machine managers: VMWare, KVM, Microsoft’s HyperV and IBM’s own PowerVM.

In the end, the point is to allow a company’s employees to spend more time working on their key lines of business and less time making the computers run properly, which is at its most basic level the IT shop’s highest mission.

In broad brushstrokes, one key aspect of the deal addresses a problem with Cisco’s set-top box business: Its lower profit margins. Adding high-value software to the mix will boost that unit’s overall profitability, De Beer told me. NDS, which has been private since 2009, is on a run rate to about $1 billion in sales this year. “And it’s a very profitable revenue stream,” he said.

But there’s also some pretty interesting tech in play. NDS specializes in software that creates a unified entertainment experience across several devices. You can watch your shows on the TV, as always, but if you want to switch to your PC or tablet, you can do it with a user-interface environment that’s entirely consistent and customized according to the service provider’s branding and needs. NDS has a software architecture called Snowflake that’s supposedly pretty good and is the basis of the Zon TV service that is being plugged in the ad that can be seen below, which I think is for Portuguese TV.

But there’s another Snowflake interface video that’s worth seeing first. Check out the demo reel (also below) of the user interface for SFR’s Neufbox Evolution, which I think is a streaming Internet media box.

The point, De Beer said, is to get more closely engaged with the service providers, and by those he means the cable, satellite and other TV and entertainment outfits around the world, and offer them white-label software they can build and brand as they see fit, to deliver a consistent experience across any device. “They’ll be able to constantly update and upgrade their experiences,” he said.

Another point: NDS is strong in India and China with the satellite TV outfits, whereas Cisco is strong in North America with the cable companies. “They’re strong where we’re weak, and vice versa,” he told me.

There are a few critical points. ISI analyst Brian Marshall observed that Cisco is using up about 20 percent of its offshore cash balance. Also NDS’s business is pretty highly concentrated. About 70 percent of its revenue comes from 10 customers, and a little less than half comes from the top three: DTV, BSkyB and Sky Italia.

While Marshall sees the opportunity in comprehensive digital media, he thinks the price Cisco is paying is “rich for a company growing sales at less than 10 percent year on year.” And with revenue per employee at $200,000 at NDS — much lower than Cisco’s $750,000 per employee — Marshall wonders how the deal will be accretive to Cisco right away. “We struggle identifying sources of accretion in year one other than headcount reduction.”

NDS STUDIO DESIGN & SFR AWARDED from NDS Design on Vimeo.

ZON online from NDS Design on Vimeo.

Networking giant Cisco Systems said today it will acquire NDS — an Israeli firm that specializes in software that delivers video and interactive entertainment to TV set-top boxes in a secure manner — for about $5 billion in cash plus the assumption of debt.

NDS is 51 percent owned by Permira, a private equity firm, and 49 percent owned by News Corp. (which also owns this Web site). Word of advanced talks on the deal were first reported today by the Israeli business newspaper Calcalist (in Hebrew), and then summarized by Israel’s English news service Ynetnews.

Cisco shares are getting whacked in pre-market trading. As of 8:33 am ET, the shares are indicating down 22 cents, or more than 1 percent, to $19.98 a share.

NDS had traded publicly on the Nasdaq until it went private in 2009, and Ynetnews says the current talks peg the company at a valuation of about 35 percent north of what it was trading for at that time. Founded in 1988 by a group of scientists, it was acquired by News Corp. in 1992 for $15 million, and first listed its shares on the Nasdaq in 1999. In 2009, News Corp. teamed with Premira to buy out the shares for $3.7 billion, and delisted it from Nasdaq.

Word of the talks also come at an interesting time for Cisco, what with those recent rumors that it has been mulling an exit from the set-top box business. Set-top boxes carry a relatively low margin in the 30 percent range, which doesn’t do anything good for Cisco’s overall gross margin, which is north of 60 percent.

Rumors popped up in various outlets that the business was on the block, fed in no small part by the fact that Cisco sold off its set-top manufacturing operations to Foxconn last year, as part of its larger reorganization. CEO John Chambers slapped that idea down pretty hard during the last earnings call, saying Cisco remained “totally committed to the set-top box business.” Now we know why.

The press release is below:

Cisco Announces Intent to Acquire NDS

Acquisition of NDS Will Expand Cisco’s Ability to Transform How Service Providers and Media Companies Worldwide Deliver Next-Generation Video Experiences to Subscribers

SAN JOSE, CA and LONDON–(Marketwire -03/15/12)- Cisco (NASDAQ: CSCO – News) today announced its intent to acquire NDS Group Ltd., a leading provider of video software and content security solutions that enable service providers and media companies to securely deliver and monetize new video entertainment experiences.

NDS uses the combination of a software platform and services to create differentiated video offerings for service providers that enable subscribers to intuitively view, search and navigate digital content anytime, anywhere and on any device.

The acquisition of NDS will complement and accelerate the delivery of Videoscape™, Cisco’s comprehensive platform that enables service providers and media companies to deliver next-generation entertainment experiences. Acquiring NDS will broaden Cisco’s opportunities in the service provider market, expanding its reach into emerging markets, such as China and India, where NDS has an established customer footprint.

Under the terms of the agreement, Cisco will pay approximately $5 billion, including the assumption of debt and retention-based incentives, to acquire all of the business and operations of NDS. The acquisition has been approved by the boards of directors of both companies.

The acquisition is expected to close during the second half of calendar year 2012, subject to customary closing conditions, including regulatory review in the United States and elsewhere. The net impact to Cisco is expected to be accretive to EPS in the first full year on a non-GAAP basis.

Highlights/Key Facts

Cisco’s open, standards-based Videoscape platform, which spans the cloud, the network and end-user clients, is a key part of the company’s overall video strategy to deliver TV experiences that make access to content more visual, mobile and social for consumers, while protecting and enhancing the value of content for service providers and media companies.
The addition of NDS’s leading software solutions, such as the end-user viewing client and content security solutions, combined with its systems integration expertise, will accelerate the delivery of the Cisco Videoscape platform.
This acquisition reflects Cisco’s increased strategic focus on video, one of its five foundational priorities, and its investment in software and services revenue streams and competencies.
This acquisition underscores Cisco’s commitment to its “build, buy, and partner” strategy to grow through a combination of organic innovation, targeted acquisitions and strategic partnering.
In terms of valuation, on a forward-looking basis, the acquisition is generally in line with the earnings before interest, taxes, depreciation and amortization (EBITDA) multiples paid when NDS was taken private in 2009, and is within the multiples ranges for comparable deals, including Cisco’s acquisition of Tandberg.
A significant portion of NDS’s software, services and content protection business is recurring, with long-term contracts, typically with an average duration of approximately five years.
Prior to the close, Cisco and NDS will continue to operate as separate companies. Upon completion of the transaction, NDS’s global operations, including sites in the United Kingdom, Israel, France, India and China, and its approximately 5,000 employees will join the Cisco Service Provider Video Technology Group (SPVTG), led by Senior Vice President and General Manager Jesper Andersen.
Dr. Abe Peled, NDS Executive Chairman, will be named Senior Vice President and Chief Strategist for Cisco’s Video & Collaboration Group, of which SPVTG is a part. Dr. Peled will report directly to Marthin De Beer, Senior Vice President, Cisco Video and Collaboration Group.

Quotes

John Chambers, Chairman and CEO, Cisco

“Our strategy has always been driven by customer need and on capturing market transitions. Our acquisition of NDS fits squarely into this strategy, enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetization opportunities and service differentiation.”

Dr. Abe Peled, Executive Chairman, NDS

“Cisco and NDS are helping drive the transition that will enable service providers and media companies to offer new revenue-generating video experiences. NDS’s open software video platform and services are highly complementary to Cisco technology, and together we are uniquely positioned to enable service providers to deliver fresh and exciting multi-screen video services to their customers. A key component of NDS’s success has been our open software and services model, working with a wide range of set-top box manufacturers to enable greater choice for our customers; following this acquisition this strategy will continue and expand the choice of hardware solutions available to service providers worldwide.”

Dave Habiger, CEO, NDS

“This is a transformational opportunity for not only NDS and Cisco, but also our service provider customers and their consumers. Together we make the connected vision a reality.”

Investor and Media Events:

John Chambers, Cisco’s Chairman and CEO, Ned Hooper, Cisco’s Senior Vice President and Chief Strategy Officer, and Abe Peled, Executive Chairman of NDS, will host a joint investor call on March 15 at 6:00 a.m. PDT to discuss the proposed transaction. The dial-in number is 517-308-9354 (international) and 800-619-2472 (United States). Conference call replay will be available from 10:00 a.m. PDT, March 15, 2012, to 4:30 p.m. PDT, March 30, 2012 at 203-369-3287 (international) and 800-469-5424 (United States). The replay also will be available via webcast from Thursday, March 15, through April 13, 2012 on the Cisco Investor Relations website at http://investor.cisco.com.

John Chambers and Abe Peled will host a joint Web-based video press conference on March 15 at 9:30 a.m. PDT. Members of the media are invited to watch this live webcast by clicking here. Please note that online registration is required. A broadcast replay will be available within 24 hours. For more information on this announcement, please visit newsroom.cisco.com.

RSS Feed for Cisco: http://newsroom.cisco.com/dlls/rss.html

Tags / Keywords:

Cisco, NDS, video, service provider

About Cisco

Cisco (NASDAQ: CSCO – News) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

About NDS

NDS Group Ltd. creates the technologies and applications that enable pay-TV operators to securely deliver digital content to TV STBs (set-top boxes), DVRs (digital video recorders), PCs, mobiles and other multimedia devices. Over 90 of the world’s leading pay-TV platforms rely on NDS solutions to protect and enhance their business.

NDS’ VideoGuard® is the world’s market-leading content and service protection solution, deployed in 125 million pay-TV households. VideoGuard conditional access (CA) and digital rights management (DRM) technologies safeguard pay-TV service revenues exceeding $50 billion. NDS middleware, which enables a host of advanced services for subscribers, has been deployed on 214 million devices. NDS DVR technology, centred around XTV™, is a leader in the global industry with 47 million units deployed. (Deployment figures as of 31st December 2011).

Headquartered in the UK, with over 5000 employees, NDS remains committed to investing in technology and development with over 75% of its employees dedicated to pioneering work at development centres in France, India, Israel, Korea, UK and US.

Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. A listing of Cisco’s trademarks can be found at www.cisco.com/go/trademarks. Third-party trademarks mentioned are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company.

NDS is a registered trademark or trademark in the U.S. and certain other countries. All other trademarks are property of their respective owners.

The company has hired Robert J. Lawson, whose last gig was as CFO of Codexis, a biofuel company. His resume also includes stops at Intuit and General Electric.

RingCentral is essentially an Internet-based phone service that gives a small company an easy way to seem bigger than it is. Its investors include Sequoia Capital, Khosla Ventures and DAG Ventures, and it has raised a combined $44 million in capital since being founded in 2003. The company has about 200,000 businesses signed up, and its service is resold by AT&T.

It has been getting early IPO buzz for about a year. And while the company won’t say that Lawson’s brief will include shaping things up for a roadshow, the fact that Codexis went public in 2010 isn’t exactly going to tamp down the expectation that RingCentral could file an S1 before the year is out. Could hiring bankers be next?

I made the case myself last year about why Cisco might kill or sell WebEx, only to be told in no uncertain terms that Cisco didn’t see it that way. Collaboration is still a big part of Cisco’s strategy, because it fits with enterprise video.

And yet the rumors about WebEx being shopped around persist. So today, a bold offer emerged from a start-up called SalesCrunch to buy WebEx for $1 and 15 percent of the equity in the company. The plan is to transition WebEx’s entire customer base to a new platform, kill off the old one, and move on.

It may seem a trivial offer, but it’s not, though there’s a good argument to be made that it’s a publicity stunt meant to get a lot of attention. SalesCrunch is backed by Accel Partners, First Round Capital, NextView Ventures and AOL Ventures. It’s essentially a new, more flexible, fully thought-out competitor to WebEx, one that poses a fair competitive threat. SalesCrunch is more social than WebEx, and tells you more about how engaged the parties attending a meeting actually are, or whether they’re zoning out and checking their email.

But why offer to buy it? SalesCrunch CEO Sean Black told me that the plan is to grab Cisco’s WebEx assets, including its engineering teams, and put them to work on building out SalesCrunch.

WebEx isn’t a core business to Cisco, Black says, and is in many ways comparable to the Flip camera business that Cisco infamously killed last year. “Cisco admitted that it’s in a lot of businesses that it shouldn’t be in. There’s been a lot of outcry from shareholders that it should stick to the business of selling routers and switches,” he told me. “WebEx is really the first online meeting application. It is literally as old as the Internet itself. And the team that put it in place is there to wring every efficiency they can out of the business, so they’re good at efficiency, and not at innovation.”

Cisco’s WebEx team, Black argues, is too busy running the business and maintaining its large user base to build the next great online meeting platform.

The idea for offering to buy WebEx came up in a management meeting as sort of a jokey, offhand comment. “But the more we thought about it, the more it made sense,” Black told me. “Why shouldn’t it be us? We’ve heard it’s been shopped around for eight months, with no takers.” Without a buyer, it might suffer the same fate as the Flip camera, and simply be shut down, he says.

Cisco hasn’t commented yet, but it probably will. I’m no expert on these things, but I wonder if this constitutes the kind of legal offer that will require Cisco’s board of directors to consider the offer seriously. We’ll see.

Today, Atlassian will announce that it has acquired HipChat, a maker of a specialized private instant messaging and chat platform aimed at companies. Financial terms are not being disclosed. But it’s pretty apparent the two were made for each other. HipChat has some 1,200 customers, including Groupon, HubSpot and Wired. The plan is pretty simple: Atlassian will incorporate HipChat into its own software. There’s probably a good bit of overlap between them.

HipChat’s three founders — Pete Curley, Garret Heaton and Chris Rivers — are all joining Atlassian. Their history, as described on their Web site, is pretty basic: “We created HipCal. Plaxo liked it so we went to work for them. We created Plaxo Pulse. Comcast liked it, so we went to work for them. HipChat is our current baby.” Now add: “Atlassian liked it, so we went to work for them.”

I talked briefly with Atlassian president Jay Simon yesterday. “None of our tools has a real-time component,” he told me. “They’re all asynchronous. HipChat is going to give us that.”

People often flock to the basic tools, like AOL Instant Messenger or Google Talk, when they need something instant. HipChat does the instant messaging part, but it also has features like chat rooms that remain persistent, which means they don’t blink out of existence when people using them leave. Files can be shared easily, and APIs from other platforms are supported. It’s also secure.

Consider Atlassian a variant on the social enterprise and collaboration trend that’s been rocking the enterprise in recent years, with the appearance of companies like Jive Software, Yammer, Saleforce.com’s Chatter and VMWare’s Socialcast, to name a few. Atlassian’s tools (its main one is called Jira) allow teams of software developers to work together, keep track of what each member of a team is doing, squash bugs and do whatever else it is they need to do. And among its 20,000-odd customers are the kind of companies you’d want to be doing business with: Facebook, Twitter, Zynga, Adobe, LinkedIn and Cisco Systems. Pay attention now, because someone is going to buy this company.

How then to explain Cisco’s strong denials of an interest in selling — and its reaffirmation of love for — the set-top box business it got as part of its $7 billion acquisition of Scientific Atlanta six years ago?

To be clear, Cisco is no longer in the business of actually making these boxes. It unloaded the Mexico-based manufacturing portion of the business to Taiwan’s manufacturing giant Foxconn as part of its sweeping reorganization last year.

The “Cisco is selling” story appeared both in the online trade publication Light Reading and also in the New York Post (which, like this Web site, is owned by News Corp.)

This is a familiar rumor that crops up from time to time. The last time was in the fall, and the source was a speculative report in the Atlanta Business Chronicle.

Typically, companies can ignore this type of chatter and dismiss it with the standard “no comment on rumor and speculation.” But seeing how this is the kind of rumor and speculation that often turns out to be true, and as such has a way of sapping the morale of otherwise productive employees, Cisco sought to get in front of it by professing its love for its set-top box unit in a statement to Light Reading.

CEO John Chambers recently stressed his commitment to set-top boxes even as the business dragged down Cisco’s overall gross margins. Analyst Sanjiv Wadhwani of Stifel Nicolaus estimates that Cisco’s gross margins on set-tops are in the mid 30 percent range, which is about what you’d expect for competitive hardware of any kind, but it’s also half of what Cisco gets across the rest of its business. As such, a sale would boost Cisco’s gross margin overall by about 1 percent, he said in a note to clients today.

During a conference call to discuss earnings earlier this month, Chambers said Cisco is “very much committed to this marketplace.” The point for sticking with it is to help customers move from old-school set-top boxes to IP-based products like Cisco’s Videoscape, he said. Presumably, the transition work means holding on to the set-top box customers.

But if you’re one of the writers who fell for the latest bit of rumor-mongering — and who doesn’t once in awhile? — you’re probably quoting Emily Litella from 1970s-vintage “Saturday Night Live” and sheepishly saying, “Never mind.”

Cisco announced the appeal in a post to Cisco’s corporate blog by Cisco’s senior VP for video and collaboration, Marthin De Beer. In it, Cisco argues that the EU should reexamine the deal because Skype doesn’t work with other video and audio calling systems that use industry standard technologies, such as Cisco’s.

“Imagine how difficult it would be if you were limited to calling people who only use the same carrier or if your phone could only call certain brands and not others,” De Beer wrote. “Cisco wants to avoid this future for video communications,” and so has filed the appeal. Messagenet, a European IP calling service, joined Cisco in filing the appeal. Both had commented to the European Commmission during initial hearings on the deal before it was approved.

Cisco doesn’t want the merger rescinded, but rather wants the EC to impose some interoperability conditions on Microsoft. Part of Microsoft’s plan with Skype has been to combine it with its Lync video and voice calling software for businesses. Both Lync and Skype use their own proprietary calling technologies, and so aren’t compatible with other video and calling services.

Sources familiar with the matter say Cisco had sought to work with Microsoft to ensure that its videoconferencing gear would work with Skype, but was unsuccessful in reaching a deal.

Skype has about 700 million users worldwide, and before Microsoft acquired it, had sought to go public in April. For calendar year 2010, it reported revenue of $860 million and a net loss of about $7 million. Successful mainly with consumers who like its free service, the company had begun to work on a strategy meant to bring the service to enterprise users, but had suffered some service failures that gave its target corporate customers pause. The Microsoft acquisition, announced in May, happened at just the right moment.

When the deal was announced, Microsoft CEO Steve Ballmer said Skype would, in time, be integrated with other Microsoft products, including the Xbox gaming console, Windows Phone for smartphones, and even its Hotmail Web email service.

Cisco’s videoconferencing business is a force primarily among large companies. It has 50,000 companies who use its gear, but it struggled to create a consumer-focused service, and shuttered its Umi product last year amid a wider corporate restructuring.

Microsoft wasn’t immediately available for comment on Cisco’s move, but I’ll add anything I get from it as soon as I have it.

Update: And here’s the official response from Redmond: “The European Commission conducted a thorough investigation of the acquisition, in which Cisco actively participated, and approved the deal in a 36-page decision without any conditions. We’re confident the Commission’s decision will stand up on appeal.”

Here’s the full text of Cisco’s post announcing the appeal:

Video to Video Communications is the Future

In the past decade video communications has moved out of the realm of science fiction to become commonplace in our homes, at work, and on mobile devices. Yet we remain some distance from the goal of video calls being as easy and ubiquitous as phone calls are today – across any network and between all devices.

Imagine how difficult it would be if you were limited to calling people who only use the same carrier or if your phone could only call certain brands and not others. Cisco wants to avoid this future for video communications, and therefore today appealed the European Commission’s approval of the Microsoft/Skype merger to the General Court of the European Union. Messagenet, a European VoIP service provider, has joined us in the appeal.

We did not take this action lightly. We respect the European Commission, and value Microsoft as a customer, supplier, partner, and competitor. Cisco does not oppose the merger, but believes the European Commission should have placed conditions that would ensure greater standards-based interoperability, to avoid any one company from being able to seek to control the future of video communications.

This appeal is about one thing only: securing standards-based interoperability in the video calling space. Our goal is to make video calling as easy and seamless as email is today. Making a video-to-video call should be as easy as dialing a phone number. Today, however, you can’t make seamless video calls from one platform to another, much to the frustration of consumers and business users alike.

Cisco believes that the right approach for the industry is to rally around open standards. We believe standards-based interoperability will accelerate innovation, create economic value, and increase choice for users of video communications, entertainment, and services.

The video communications industry is at a critical tipping point with far reaching consequences. Just three years from now the world will be home to nearly 3 billion Internet users, the average fixed broadband speed will be 28 Mbps, and 1 million video minutes (the equivalent of 674 days) will traverse the internet every second. As video collaboration becomes increasingly mainstream, multiple vendors will have to work together to enable global scale and broad customer choice.

For the sake of customers, the industry recognizes the need for ubiquitous unified communications interoperability, particularly between Microsoft/Skype and Cisco products, as well as products from other unified communications innovators. Microsoft’s plans to integrate Skype exclusively with its Lync Enterprise Communications Platform could lock-in businesses who want to reach Skype’s 700 million account holders to a Microsoft-only platform.

At the heart of this opportunity is a question about the model for interoperability. One approach allows each vendor to decide how they will interoperate. Another approach aligns the industry around open standards defined by non-partisan governing bodies. The answer will be critical to whether and how quickly video calls become “the next voice.”

When vendors implement their own protocols and selectively interoperate, they push the burden of interoperability to the customer. We respectfully request that the General Court act on our concerns and for the European Commission to ensure the proper protections are put in place to encourage innovation and a competitive marketplace.

Cisco appears to have continued its recovery following a painful restructuring. Sales are up and setting records, earnings beat the consensus of analysts, and Cisco’s outlook for the coming quarter is positive, too. Cisco’s even reached a point where it’s at least close to fitting into its old skinny jeans. What a difference a year makes. Last year it was all about gloom and doom and some irritable investors were calling for Chambers to lose his job.

Since then the company has undergone a painful but necessary restructuring, shed thousands of jobs, shut down marginal business units and refocused on its core businesses, and as yesterday’s quarterly earnings report proved, the results are not only starting to show, but starting to stick.

So is the work done? Definitely not. Yes, Cisco is showing some return to its strengths, but there’s still a long way to go. We talked about that, the troubles Cisco’s competitors are facing, his long-held view that companies like Cisco should get a tax holiday to repatriate their cash held outside the U.S. and many other things.

Also Chambers, remembering that I dedicated “How Ya Like Me Now” to Cisco last quarter as it turned the corner on its troubles, asked me what song I might use to characterize its results this quarter. Taking inspiration from the headline of my first story and from his cautiously optimistic tone, I settled on “It’s Getting Better All The Time,” the Beatles track, performed by Paul McCartney and embedded after the Q&A. Enjoy.

AllThingsD: John, I don’t know if you saw the headline I wrote earlier, but I said you fit into your skinny jeans again. Is that fair?

John Chambers: [Laughs] I think it’s fair. We were up about four or five inches there so I think we have an inch or two to go, but we’re getting close.

So let me ask about the quarter. It looks like a solid quarter where a lot of the troubles were starting to get behind you. In broad brush strokes, where were Cisco’s strengths? I know some of your competitors were having their own troubles, but where were you strong in particular?

The strengths were that we appear to be executing on the market transitions that are going on, and we appear to be reinventing ourselves, not just in terms of how we control our costs, but in terms of the productivity we’re getting out of our employees. So if you look at the major transitions going on in the industry from an economic point of view, to how customers buy, to where the high tech industry is going, which I would argue is all connected to intelligent networks, that all appears to be playing out as we had hoped. The other transitions that you think about, like data centers and the cloud, we saw 90 percent growth in an industry that is growing at best in the teens. Our ability to move in collaboration, where we grew 10 percent though I think we could do better — it remained solid for us. In video with set-top boxes up 23 percent to new video technologies growing well and seeing improvement in the margins. There are things we need to do to reinvent Cisco. I think I said this at your own conference a decade ago [Chambers spoke at D5 in 2007, but that is not where he made this comment. -Ed.] that voice will be free. It’s almost there. You could see the trend, and what it meant is that once voice would become a smaller part of the network load, that would be given away in order to make way for the video and the entertainment. The same trends are taking place all over again at multiple speeds and multiple gears, which if we’re right, they all play together. Everything from mobility to cloud to the intelligent network, to wireless to security, to video being pervasive, all of those are coming together at tremendous speed. And we’re pulling them all together pretty well for our customers. Now, this is just the beginning if we execute right, and we have plenty of hurdles in front of us, but this may be the voice-will-be-free trend times 10 in terms of the impact of the transitions going on. We appear to have managed them well; we did what we said we would do, turned in record earnings and record revenues, and earnings per share were up 48 percent. We’ve realigned ourselves and reinvented the company, which I think you have to do every five years. Sometimes it takes a crisis to reinvent. … It’s a journey and we’re just getting started.

What’s the number one hurdle that you want to get over this year, that’s in front of you right now and keeping you up at night?

I want to build deeply into our capabilities, a continued focus on gross margins and effectiveness, from product design to sales all integrated together. You probably know this, but we’re the only company who’s anywhere near this profitable with $45 billion in sales with open standards. It isn’t a mainframe business where everything is proprietary or like in Apple’s situation where it’s a wonderful company but it has an architecture. We do it entirely with open IP, so we can be challenged by a 10-person start-up or a by the biggest giants like Dell or IBM or Hewlett-Packard to come at us. With this type of margin but so low a barrier to entry, we’re doing relatively well. But we still have to reinvent ourselves at a faster pace. We have to do what I call the basic blocking and tackling to participate in the new capitalism that we’re heading into. That’s the attention to gross margins, getting the market transitions right, tying the products together so you can get the price premium on them. But what really keeps me up at night this last year was the realization that this has to be constant reinvention. Average is over. An average high-tech company is headed down. Those above-average companies are going to head down in 3 to 5 years. If as a company you can’t reinvent yourself every 3 to 5 years, you have a problem coming at you.

Does that then imply that Cisco had become complacent or even average? It was and is the biggest networking player, but did Cisco lose its way and try to do too much?

Well, I could give you a long list of things we have to do better. We’re a healthily paranoid company so we always have things we could do better. I do think we were fat. Four to five inches, not just one or two. We’re not back in our skinny jeans yet, as you put it, but we’re within an inch or so of getting there. We missed market transitions at the speed at which they occurred. We should have seen the drop-off in public spending coming at us sooner. Everyone else has still run off the turn, even though they saw what happened to us two to four quarters ago. We should have seen it sooner and reinvented ourselves before it hit us, and made the turn much more effectively, and I’m committed to doing that, and the leadership team is, too. It would have been easy to just cut a billion dollars in expenses, reorganize sales and how customers buy. We realized that gross margins can deteriorate not just because of what competitors do but what we do to ourselves, like what we did on switching. We should have been smarter there.

On the conference call you mentioned the possibility of getting back into the mergers and acquisitions game. Any hints on where you might go or whom you might buy?

I think it’s a fair question. Part of the reason we said that was to explain why we’re building up cash in the U.S. Part of it was for share buybacks because the price was attractive. A lot of people don’t realize that we use M&A deals to gain leadership. We were a routing company, we acquired three switching companies. We were an enterprise and commercial company, we acquired a service provider company in Stratacom. If you look at where it’s going to be, it’s probably in data center, collaboration and video, and combining those with security, bring your own device and mobility. A large part has to do with our government allowing us to bring money back to our country.

That’s always been a big issue of yours. You made some comments about it on the conference call as well. Care to elaborate?

I think that it’s going to happen in the next presidential administration whether the president is re-elected or someone else is. I’ve been disappointed that we haven’t been able to get our message out about this more effectively. Ironically, I was in Europe, the government leaders there look you right in the eye and ask what they need to do to bring jobs to their country and keep the ones they have. They are partnering with business. I think we’re following Europe in the wrong way and following more of what they did to get them in trouble in the first place.

There’s a bit of a disconnect, however, to anyone who sees on one hand a company that wants to bring cash back in a tax-advantageous manner in the name of creating jobs, while the same company just fired so many people in the restructuring. Can you connect those dots for the person who sees the apparent logical disconnect? If it’s about jobs, then why are you firing people in the first place? If you were having lunch with President Obama or any other political leader, they might be confused, so how do you explain it?

They’re related. The first thing you’ve got to do when you hit bumps in the market is find out how much of the damage was self-inflicted and how much was the result of the conditions of the market. It would be a cop-out to say it was all the general market. We had to look at what we were doing internally. Every government leader in the world who’s adding to government payrolls and adding government debt is going in the wrong direction. We have to use technology to deliver services better. You do see most government leaders saying they want to get their own houses in order. The second thing they do is look at ways to generate private sector jobs. I’m a strong Republican, but I think President Clinton got it right with business and knocked the ball out of the park. He partnered with business, he was critical where appropriate, but in six years he generated 22 million jobs, grew GDP on average by 4 percent per year, and he was America’s champion on the Internet. I think that’s a more practical example. He grew private sector employment versus government employment by a ratio of 9 to 1, and created a positive climate for business, and when business got out of line he’d whack ’em. I think it would be a major mistake not to let companies repatriate their cash because whoever is in the Oval Office next year is going to want to get private sector jobs growing again, and there really aren’t very many levers left to pull. We’ve never had this slow a recovery after this deep a recession.
–

Getting Better – Paul McCartney

“We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results — we hit our billion dollar expense reduction a quarter early — and our ongoing innovation enables our customers to solve their critical business needs,” was how CEO John Chambers put it in a statement.

I’m listening to the conference call, and will have a few more highlights. First there’s the guidance for the quarter ahead. Chambers and CFO Frank Calderoni said the company expects revenue to grow in a range between 5 percent and 7 percent year on year, which works out to sales of $11.4 billion to $11.6 billion, which beats the current consensus outlook. Calderoni also said Cisco expects to earn 45 cents to 47 cents a share, the higher of which is two cents higher than the consensus estimate of analysts. Expect some upgrades from analysts tomorrow on that news alone. Gross margins, Calderoni said, are expected to come in between 61.5 percent and 62 percent, which is also a bit higher than the 61.2 percent margin seen this quarter.

During his prepared comments, Chambers also said that while Cisco has been holding back on doing mergers and acquisitions, that may be coming to an end. “We will be more active with mergers and acquisitions in the quarters and years to come,” he said.

Another interesting stat: Chambers said productivity per employee rose 20 percent to $724,000. That tends to happen when the overall number of employees drops — which it has by about 6,500 over the last six months or so. But it’s also an indication that Cisco had some serious operational fat to trim.

The profit was better than the 43 cents that analysts had forecast, while sales were about $200 million better than the $11.23 billion consensus estimate. Cisco shares, which traded higher by nearly 1 percent during the regular session, rose by almost 4 percent to $21.07 by 4:10 pm ET in after-hours trading.

The earnings report also marks another step in the turnaround that CEO John Chambers ordered last year as the company’s outlook started to fall short and its growth prospects sputtered.

Cisco’s press release is below, and its conference call with analysts begins shortly, which is where we’ll hear the crucial forward guidance. I’ll add more to the post as Cisco adds color to the results during the call.

Cisco Reports Second Quarter Earnings

Increases Quarterly Cash Dividend to $0.08 per Common Share

SAN JOSE, CA–(Marketwire -02/08/12)- Cisco (NASDAQ: CSCO – News)

Q2 Net Sales: $11.5 billion (increase of 11% year over year)
Q2 Net Income: $2.2 billion GAAP; $2.6 billion non-GAAP
Q2 Earnings per Share: $0.40 GAAP (increase of 48% year over year); $0.47 non-GAAP (increase of 27% year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 28, 2012. Cisco reported second quarter net sales of $11.5 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.40 per share, and non-GAAP net income of $2.6 billion or $0.47 per share.

“We delivered strong performance this quarter with record revenue and earnings per share,” said John Chambers, Cisco chairman and CEO. “We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results — we hit our billion dollar expense reduction a quarter early — and our ongoing innovation enables our customers to solve their critical business needs. You will continue to see a focused and aggressive Cisco that is helping our customers use intelligent networks to transform their businesses.”

GAAP Results

Q2 2012 Q2 2011 Vs. Q2 2011
————– ————– ———–
Net Sales $ 11.5 billion $ 10.4 billion 10.8 %
Net Income $ 2.2 billion $ 1.5 billion 43.5 %
Earnings per Share $ 0.40 $ 0.27 48.1 %

Non-GAAP Results

Q2 2012 Q2 2011 Vs. Q2 2011
————– ————– ———–
Net Income $ 2.6 billion $ 2.1 billion 23.3 %
Earnings per Share $ 0.47 $ 0.37 27.0 %

Net sales for the first six months of fiscal 2012 were $22.8 billion, compared with $21.2 billion for the first six months of fiscal 2011. Net income for the first six months of fiscal 2012, on a GAAP basis, was $4.0 billion or $0.73 per share, compared with $3.5 billion or $0.61 per share for the first six months of fiscal 2011. Non-GAAP net income for the first six months of fiscal 2012 was $4.9 billion or $0.90 per share, compared with $4.5 billion or $0.80 per share for the first six months of fiscal 2011.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 5.

Cisco will discuss second quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Cisco Increases Quarterly Cash Dividend

Cisco also announced that on February 7, 2012 its Board of Directors declared a quarterly dividend of $0.08 per common share, a two-cent increase over the previous quarter’s dividend, to be paid on April 25, 2012 to all shareholders of record as of the close of business on April 5, 2012. Future dividends will be subject to Board approval.

“We’ve consistently reiterated our commitment to using the cash generated in our business to drive shareholder value, and to do so with a combination of stock repurchases, dividends, M&A and R&D,” said Frank Calderoni, Cisco chief financial officer. “This quarter, with the strength of our business, we’re pleased to announce an increase in our dividend. Going forward, we will continue to focus on driving the greatest return for our investors.”

Other Financial Highlights

Cash flows from operations were $3.1 billion for the second quarter of fiscal 2012, compared with $2.3 billion for the first quarter of fiscal 2012, and compared with $2.6 billion for the second quarter of fiscal 2011.
Cash and cash equivalents and investments were $46.7 billion at the end of the second quarter of fiscal 2012, compared with $44.4 billion at the end of the first quarter of fiscal 2012, and compared with $44.6 billion at the end of fiscal 2011.
During the second quarter of fiscal 2012, Cisco repurchased 26 million shares of common stock under the stock repurchase program at an average price of $17.84 per share for an aggregate purchase price of $466 million. As of January 28, 2012, Cisco had repurchased and retired 3.6 billion shares of Cisco common stock at an average price of $20.47 per share for an aggregate purchase price of approximately $73.8 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $8.2 billion with no termination date. During the second quarter of fiscal 2012, Cisco also paid a cash dividend of $0.06, or $322 million.
Days sales outstanding in accounts receivable (DSO) at the end of the second quarter of fiscal 2012 were 31 days, compared with 35 days at the end of the first quarter of fiscal 2012, and compared with 40 days at the end of the second quarter of fiscal 2011.
Inventory turns on a GAAP basis were 11.1 in the second quarter of fiscal 2012, compared with 11.2 in the first quarter of fiscal 2012, and compared with 10.6 in the second quarter of fiscal 2011. Non-GAAP inventory turns were 10.8 in the second quarter of fiscal 2012, compared with 10.9 in the first quarter of fiscal 2012, and compared with 10.0 in the second quarter of fiscal 2011.

Select Global Business Highlights

Cisco completed its acquisition of privately-held BNI Video, which supplies service providers with two major video products that offer video back-office and content delivery network (CDN) analytic capabilities.
Cisco released its seventh annual Corporate Social Responsibility report which details how Cisco applies its expertise, technology and partnership strategies to address environmental, social and governance issues.

Cisco Innovation

Cisco announced that in just over two years its new Cisco Unified Computing System™ (UCS), which integrates computing, networking, management and virtualization, has captured the attention of data center managers and CIOs alike — to date, over 10,000 customers worldwide, including 3,000 in Europe, have deployed Cisco UCS.
Cisco introduced Cisco CloudVerse®, a framework that combines the foundational elements required to enable organizations to build, manage and connect public, private and hybrid clouds.
Cisco announced that Cisco Videoscape™ will now help enable new “video in the cloud” services that can drive new revenue streams for service providers and exciting new video entertainment experiences for consumers.
Cisco announced the addition of new solutions and services to its Connected Grid portfolio that will help utilities modernize the electric grid with built-in flexibility, security and interoperability enabled by the power of the network. Cisco’s new technology architecture, solutions and related services address key utility concerns around cost, reliability and scalability in their communications infrastructures.
Cisco announced a series of advancements that can give midsize businesses access to “enterprise-grade” IP phone systems with integrated collaboration capabilities without taxing already constrained IT and financial resources.

Select Customer Announcements

Verizon will extend its next-generation 100G capabilities in select U.S. markets, including Atlanta, Boston, Chicago, Dallas, Los Angeles, New York and Seattle, by deploying Cisco’s CRS-3 Carrier Routing System platform to terminate high-speed connections closer to the “edge” — the part of the network nearer to the customer’s network facilities.
Canada’s Woodstock Hospital has chosen a Cisco Medical-Grade Network for its brand new facility, providing a highly resilient, innovative and economical solution to improving health services and advancing patient care.
Cisco Cius™ was part of the Petrobras Gas Station of the Future technology portfolio launched by Petrobras Distribuidora, a subsidiary of Petrobras, and Intel, in Brazil.
Cisco announced that Warsaw’s brand new National Stadium is implementing the Cisco Connected Stadium solution. National Stadium in Poland is one of the venues for next year’s UEFA EURO 2012™ European Football Championship.
MEED Networks in Nigeria is set to deploy a Cisco Borderless Network Architecture at Ahmadu Bello University, the largest university in Nigeria and second largest in Africa.
Telstra and Cisco have enabled members of the Australian Government to meet face-to-face without the need for costly travel, following the successful deployment of one of the largest national telepresence networks in the country, the Australian Government’s National TelePresence System.
Cisco announced that Dutch service provider KPN has chosen the Cisco CRS-3 multi-chassis Carrier Routing System, which will be deployed at the heart of KPN’s Internet peering network.
Cisco and Swisscom are equipping 200 pharmacies in Switzerland with Cisco TelePresence® video communication systems. Launched recently under the name netCare, this two-year pilot project will help enable the provision of advanced telemedicine services.

Cisco’s recent history is peppered with instances of missed quarters that deliver on results but offer poor outlook. After a restructuring that saw the company cut 6,500 jobs, kill its consumer-oriented products, sell off its Mexico-based manufacturing operations to China’s Foxconn and recalibrate its long-term growth expectations with the financial community, the pressure is on Cisco and its CEO John Chambers to show that the changes were not only for the better, but that they’re taking hold.

Cisco is supposedly back in fighting trim. A new ad campaign, coupled with aggressive strategies in new market areas like cloud computing, coupled with a pivot away from unsuccessful consumer products, suggest that the company is back on track. But can the apparent progress made last quarter stick?

Analysts are expecting a profit of 43 cents a share on sales of $11.23 billion. Analyst Sanjiv Wadhwani of Stifel Nicolaus expects the results to come in slightly better than that. Writing in a research note to clients last week, he checked Cisco’s channel and found that sales of switching products, weak in recent quarters, appears on track to better than expected. Router sales appeared stronger versus competitors, specifically Juniper, despite a relatively weak environment for IT spending overall.

Geographically, spending in the U.S. was steady and, surprisingly, so was spending in Europe, except for in southern European countries like Greece and Italy, were the sovereign debt crisis has been so acute.

Weaknesses will be apparent, Wadhwani says, in sales of set-top boxes, suffering, in part, because of the shortage of hard drives as a result of the flooding in Thailand. Gross margins, a key metric of profitability, may be down slightly in part of a large sale of aggressively priced routers to China. One bright spot of note: During the quarter, Cisco announced that its Unified Computing System — its cloud computing hardware offering — has reached 10,000 customers and is, roughly, a $1 billion business.

Wadhwani says he expects Chambers to set a positive tone in his guidance. “As far as orders are concerned, feedback has been generally positive and consequently we expect the company to provide solid guidance for April. We also expect a positive tone from CEO John Chambers with optimism about the U.S. leading the world in an economic recovery.” That would be a nice change from the depressing results announced a year ago.

On Monday, the company is officially taking the wraps off its plans. Nicira — which I’m told is pronounced like “nice era” — aims to be the vendor of a new networking technology that’s built specifically for the age of cloud computing.

One of the most important enabling technologies of the age of the cloud is something called “virtualization”: As computers have gotten more powerful, thanks mainly to the progress of Moore’s law and ever-better chips — a single computer can, with the aid of software like that created by VMware, act like it’s 10 or 20 or 40 different computers, all at once. Each “virtual machine” has, to its user, all the properties of a physical computer, and ensures that a single machine is used in the most efficient and cost-effective way possible. Customers who use cloud services can quickly “spin up” new virtual machines as needed to meet new demands, usually within minutes.

But generally speaking, networking hasn’t kept up. The pipes through which bits pour in and out of data centers have gotten faster, but they haven’t gotten much smarter. Where cloud servers are flexible, precise and easy to manage, networks are, by comparison, blunt instruments. Meeting new demand means adding new capacity, and that usually means adding new hardware to the mix, and that usually takes weeks, if not longer.

If you’ve ever wondered if it were possible to “spin up” a virtual network as readily as you do a virtual machine, wonder no more, for that is precisely what Nicira wants to offer you, without the addition of a single new piece of hardware, but rather only some software that runs on your existing server. You don’t even need to have especially advanced networking hardware.

Its the kind of thing that could give big enterprises some new flexibility in managing their network infrastructure, particularly as need and demand peaks and drops, whether by the day or because of a seasonal change that happens just once a year.

The company already has customers: AT&T, eBay, Fidelity Investments, Rackspace and the Japanese telecom giant NTT are all using Nicira, the company says.

Nicira calls its product an NVP, or network virtualization platform, and it is being described as the sort of advance that comes along perhaps once every quarter-century. That’s a bold claim, but the argument on which the company is making it holds water. On a day-to-day basis, where you deploy an application in a data center is as much a function of how much networking capacity you have available as it is one of computing capacity.

Virtualization on servers allows you to spread a single app over as many physical machines as needed, but the network connecting those machines is what it is, and if it isn’t up to snuff, you can either enhance it by adding new routers and switches, or live with it. The result is that you can’t be as flexible with deploying apps as you’d like, and that certain machines end up being underutilized by as much as one-third, which is costly over time. You end up having to buy more servers, then pay to run them and cool them.

The Nicira NVP, as CEO Stephen Mullaney told me, “decouples” a virtual network from the physical network hardware. “All of the intelligence, all of the control, all of the services now get done in the virtual space.” The result, what was once a dumb networking pipe carrying bits into two different virtual machines running on the same one, can now be programmed to act in vastly different manners, according to rules in the virtual realm. In much the same way a single computer gets turned into a dozen, a single network can be subdivided and act like a dozen individual networks. Or the reverse: Several networks can be cobbled together to act like one. And a virtual network can be created on the fly in minutes, just like a virtual machine.

A network you can deploy in minutes saves a lot of money, because it allows you to move quickly as your networking needs change. Most big companies who demand the heaviest network loads have agreements with their service providers — usually big telecom companies — that a request for new capacity requires a week or more, because it requires the physical presence of technicians who have to install and provision new gear. But what if you can reconfigure your network in 30 seconds to meet the needs of some new application? That’s exactly what eBay’s Cloud Architect JC Martin found he could do after installing Nicira’s software on the company’s servers. EBay is a Nicira reference customer.

Other reference customers had other interesting experiences and uses to report. Japan’s NTT uses cloud data centers to run some 10,000 virtual desktops — think PCs that are all virtual machines — and found that it was easier to quickly switch between data centers during the rolling blackouts that have become the norm since that country’s earthquake last year.

There is, of course, a great deal more technical detail, but the point you have to get is that this company is out to disrupt the networking industry in a way that it hasn’t been disrupted in a long time. The traditional solution to networking problems is more, better, faster hardware, and companies like Cisco, Juniper, and Hewlett-Packard, among others, are constantly on the lookout for opportunities to sell more of that hardware.

But what if you could look a sales rep from one of those companies in the eye, and tell them that their latest million-dollar router or switch isn’t needed? Once upon a time, before the days of virtualization, if you needed a new server, you had to buy one and have it installed somewhere. Now you can, in most cases, rent space on one within minutes, or literally provision another with a few clicks of a mouse. It changed the expectation and much of the calculus of the IT industry. Many companies never buy their own servers at all, and rent space from cloud providers like Amazon, Rackspace and Joyent.

Exactly what a similar disruption might mean for networking vendors is a little hard to imagine, but if the folks at Nicira are right about the potential this technology of theirs has, it looks like that disruption is coming, one way or another.

I’m told Nicira has just made another key hire, again from Cisco Systems. Bruce Davie, a longtime Cisco employee and a Cisco Fellow, has joined Nicira as its Chief Service Provider Architect.

Davie is pretty well known in networking circles, and is one of the co-inventors of MPLS, or multiprotocol label switching, which is a fundamental basis for the high-end business class Internet service that many carriers deliver.

Davie joined Cisco in 1995, and has been a Cisco Fellow since 1998. Since 1997, he has worked in the Internet Technologies Division at Cisco, and leads a group that represents the company before the Internet Engineering Task Force. If there’s anyone who truly understands how the Internet’s pipes really work, he’s probably among them.

Before Cisco, Davie worked at Bellcore, a.k.a. Bell Communications Research, the old research and development arm of the regional phone companies, or “Baby Bells,” that resulted from the 1982 court-ordered breakup of the old AT&T. Bellcore is still around; it eventually became Telcordia and ended up in the hands of Swedish telecom concern Ericsson, in a deal that closed earlier this month.

Davie has a B.E. from Melbourne University, and a Ph.D. in Computer Science from Edinburgh University. He is the author of three books on networking, and lots of technical papers. He is also an active participant on both the Internet Engineering Task Force and the Internet Research Task Force; a senior member of the IEEE; and has, in recent years, been a visiting lecturer at the Massachusetts Institute of Technology.

Davie would appear to be the eighth person at Nicira (by my likely incomplete count) with a Cisco connection. Its CEO is Steve Mullaney, a veteran networking executive who has worked at Palo Alto Networks, ShoreTel and Cisco. Its CTO and co-founder, Martin Casado, did his Ph.D. on the technology the company plans to bring to market. Its other founders, Nick McKeown and Scott Shenker, are electrical engineering profs at Stanford and Berkeley, respectively. Last January, the outfit also hired Rob Enns, a veteran of Juniper Networks, as its VP of engineering.

There’s still no official word about what Nicira is doing, but all these hires are making it look ever more interesting by the day. Nicira is working on technology aimed at “virtualizing the network.” Data center networks today are too inflexible, complex and costly, especially in the age of the cloud, when everything is on-demand, flexible and cheap. Nicira’s Web site says the product is a software solution that runs on existing networks, requires no new hardware and is aimed directly at large-scale cloud data centers. Interesting, indeed.

The spot depicts a batch of assembly-line robots busily building cars, as an instrumental version of the 1979 Gary Numan hit “Cars” plays happily. All is well until one of the robots experiences trouble and complains to the others, “I’m broken.” No problem, one of the others says, fixes his stricken comrade, and all is again well. Cue the voice-over, saying something about assembly lines that repair themselves. Then cue the corporate logo, aaaand … out.

The spot — which has exactly 100 percent less Ellen Page than the last series of Cisco TV ads — is part of a significant new advertising offensive that Cisco is launching today on television, in print and online. The TV spots will appear during the NCAA basketball games, the National Hockey League’s All-Star Skills Competition, and on CNBC and other business-oriented programming. However, it notably won’t appear during the Super Bowl.

Those robots will be seen again, disassembling and reassembling sections of certain Web sites as part of a series of “site takeovers,” including CNBC and The Street, among others.

The print portion is a six-page “manifesto” that explains ways that Cisco’s “Human Network” plays important and unexpected roles at banking companies and companies that sell chutney, and helps the National Basketball Association push its video around the world. The manifesto will appear in The Wall Street Journal (which, like this Web site, is owned by News Corp.), the Economist and the New York Times.

There will also be a social campaign via LinkedIn that goes after 140,000 C-level executives registered on that network. It will be the first time that embedded video will be used in a LinkedIn campaign. More TV ads will come later this year, as will localized versions of the campaign for international markets.

Last week, I talked with Blair Christie, Cisco’s chief marketing officer, who said that the manifesto in particular is about using the voice of its customers to show how Cisco’s technology can help companies do things they couldn’t do before. Of course, the point they’re supposed to get is that a Cisco intelligent network is what’s enabling them to do that.

Christie says it’s all part of Cisco’s effort to simplify how it communicates about itself. There’s no more muddling of the message. There’s no more consumer division to eat into the perception that Cisco is anything but an enterprise- and service-provider-focused networking company, so no more need for cute ads that overdo awkward jokes about teleconferencing, or showing a giggly twentysomething woman in a virtual fitting room. Cisco is now about transforming how companies do what they do, either by doing it better, or seeing new opportunities. It’s a big message, and a tricky one to get across in 30 seconds during a football game.

I asked Christie about the state of Cisco’s brand before this campaign, and whether or not there were any perceived weaknesses, given its recent troubles, that this ad effort is meant to shore up. “There was actually a lot that was right with our brand,” she told me. “The opportunity we had was clear and simple. Our customer voice is our talent, and that’s what we’re showing, and it’s consistent with our strategy. We use our customers as a test bed, so why not use them as a reflection of our brand? It wasn’t rocket science. But it was the customer voice that was missing.”

Simplifying and streamlining are themes that Cisco is certainly acquainted with of late. It has been doing a lot of those, and indeed, even shrinking itself as part of a broad-based restructuring. The results of that effort are starting to show up in Cisco’s results.

Time will tell if this new advertising campaign will help Cisco effectively reintroduce itself to its core customers; fight off strong competitive thrusts from the likes of Hewlett-Packard, whose networking division marketed itself aggressively against Cisco in 2010; and perhaps press a perceived advantage against Juniper Networks, which has been having its own problems.

What I find notable, or maybe missing from the campaign, are recognizable names of customers doing innovative things. Yes, there’s the NBA, but in the print manifesto, who’s the bank that’s using Cisco’s video TelePresence to interact with customers? Who’s the small chutney company that turned “browsers into buyers”? And who’s the car company with such smart assembly-line robots? It’s a good message that, to my mind, could be made a lot more effective with more specific examples.

And while I grant it’s often difficult to get customers to agree to be named in ads like this — you could almost hear CEO John Chambers’s frustration about not being allowed to name a certain banking customer, about which he was obviously proud, on a recent conference call — the biggest networking company in the world shouldn’t have such a problem. It should be able to brag that this or that household-name bank is an enthusiastic Cisco customer, and that Cisco networks powered the manufacturing of that popular car everyone is talking about right now. That would add some real oomph, and really serve to remind potential customers that Cisco is still, despite its recent missteps, the networking world’s alpha dog.

Anyhow, my critique aside, here’s the robots spot. Enjoy:

Cisco Robots from Arik Hesseldahl on Vimeo.

The new forecast calls for companies and governments to spend a combined $3.8 trillion on information technology, which would amount to growth of 3.7 percent from 2011. The previous forecast had called for growth of 4.6 percent.

For perspective, the difference on a dollar basis is about $100 billion, which is certainly real money, but when you consider the various puts and takes affecting the projected spend, it makes a certain amount of sense.

Gartner says that all four of the major technology sectors it tracks — computing hardware, enterprise software, IT services, and telecom equipment and services — will see their growth rates slow this year.

You can probably guess why: The uncertain global economy, the euro zone sovereign debt crisis and the disruptions on the hardware supply chain from last year’s flooding in Thailand on hard-drive production have all teamed up to perform a triple whammy on the tech sector. The Thailand problem will probably last until well into 2013, Gartner’s Richard Gordon says in a statement, echoing what Seagate CEO Steve Luczo told AllThingsD in an interview in November.

Telecom equipment spending will probably suffer the least, Gartner says. Sales in that sector will grow by nearly 7 percent to $475 billion, followed by the enterprise software market, which will grow by 6.4 percent to $285 billion. The chart at the right, which I screengrabbed from Gartner’s handout, breaks down the revised outlook by each sector versus what the previous growth outlook had been.

Gartner also trimmed its average annual growth projection for IT spending through 2015. It now expects spending to grow by about 5 percent on average, down only slightly from 5.4 percent, but in the wider scope of a few trillion dollars, a fractional change still amounts to hundreds of billions of dollars.

Julie Bort of Business Insider got a Cisco spokesman to confirm it.

A little more than a year old, Umi was Cisco’s attempt to get consumers using their TVs for home videoconferencing. At $600, it was expensive, unwieldy, and ran up against the fundamental problem that consumers really don’t want to talk to each other from their living rooms in high definition. Also: Skype is pretty good, and it’s free, and there are other ways to videoconference without dropping big bucks.

Anyway, due credit goes to Cisco for trying. At least this time it chose to kill the product quietly, unlike the PR blowback it got when it killed its Flip videocamera last year. And Umi is not so popular a product that there will be a similar hue and cry this time around.

Also? No more awkward Cisco TV ads starring Ellen Page. Here’s one she did for the Umi: