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.

Shares are down more than $4, or about 13 percent. The freakout appears to be coming from gross margins that shrank to 51 percent from almost 59 percent in the prior quarter, and despite the fact that sales more than doubled sequentially to $84 million from $31 million before.

CEO David Flynn called me up a little while ago to talk about the results, and he reminded me that Fusion launched its new IO Drive 2. It’s a transition to a new product line that’s proving tricky. New products built on new technologies are always a little more costly to build up front, and that’s compounded by the fact that early adopters, when they buy the new stuff, take the lower-end version and not the more expensive and more profitable one.

Also, enterprise customers who buy the new stuff are always conservative and take longer to decide whether they want to buy it or not, he says. Even so, the company has sold 10,000 of the new drives.

But? There’s a new customer of record: Salesforce.com is now a Fusion-io customer, and has joined the likes of Apple and Facebook, which is using the flash-based chips in the servers running in its data centers around the world.

And Salesforce isn’t buying it directly from Fusion, but rather through one its OEM partners, which include Hewlett-Packard, IBM and Dell, though Flynn wouldn’t tell me which one it is.

Salesforce is one of six customers who bought more than a million dollars worth of Fusion’s stuff this quarter and of those, four were repeat customers, Flynn told me.

The Salesforce win is also important, Flynn says, because some have wondered whether Fusion’s technology, while popular with high-end enterprises like banks and Facebook, would make sense for applications that tend to be used in mid-tier businesses, which Salesforce’s mainline CRM application often is. The lower end of the enterprise software market is moving toward cloud-based software, which is often referred to as Software as a Service, or SAAS. “By helping those companies, we are indirectly driving business in the mid-range of the market. Apple and Facebook are in the SAAS business too, it’s just that their customers are consumers.”

One interesting fact that Flynn shared with me: His first job out of college was working for Oracle. His boss at the time? One-time Oracle exec and now Salesforce CEO Marc Benioff. A small world it is, indeed.

The deal also is seen benefiting Intel’s data-center operations, where revenue jumped 17 percent in 2011 and topped $10 billion for the first time. Kirk Skaugen, general manager of Intel’s data center and connected system group, said the technology will “bring increased options” to the company’s data-center customers.

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Veghte joined HP in 2010 after 20 years at Microsoft, where he managed the $15 billion Windows business and oversaw the launch of Windows 7. At HP, he has been credited with growing its software revenue by 18 percent last year.

Given Veghte’s history as a software guy, his appointment to this role can’t help but be seen as a key signal by CEO Meg Whitman of the role she sees software playing in HP’s strategy going forward. That was one of the things I asked Veghte about when we spoke by phone earlier this week.

AllThingsD: What, in your view, is the role of the chief strategy officer at HP, and what do you expect it to entail in the coming year?

Bill Veghte: As we’re out talking to customers, they’d like to buy more from HP; they’d like HP to be more successful. They look at the advances we’re making in networking or storage or printers, but they want to know why the whole is greater than the sum of is parts. What is HP’s strategy for continued leadership in the market transitions that are going on? And some customers would say that where HP is concerned, that’s not a fully realized opportunity.

And you’re coming at it from the software part of the business, and we’ve heard from Meg saying she’d like to grow opportunities in software. Your appointment, to me, sends a bit of a signal that software is going to be a big part of HP’s strategy to get things turned around. Is that accurate?

I think, certainly, as I talk to Meg and Ray [Lane, HP chairman], and with the members of the executive committee, I’ve found that this is a catalyzing role. If done right, there are different models of strategy in different Fortune 500 companies. And the one that makes sense here is catalyzing with other business units. Whether that’s Vijay Joshi in printing and imaging, or with Todd Bradley in PCs, or John Visentin in the enterprise group, there’s a strategy that each one of those is trying, and which is accretive to a whole that is greater than the sum of the parts. And so, to the extent that software is glue or networking is glue, I think it’s a statement that has more to do with a pan-HP strategy than something that’s specific to software.

What’s Job One, starting on your first day?

Job One is making sure that as we have those conversations with customers, they see an HP that is unified around a set of constructs and offerings that deliver what they need. It’s different from having offerings that are, by themselves, individually great. It’s about having unifying themes and constructs.

It seems that you’re talking about finding a way to routinely and thoughtfully combine different things that HP makes or does, in ways they aren’t being done now. Is that what you’re getting at?

I think that very accurately characterizes the opportunity. When we talk to the leadership team, we hear a lot of the same thing. There is a lot of great stuff within HP, whether you get that in terms of market position, or IP, or people. I like how you put that: How do you routinely and thoughtfully combine things, particularly in light of the market inflections that are happening. We are in a tectonic shift, and that can be an opportunity, if you clearly spell out the value proposition for customers. Not only in each one of the units, but where you’re thoughtfully combining them so that the whole is greater than the sum of its parts.

I thought of an example around meeting the needs of the market. There was an IHS iSuppli report out earlier this week about cloud servers, which are growing. But customers are going to Taiwanese ODM companies to get customized products, while at the same time cloud servers are growing generally. Is this the sort of thing that might affect HP?

I was talking to Dave Donatelli [general manager of Enterprise Servers] about this recently. It’s interesting, because it seems like in more recent months it has flipped back, because of the integration within that customization. A great example that Dave and I have been working on is the whole cloud system piece. You’ve got a lot of great stuff in automation and orchestration software that is inherently cross-platform, and which crosses virtualization engines and marrying that deeply with the converged infrastructure. We’re the only company that can give you a single stack, soup to nuts, from a single vendor. The core construct is that there’s a lot of private cloud build-out going on, and those customers who are doing it are saying they don’t want to be the systems integrator for six different vendors, and they also prefer not to be locked in to a single vertical stack. That’s a huge advantage for us. And to your point about routinely and thoughtfully combining, we should do exactly that. It’s been doing well for us in the marketplace, but how do you make that routine against the opportunities we see in the marketplace?

You spent about 20 years at Microsoft. How does that inform what you’re bringing to this job?

At the core, any of these jobs are about identifying and exploiting market shifts for customers. I had the privilege of having a front-row seat during some big marketplace disruptions, and helping catalyze businesses and delivering superior market positions and solutions. It’s all about handling change, and turning it into an opportunity.

In 2011, it crossed the threshold of $50 billion in annual sales for the first time, having hit the $40 billion mark only last year. This came after a tough year — 2009 — during which sales declined a bit to $35 billion, down from $37 billion in 2008. But the larger point is clear: Intel continues to be a significant growth machine in a tech ecosystem that is supposed to be on the decline.

Who says so? “The experts.” Earlier this month, Gartner and IDC both reported what they described as the second-worst year for PC sales growth in recorded history, second only to the doldrums of 2001, when the world was beset by the dotcom crash, the onset of the global war on terror and general recession, all in one. This came after the same two outfits made similarly depressing predictions for worldwide IT spending.

Intel’s results tell a different story. Consider its strengths: Sales in its data-center group — chips being sold to companies building servers that will be used to power data and applications running on the Internet — grew 17 percent year on year to north of $10 billion. And the lowly PC? The machine that is said to be on the decline by so many people who claim to know what’s going on? Sales in Intel’s PC client group grew by more than $5 billion year on year to north of $35 billion.

How can that be possible? It’s an argument that Intel has been making for some time now, and is now becoming familiar: Persistent strength in emerging markets. As Intel CEO Paul Otellini said on a conference call with analysts today, emerging markets, where household incomes are improving to the point that consumers are able to buy their first PCs, are accounting for two out of every three units of incremental microprocessor demand. Which means that for every three chips of new growth sold in a year, two are sold in an emerging market.

PC sales in China, by Intel’s reckoning, grew 15 percent, and as yet have only achieved a household penetration rate of 35 percent, which says there’s lots of room still to grow. By comparison, the U.S. market is 90 percent penetrated, meaning nearly everyone who wants a PC has one. India grew 22 percent; Indonesia, 37 percent.

Here’s another really interesting metric that should give you some food for thought: In 2012, Intel will spend $12.5 billion on capital expenditures. That’s more than twice what it spent last year. What is it spending so lavishly on? Four new chip factories — in Oregon, Arizona, China and Israel — which, when completed, will turn out chips built on the very latest, edge-of-reality technology, where chips have transistors and other elements on them that are at the 14-nanometer scale.

How small is 14 nanometers? About one-fifth the size of a typical virus cell, and only slightly bigger than the thickness of the cell wall of a typical germ. Next year, there will be four factories, employing thousands of people, turning out thousands — and later millions — of these miniscule fragments of silicon that arguably constitute some of the most complex implements mankind has ever built.

And Intel does this profitably, which is so difficult and requires such financial scale that most companies that make other kinds of chips long ago gave up running their own factories and farmed the work of actually building them to other companies. Intel is so good at it that its gross margins in 2011 were 62.5 percent. Its full profit for the year was nearly $13 billion on $54 billion in sales.

Yes, we beat on Intel for not having conquered the smartphone industry or the tablet industry as readily as it spent the 1990s bending the PC industry to its will. There is a school of thought that says Intel is less relevant today than it was, say, five years ago, and that its anemic presence in the future of personal computing — smartphones and tablets — is all the evidence one needs to render that judgement. In fairness, smartphones and tablets are still on the rise, and Intel is starting to show some promising progress, though its competition and an industry-wide preference for chips based on the ARM architecture will be difficult to dislodge.

Still, it’s a little hard to find much fault with Intel, when the numbers so clearly demonstrate that, despite the conventional wisdom, it is clearly at the height of its powers.

Apple isn’t commenting and is officially treating all this as rumor and speculation (it rarely comments on acquisitions, anyway). But the deal is being reported in Israeli newspapers, and the office of Israeli Prime Minister Benjamin Netanyahu tweeted a welcome message to Apple today, which sure feels like confirmation. So I’ll proceed under the assumption that the reports of this acquisition are true.

Welcome to Israel, Apple Inc. on your 1st acquisition here. I’m certain that you’ll benefit from the fruit of the Israeli knowledge.

December 20, 2011 2:55 am via webReplyRetweetFavorite

@IsraeliPM

The PM of Israel

That makes this a cause for celebration. With the Anobit buy, Apple is now the latest member of the Flash Madness Club, which I created over the summer, in the wake of the Fusion-io IPO and other activities by notable flash-technology companies like Violin Memory, Pure Storage and Qwilt.

So why is Apple willing to throw down a reported half-billion dollars on this company? It’s because flash memory has a fundamental problem: As it ages, its ability to store data wears off. This problem is sometimes compared to the semiconductor equivalent of Alzheimer’s. Individual cells on the flash-memory chip lose their ability to store the individual ones and zeros that make up the pictures and music and other data they may be storing, especially after millions of read-and-write operations — the act of putting data on the chip and then loading it from the chip for use. After a lot of heavy use — this can vary depending on the chip — the chips begin to suffer problems with “endurance.”

As flash starts to show up in data centers and PCs and other places beyond consumer gear like iPhones and iPads, this becomes a more important problem. If your iPad gets old enough to suffer data-endurance problems, it’s a pretty simple matter to replace it. But in the more rigorous world of an enterprise data center, where millions of reads and writes will be done on a chip daily, data endurance is a potentially very expensive problem. In the enterprise, a solid-state drive is considered suitable only if it can stand up to five full-drive write cycles, where the drive is filled to capacity and then erased every day for five years.

Anobit’s solution to these problems involves techniques known as memory-signal processing and the use of some secret-sauce memory-processing error-correction algorithms, plus some management tricks for moving data around a flash chip in more efficient ways, in order to make them last longer.

It’s also the sort of problem that a company like Apple — which is the world’s largest consumer of flash memory, and has been for several years — would want to solve. Think of the many places where Apple uses flash — the iPad, iPhone, iPod, MacBook Air and Apple TV. And those are just the products we know about, so far. Flash can’t help but appear in many more products.

On top of that, flash technology plays a significant role in Apple’s data centers. Fusion-io, the company that builds flash-based insert cards that speed up garden-variety servers, has named Apple as a significant customer, so there’s plenty of flash inside Apple’s facilities in North Carolina. Flash endurance can’t help but be a problem Apple might face with its iCloud service, for example.

Israel has a big connection to the flash industry. SanDisk’s founder, Eli Harari, is Israeli; a few years back SanDisk acquired an Israeli company called Msystems, which, if my memory serves, was the first to popularize what we now call a thumb or keychain drive. So, historically, there have been a lot of useful innovations on flash memory that have come out of that country. Supposedly, the deal calls for Apple to open a research center there, so it will get the benefit of ongoing innovations on flash. Chances are it’s going to need a few.

Today, Cisco finally laid out a cohesive strategy to become a significant player in the cloud business. It announced an offering called CloudVerse that combines three big elements — its Unified Data Center, Cloud Intelligent Network and Cloud Applications — into a big portfolio aimed at companies building out their data centers.

The idea is basically this: If you want to build a cloud, either to resell cloud services of some kind or for your company’s own internal operations, Cisco wants to talk to you. Under the CloudVerse tent are a bunch of offerings including computing, networking, collaboration and software for automating and managing it all.

Cisco named a handful of companies who are already CloudVerse customers, and a few will catch your eye, because they’re big. One is Terremark, the Web-hosting and cloud-services outfit that telecom giant Verizon acquired earlier this year. Others include Telecom Italia, Telefonica Spain and Fujitsu.

Naturally, Cisco is hoping to use its position as the supplier of choice for networking gear as a springboard into selling more stuff inside the data center, and it already has key relationships with many a corporate CIO. A key part of its go-to-market strategy will be convincing those CIOs that it has something unique to offer.

Here’s one such thing: The Network Positioning System and Cloud-to-Cloud connected. Imagine you have a sprawling set of far-flung data centers around the globe. When one center gets starts to get close to reaching its capacity load — maybe it’s Cyber Monday or something — Cisco’s NPS technology allows the routers in one data center to start automatically looking around for capacity elsewhere, to keep things humming along.

There’s a lot more detail to it, but it’s worth pointing out that, as a percentage of Cisco’s business, the cloud business isn’t huge. On an earnings conference call with analysts last month, CEO John Chambers said that the Unified Computing System that forms the backbone of its server business had recorded 116 percent revenue growth year over year; even with that, it’s on run-rate to being a $1 billion annualized business. If it hits that mark in Cisco’s fiscal year 2012, which ends in July, it will amount to about 2 percent of estimated annual sales.

But Cisco expects the cloud business opportunity to grow like crazy. Last week, it issued something called the Cisco Cloud Index, which estimates that more than half of all computing workloads will be running in data centers by 2014, and that the daily traffic conducted on cloud services of various types will amount to 1.6 zettabytes per year. My math may be off a bit, but compare it to the scale of your average hard drive — a zettabyte amounts to a billion terabytes, or a trillion gigabytes. Cisco describes it as enough data to amount to four days of high-quality video streaming for every person on Earth.

It’s a serious opportunity, no doubt. The question is whether or not Cisco can exploit it in a manner that moves the needle. Doing so is an important part of the strategy that Chambers set forth as part of the epic restructuring that has been going on at Cisco since last year. Investors seem to like what they see, as Cisco shares are trading at $18.80 today, which is up 41 percent from a recent 52-week low. As turnarounds go, it does look like progress.

Fusion-io shares closed at $38.10 — up 9.17 percent — during the regular session, and continued to climb by an additional 1 percent in after-hours trading. The shares have increased by more than 100 percent since they debuted on the New York Stock Exchange at $19 early this summer.

The main news came in the form of a new product, and the publication of news that Fusion-io technology was used in a high-performance computing project at the Lawrence Livermore National Lab.

People tend to think of Fusion-io as building traditional storage, but its main mission is to get data closer to the processor in a server, so that that processor doesn’t have to sit around waiting. Processors are super speedy and super impatient. Think of the processor as the impatient Miranda Priestly — played by Meryl Streep in “The Devil Wears Prada” — and how Anne Hathaway’s character, Andy Sachs, is never fast enough for Priestly about handing her something she needs right away. Microprocessors hate nothing more than waiting for a hard drive to serve up the data they need.

Fusion-io’s drives try to speed that process up — and make microprocessors happier — by using flash memory built into an insert card and installing it close to the processor in a system. The news, announced at the Supercomputing conference in Seattle today, is that Fusion-io debuted a 10 terabyte version of its high-end ioDrive Octal product. You can now pack four of these into a single server, and have 40 terabytes of data right up close to those impatient processors. Companies like Hewlett-Packard, IBM, Dell and Supermicro build Fusion-io’s products into their own products.

The other news also had a supercomputing wrinkle to it. A machine that Lawrence Livermore called “Leviathan,” packed with Fusion-io cards and Intel processors, broke a record in processing a graph with more than 68 billion nodes. Well, it didn’t just break the record, it shattered it, as that number of nodes in a graph is four times the prior record. What that means, in English, is that the computer plotted a mathematical graph with more than 68 billion points of data.

Apparently — and I’m just learning this now — there’s a separate version of the Top 500 list called the Graph 500 which focuses on simulating 3-D problems.

It’s a lot to take in, but the main point is that Fusion-io seems to be showing that it has a going business. Critics of the company have argued that it relies too heavily upon its biggest data-center customers like Facebook and Apple, and that it will be vulnerable to slowing sales when those companies are through building their infrastructure. The problem with that argument is that there’s always another impatient processor throwing an impatient diva fit while waiting for data.

Also, I should note that today’s 9 percent move comes after Fusion shares fell about the same amount on word last week that the company is planning a $350 million secondary offering. When investors heard about that last week, they sent the shares plunging by more than 8 percent, territory it has since reclaimed. It has been a bumpy, volatile ride for Fusion-io, no doubt. In the five months since the debut, the stock has traded as low as $15, and almost as high as $40. That’s IPO investing for you.

Now we call them blade servers, and today they account for about 15 percent of the world’s servers, with vendors as varied as Hewlett-Packard, IBM, Oracle and Fujitsu.

But the fundamental problems facing those who buy servers in large quantities remain the same: Technology demands more computing cycles, which servers with ever more powerful chips can certainly deliver, but companies have limited space to put them, limited power resources to run them and cool them, and limited ability to pay for it all.

Today Hewlett-Packard aims to change the discussion about the future of servers with something it calls Project Moonshot. The idea is pretty straightforward: Cram 2,800 servers into a single rack that would today house a few dozen, or at most 128, blade servers. Make them all share the same internal networking, cooling and power supplies and generally boost the number of servers that can fit into a defined space. One way or another, more efficiency is badly needed, and as Parthasarathy Ranganathan, a Fellow at HP Research I talked to yesterday, told me, the time has come to stop trying to squeeze “blood from a stone” in order to get it, but rather do something more radical.

The headline that everyone is paying attention to is that HP has selected an ARM-based chip from a Texas-based start-up called Calxeda as the chip it will use in its development platform, called Redstone. ARM, as you know, is a flavor of chip technology designed by the British firm ARM Holdings that’s widely used in mobile phones because it is very power efficient. ARM has recently started to make some inroads into general-use personal computing against the Intel- and AMD-based world of x86 computing.

But it’s less important to focus on the chips that HP is using here than on the fundamental shift that HP is trying to create. “We’re not trying to start a new chip war,” Glenn Keels, HP’s director of marketing for HP’s Hyperscale business, told me. There’s no reason that Intel’s Atom chips couldn’t one day be just as suitable for this. Make no mistake, though: ARM chips are coming to servers, one way or another.

Aside from the Redstone development platform, HP also aims to let potential customers kick the tires of the Redstone-style servers by running their applications on them and seeing how they perform versus traditional servers in a series of development labs that the company will open around the world. The first will be in Houston, and it will open in January. More will follow next year in Europe and Asia.

HP also named a handful of partners that are participating in the Moonshot project by contributing hardware, software and technical expertise. Among them are AMD; Canonical, the company behind the Ubuntu flavor of Linux; and Red Hat, the enterprise Linux company. It all looks very interesting, and if HP can nudge the industry in a direction where millions of servers packed into data centers can consume significantly less energy than they do now, everyone should be happier. The benefits would be the increased availability of computing power at a lower cost, with less relative energy consumption and therefore less impact on the environment. It’s hard to argue with any of that.

Here’s an HP video explaining what Project Moonshot is all about.

(Image is the cover of an extremely inaccurate 1959 children’s book imagining what a routine flight to the moon might be like for a 6-year-old boy.)

I was on the phone with its two founders: Alon Maor, CEO; and Dan Sahar, VP of marketing. They had just started telling me about how they plan to sell network appliances that network operators — like, say, Comcast or Time Warner or Verizon — might put on their network in order to help them meet the growing demand for video content. The aim, Maor told me, is to get the most popular content as close as you can to the customer.

The first thing that popped into my mind was creating an appliance that sits on the network; close to, but not in the customer’s house. Maybe in the nearest network hub or central office. It turns out I was right. Then I wondered aloud what Qwilt might be using as storage technology. Could it be, maybe … flash memory? The chips that have so revolutionized the data centers of companies like Facebook and Apple and the banking systems of Credit Suisse, among others, when put to use by the likes of Fusion-io and Violin Technology?

Why yes, it does use flash memory, they told me, making them the latest member of the steadily growing “Flash Madness” club, which gives me yet another excuse to use the image taken from the cover of Flash Comics #1, circa 1940. For reference, the other members are Fusion, Violin Memory and Pure Storage.

Maor and Sahar laughed on the other end of the line at my guesses. “Would you like a job in our engineering department?” Sahar kidded me. I didn’t answer, because I wasn’t done guessing things like how Qwilt does what it does. “You must use some kind of algorithm to figure out what’s popular,” I said. Right again, mostly. The interview hadn’t been going for as much as five minutes, and I hadn’t even asked a single question and pretty much had it all figured out.

Well, not everything. There was the small matter of funding. Qwilt has raised $24 million in two rounds from Accel Partners, Redpoint Ventures and the Crescent Point Group, a fund based in Singapore. Maor is a Cisco veteran who got absorbed into that company following its $200 million acquisition of P-Cube. Before that, he was an engineer at Seabridge, which is now known as Nokia Siemens Networks. Sahar was director of marketing at Crescendo Networks, now part of F5 Networks. Tom Dyal, a Redpoint partner, is on Qwilt’s board.

Video is so popular with consumers that Internet services providers are struggling to get their networks scaled up to meet the demand, Maor says. The traditional way to solve that problem when everyone is watching the same show on Hulu, or the same movie on Netflix, is to just add routers and pray. That’s expensive. What if you could add some extra piece of gear that works with the existing network infrastructure? If you could figure out what was the most popular show in a particular neighborhood, make a copy of it right in that very neighborhood, and deliver it from there rather than all the way back from Hulu’s or Netflix’s data center, you’d lessen the network’s burden.

So that’s exactly what Qwilt does: It has three patents pending on processes for determining what video applications are being used on a network, and for figuring out what content is most popular in a particular area. So if you’re in a neighborhood full of “Jersey Shore” fans, the Qwilt box would figure that fairly quickly, and keep copies of it close at hand so that everyone gets their required daily dose of Snooki.

Also on Qwilt’s board is Rich Wong of Accel; Peter Wagner, an independent board member who has previously worked at Accel; Ohad Finkelstein, a partner at Crescent Point; and Giora Yaron, the former chairman of Mercury Interactive, which is now part of Hewlett-Packard. Also investing is Rob Glaser, the former CEO of RealNetworks.

Got all that? I told you it was an easy interview.

The Hopkinton, Mass., company, which sells data-center products, has posted strong results of late as customers seek efficient ways to store and access mounting troves of documents and media. But worries have emerged that macroeconomic conditions are causing softness in tech spending.

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Additionally, Chambers (pictured from his interview at D5) will likely lay out his plan to get Cisco growing again, following a restructuring that saw 6,500 jobs eliminated, and certain parts of the company — in particular, the Flip video camera business – shut down.

Financial analysts have been agitating for Cisco to take down its long-term financial models for most of the year, and since they’ll be the ones in the audience today, Chambers would be nuts not to address their concerns. The model may seem like a small detail, but analysts rely upon these forecasts in order to help them calibrate their expectations, and thus help their clients make better investment decisions going forward.

One recent suggestion for how the new model should look came from Gleacher analyst Brian Marshall in a note to clients on Aug. 11. He suggested that Cisco could realistically forecast annual revenue growth of 10 percent and an operating margin of 25 percent. Currently, he says, Cisco’s long-term growth models call for sales to grow annually in the 12 to 17 percent range, with operating margins in the range of 28 to 31 percent. Over the last five calendar years, he wrote, Cisco has averaged revenue growth of 11 percent — worse if you exclude growth from acquisitions — and operating margins just shy of 29 percent.

But it won’t all be numbers and figures today. Alongside the analysts meeting, Cisco will be talking about some new server technology it has developed internally using the UCS computing platform it developed with EMC and VMWare. Cisco has opened up a data center in Raleigh, N.C., that it says is being used for two things — applications development and disaster recovery.

Now, if you don’t know anything about disaster recovery, allow me to explain why that’s a big deal. The typical way companies use disaster recovery is to have a second data center — essentially a carbon copy of the first one that’s used day in and day out — sitting on standby, waiting for the day when it is needed. And while it’s critical to have when the power goes out at your primary site, or some natural disaster like a tornado strikes, it’s also expensive. Disaster recovery hardware sits around doing nothing important, while at the same time racking up costs for power, maintenance and floor space. Wouldn’t it be great if you could use it productively, too?

Cisco has figured out a way to do exactly that, and will demonstrate it today. The data center, which is in Research Triangle Park, has been set up to support application development on a daily basis, but if disaster strikes one of Cisco’s other main data centers — its sites in Texas, for instance — it can be turned around within 24 hours and serve as a disaster recovery site. Oddly, Cisco is demonstrating this mainly as a way of showing off what UCS can do, and it’s also sharing the particulars with customers. It is not, however, offering it as part of a new product or service.

Cisco shares are still trading in the midteens, down from a 52-week high of $24.60 in November. The shares are showing new signs of life, however. Having bounced off the bottom of a 52-week low of $13.30 last month, they’re starting to climb again. And yesterday Cisco rose 54 cents, or more than three percent, to $16.09. Investors seem hopeful that there will be a better outlook from Cisco today.

If you’ve ever wished you could clone yourself into two or more people to get more work done, you can be jealous of computers, which can do exactly that. Virtualization allows one physical computer to split itself up into many virtual computers by sharing the computer’s hardware. Chips are now so fast that it makes economic sense to do this, so you can squeeze more work out of each machine. Cloud companies — like, say, Amazon — love it, because it allows them to act a little like a very happy Manhattan real estate developer, and subdivide and rent out a single computer many times over.

Until now, Fusion-io flash memory technology has worked only in cases in which there was no virtualization going on. In big-iron machines that tend to be used for one intensive application at a time, add-in cards are put in servers in order to put data that the process is working on closer to the processor — thus preventing the processor from waiting around, impatiently tapping its foot, for the poky little hard drive that just can’t deliver the data fast enough.

Fusion-io will today announce — at the VMWorld conference in Las Vegas, put on by the virtualization outfit VMware — its ioCache bundle, which is built specifically for virtualized computing environments. Which is pretty much any cloud computing service you’ve ever heard of.

I talked with Fusion-io CEO David Flynn last week, and he told me that the addition of flash speeds gives the physical machine the ability to run as many as three to five times more virtual machines. The benefit, of course, is that you get more work done on a single machine. More work per machine means either higher productivity overall, or savings on the hardware budget — both of which help CIOs score points with the boss.

The ioCache product was created in cooperation with IO Turbine, a company that Fusion-io acquired for $95 million earlier this month.

The company has thus far seen its shares waggle all over the map since its IPO on the New York Stock Exchange in June. Having debuted at $25 a share that day, its stock has traded as high as $36.98 and as low as $19.28. Today, Fusion-io shares closed up $1.05, or more than four percent, to $23.32.

Most of the time, database applications run in one central location. Sometimes there are legal requirements about maintaining data within national borders, or corporate policies about keeping data on company-owned hardware. The reasons can vary. Organizations have put a lot of attention on fault-tolerant hardware, redundant network connections, and recovery processes. But applications themselves get short shrift.

A new company called Translattice, backed by $9.5 million in funding from DCM, an early-stage venture capital firm, aims to change that with a new architecture that distributes applications. Make your application resilient, the thinking goes, and you needn’t spend quite so much on fault-tolerant hardware and extra network connections that will otherwise sit idle until they’re needed.

I talked last week with Translattice CEO Frank Huerta and Michael Lyle, its chief technical officer, about the company’s new architecture and its plans to shake things up in cloud computing.

AllThingsD: Frank, when you think of cloud computing and data centers, you tend to think that there’s already a lot of redundancy built into the infrastructure, and yet there are still lots of outages. What’s going on?

Huerta: One of the main problems we’re addressing is the complexities in the infrastructre. United Airlines went down recently, and USAir. You’re continuing to see more and more problems in the infrastructure. And the reason for that is that it’s starting to hit the wall in terms of what it can deliver.

So what does Translattice do to solve that?

Huerta: Translattice is about the deployment of enterprise class applications, like CRM and ERP applications in globally distributed environments, including the cloud. Everything else to this point has been monolithic. This is a different paradigm, and we think it opens up a lot of other advantages. We’ve built this platform for cloud and traditional applications. The components are all identical and all aware of each other so the system is aware of where the data is at all times. And by policy you can control where it is and how much redundancy you want. But they all work like they’re operating from one central database, when in fact they’re distributed around wherever you have a presence.

So how do you do it?

Huerta: One thing is that we’ve solved the distributed relational database problem. This was an unsolved problem in IT for the past 25 years, so it’s a major technical accomplishment. We’ve taken all the key components in the data center — the storage, the database, the app server, load balancing — and we’ve built it into a machine we call a Translattice Node. And that Node is a rack mountable box with commodity hardware inside, and it can be run as a physical appliance, or it can be run as a virtual instance in the cloud like on Amazon. And this is the platform on which you run your applications.

How is it different from the traditional set-up?

Huerta: When you turn it on you get this re-mapping of what you can do with your applications. If you need additional computing resources in a certain location, you just add boxes there. The infrastructure nodes now share information amongst each other. Your performance is better, because we move data closer to where you’re going to be using it. If you move from New York to Germany, the system automatically sees where you’re logging in from and moves the data you use closer to you by moving data accordingly, so you get local performance. In many ways it’s like what Akamai has done with Web content. They cache Web information so that when you visit a Web site you get served with a cache from a location that’s closer to you. But this is a generation more advanced. We do the same thing but with dynamic application data in real time. You also get better control of the data and can control where it can and can’t go by policy. And then you get much better resilience. You can set policies concerning how much resilience you want in the system by saying how much you want your data copied and whether or not you want it replicated on multiple continents.

What kind of customers do you have?

Huerta: We have a few beta customers and we’re just in the process of getting our first paying customer, which we can’t announce just yet, and we’re setting up pilots with large financial companies and with governments. Financials and governments seem to be early adopters of this kind of technology because they can’t afford for things to go down.

We’ve seen how the federal government in the U.S. plans on cutting back the number of data centers it operates, and that it’s turning more to the cloud to save on operational costs. Is this likely to fit into that strategy?

Huerta: This would be one way for the government to make its infrastructure more efficient, sure. And certainly as it moves more stuff to the cloud, this is a strong platform for running legacy applications on the cloud, and yet still keep it within their own infrastructure.

Yet you’re distributing the data, and that idea is sometimes anathema to financials and governments who are usually the biggest sticklers when it comes to moving data across national boundaries. How do you get around that?

Lyle: We’re working with financial firms that have been forced to deploy five copies of their banking systems around the world both for performance because you need the data close to where its being worked on, but also because they’re not allowed to have customer data cross national boundaries so that means they don’t have the minute-by-minute view of the business, and they have to run a big settlement process at the end of the day. They end up not being able to offer the same products to customers in every country. And just running five copies of all that infrastructure is expensive. Our ability to de-centralize the system, and keep it as one big cohesive application processing platform while at the same time complying with all the business rules about where data is stored, really could revolutionize the way that banks are doing business.

The first is located in Makuhari, Japan, and will be devoted to IBM’s SmartCloud Enterprise service. This is the cloud service that IBM announced in April, and which is aimed at big enterprises that delivers a mix of public and private services. I talked with Ric Telford, VP for cloud services, about SmartCloud the day after it launched.

It’s the sixth data center for IBM’s SmartCloud. In March, it said it would spend $38 million to build a data center in Singapore. Others are in Germany, Canada, and the United States. For its part, Amazon switched on a data center in Japan in March, though at last count it had five data centers around the world. (Anyway, who’s counting?)

IBM also announced that later this year it will open a second new data center in Japan, this one devoted to LotusLive, its online messaging, social collaboration and meetings software, which is a rival of sorts to Microsoft’s Exchange and Office 365 as well as Google Apps. Among other things it will offer services to Japanese companies who for legal or other reasons aren’t allowed to host their data outside the country. One big client, I’m told, is the electronics company Panasonic.

Now, though many investors continue to pile into the data-center business, one of the few hot spots in real estate, others fear the peak may be past.

In key markets from New Jersey to Silicon Valley, there are signs that supply is catching up with the needs of the telecommunications, Internet and other companies that rent space from data-center landlords. Adding to the concern, some large tenants, such as Facebook Inc., are building their own facilities and avoiding paying rent to outside developers.

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No, it’s not an entirely rational company, but rather a “fanatical” one. That’s the word the company uses in its marketing messaging to describe its customer service, but it wouldn’t be inaccurate to use the same word to describe the dedication of CEO Lanham Napier and his team to remain independent and take full advantage of the cloud computing opportunity that lies ahead. From that you could conclude that they see a big opportunity and you’d be right. Rackspace executives are now accustomed to questions from persistent reporters like myself pressing them on the subject of being acquired. The answer, now as before, is still no.

In fact, Rackspace sees the cloud opportunity as being so big that it has made some acquisitions of its own to exploit it. In February, it grabbed Anso Labs in a bit of an “acqhire” deal that brought the team that built NASA’s cloud computing system to Rackspace. That move was part of a wider strategy to promote Openstack, an open source cloud computing platform that Rackspace has spearheaded with partners including Dell, Cisco Systems Citrix, and with a little help from — get this — Microsoft.

These were among the many things I talked over with Rackspace CTO John Engates when he stopped by my office in New York recently.

AllThingsD: So for those who haven’t done their homework, what is Openstack and what is Rackspace’s place in it?

Engates: When Rackspace got into the cloud business, we had to build everything ourselves. The hardware was there but to make a cloud you have to have software. And that software didn’t exist as a commercial product. We went to work building our own software and acquired some companies to help us build it. We looked long and hard at what we could use to build an enterprise scale cloud, and at that point it was all lab scale, you could build a small lab-sized project but you couldn’t run a business on it let alone offer as a service. Amazon had already built their service, and we knew that Google was already a cloud and that Microsoft was working on the Azure platform. We just had to build something ourselves because it wasn’t going to be handed to us on a platter, so since 2007 we’ve been building our own software and in 2010, we asked ourselves whether we wanted to continue building our own software long term or if we just wanted to make sure we had access to the caliber that everyone else was going to have.

So the strength in the cloud is really about software?

I’ll go ahead and say it: There’s nothing really unique about one vendor’s servers or storage networks today that one vendor has a real advantage over the other when it comes to the cloud. But the software that makes the cloud the cloud is the real difference. That’s why Dell and Citrix and Cisco have all joined on to the OpenStack project, even Microsoft is contributing code. I know that sounds weird, but the reason that Microsoft is interested is because Openstack is hypervisor-agnostic. You can run Xen or KVM or Microsoft’s Hyper-V or even VMWare.

Is Openstack really the basis of your cloud offering or will you support other cloud platforms?

We will. It is today a big part of our cloud strategy. Our Cloud Files project sits 100 percent on Openstack. They’re one and the same. Our cloud compute product is being migrated to Openstack by the end of the year. But we also have a large VMWare-based business. Why not? We’re sort of technology agnostic. We’re not tied to any one vendor.

Historically, I think of Rackspace as a Web hosting company, one that was always outside of my price range as an individual. The cloud is supposed to be flexible enough that even the smallest operations can use it. Do you have that flexibility now?

We’re a host and in that business, but we don’t play in that lower tier of the market where the Mom and Pop-style operations are, but for big operations. We start at the small business and go up. We’ve always offered a 100 percent dedicated server, and you can’t offer hosting like that for $20 a month. But with the cloud, because it’s inherently multi-tenant, we can start to reach some of those smaller customers. Our smallest Linux compute instance starts at about 1.5 cents an hour, and if you do the math it works out to about $10 a month, so we can reach the really small customers now.

So tell me about the overall state of your business. Openstack is obviously a big part of your strategy. But what are you hearing from customers, and what do they need right now that they’re not getting?

I think our customers are not unlike most other cloud or hosting customers. They want things to go faster and they want it cheaper and better. A lot of things are obviously moving in that direction and the cloud helps get them there. They look at it as a way to automate, to get things online. Some people worry about the shared nature of the cloud because they worry about security. They want some better sense of security, and one of the things we’ve done is leveraged our hosting business as a way to bring together a hybrid offering. An example I like to use is Under Armour, the sports clothing company. They use some of our cloud resources and dedicated services in concert with each other. They do all their e-commerce on the dedicated site so they can meet all their security requirements but also use the cloud to be much more responsive on their site when they need to be.

Does that combination help companies get over their concerns about security? There is still an ingrained resistance to putting critical files off premises.

It helps a lot, because it’s something that they can wrap their head around. When they know they have a dedicated firewall and server. They get that. When it goes to the cloud, it’s a little bit more of a stretch because its most abstract. There are always concerns about what else might be going on on that server next door. You hear the phrases “noisy neighbors and nosey neighbors” a lot these days in relation to the cloud. You don’t want either one of them. We’re getting better at isolating customers from those, but still there are some things that belong in a dedicated environment.

So your business has been growing like crazy, and many of your competitors have been acquired by telecom players. Terremark became part of Verizon, then Saavis was acquired by Centurylink. The conventional wisdom has long been that Rackspace was going to be the next one taken out, and yet here you are still independent. What gives?

Lanham Napier, our CEO, has said many times that Rackspace doesn’t want to be acquired because we think the opportunity is huge. The opportunity is, and that’s why some of these telecom players are grasping at other companies that they think will help them get there. We’re a public company and in theory someone could certainly show up with enough cash, but sometimes the people who show up with that kind of cash do so because you’ve sent a signal that you want to be acquired, but Lanham I think has done a pretty good job of saying that we don’t want to be acquired. I think it’s because he thinks we have something special.

And what’s that?

We like to talk about fanatical customer support, and that’s more than a marketing pitch. With us, its really the real deal. I like to compare us to Zappos. They were customers, and they had sort of a funky, weird corporate culture but in a good way, and I think we’re a little like that. We’re all about having a great customer service outcome, and that’s hard to do at a telco. They’re the phone company. They’re not exactly known for great customer service outcomes.

The company raised about $234 million in the offering yesterday and the results left it with a market capitalization of about $1.3 billion. About 13.9 million shares changed hands. Steve Wozniak, the Apple founder who is now a Fusion-io director and its chief scientist, bought the first 100 shares.

Fusion-io had better luck than Taomee Holdings, a Chinese children’s media company whose shares also debuted today. Having opened at $9 a share, it finished the day at $8.23, down more than 8 percent. It had anticipated trading in a range between $9 and $11 a share.

At Fusion-io’s closing price, the shares of CEO David Flynn, who owns about 9 percent of the company, are worth about $156 million. New Enterprise Ventures, which holds 26 million shares, cleared $585 million. Lightspeed Ventures, which has 8.8 million shares, has a stake worth almost $200 million.

A few minutes after he talked with me this morning, Flynn, pictured above with Woz, appeared on CNBC, and I snagged the video for you below. In it he answers questions about the concentration of his customer base — Facebook, Apple and eight other companies account for more than 90 percent of revenue — and uses the word “transformative” about 18 times. At least he’s on message!

This morning I ventured down to lower Manhattan to witness the Utah-based company do something its CEO David Flynn swore to me in December that he would not be doing in 2011. But? Things change. After pricing at $19 a share yesterday, the shares opened at $25.30.

Fusion did all the usual things you’d expect from a company wanting to make a splash with an IPO. A big banner with the Fusion-io logo adorned the outside of the NYSE building. And Steve Wozniak, the Apple co-founder who is a Fusion-io investor, director and chief scientist was on hand for the obligatory bell-ringing ceremony. After the bell, eager traders crowded around the Barclay Bank post to await the opening of trading, which took place a little after 10 AM New York time. Woz purchased the first 100 shares when trading opened.

At noon Eastern, Fusion shares are holding up, trading at $23.92. As trading debuts go, it’s certainly no LinkedIn, but then again, on the day LinkedIn opened the Dow Jones Industrial Average closed at 12,605.32, nearly 600 points higher than its open today. Regardless, even at that price, Fusion-io is being valued at nearly $2 billion, or more than 50 times its fiscal 2010 revenue.

Flynn’s next big task will be reporting quarterly earnings next month. Expectations for this company are high, so there’s a lot to worry about. Facebook and Apple combine for about 70 percent of sales but once they’re done building their data centers, they’ll more or less be done buying Fusion-io cards for their servers. And worse, 10 customers account for more than 90 percent of sales.

The good news is that the company has 1,500 different end-user customers. Plus, it has its partners — Hewlett-Packard, Dell, IBM and SuperMicro — to resell its technology into their servers, and there’s lots of interest among financial institutions and other companies in speeding up the flow of data on their servers. It will be an interesting story to watch.

Just moments after the debut in trading, I caught up with CEO David Flynn for a quick chat in the video below.

]]> http://allthingsd.com/20110609/fusion-io-opens-at-25-a-share-worth-nearly-2-billion/feed/ 0 http://allthingsd.com/20110607/flash-madness-fusion-io-ipos-thursday-but-first-violin-raises-40m/ http://allthingsd.com/20110607/flash-madness-fusion-io-ipos-thursday-but-first-violin-raises-40m/#comments Tue, 07 Jun 2011 12:45:05 +0000 Arik Hesseldahl http://allthingsd.com/?p=83415 This week is going to be a big one for companies in the business of bringing flash memory chips to the data center. The main event will be the Thursday IPO debut on the New York Stock Exchange of Fusion-io, a company I’ve written about here numerous times.

However, as a warmup, another flash company, Violin Memory, announced today that it has closed a $40 million Series C round of funding at an implied valuation of $440 million. Violin, based in Mountain View, Calif., is run, oddly enough, by Don Basile, a former chairman and CEO of Fusion-io. Obviously, he will be watching that company’s opening days of trading with significant interest, presumably because he still has some equity in it, but also because of the implications for his new company, which he’d like to take public as well.

Where Fusion-io sells flash-based cards that make servers run faster–Facebook and Apple buy them for use in the servers running inside their data centers and between them constitute about 70 percent of its revenue–Violin sells flash-based memory arrays that are intended to replace the hard disk-based memory arrays that make enterprise applications run faster. Violin’s arrays come in a range of sizes from tens of terabytes up to hundreds of petabytes, and are said to significantly speed up Oracle and other databases by a factor ranging from 10 to 100 depending on the situation.

HP has set speed records running Microsoft’s SQL Server using Violin arrays, Basile told me. Not only does it speed them up, but the Violin arrays eliminate 80 percent of the required hardware footprint and reduce the necessary power by 90 percent, cutting back on operational costs. Hewlett-Packard resells Violin arrays, and AOL is a big customer, Basile told me.

Violin hasn’t been raising money via the traditional venture capital route. Its investors have included Toshiba, the Japanese electronics concern that happens to be a big manufacturer of flash memory chips used in the arrays, and Juniper Networks. It has also taken money from large funds that dabble in private investments, and from several wealthy individuals, among them Atiq Raza, the former number two at Advanced Micro Devices, Arjun Gupta, the founder of TeleSoft Partners, and venture capitalist Dixon Doll. Basile has taken investments from nine such individuals, and these are only three that he named. He also stressed that they are personal investments.

Violin raised $35 million earlier this year in a Series B, and raised $10 million in a series A last year. In addition, the company has $140 million in combined debt and credit, giving it a combined $180 million to fund its operations and growth for the foreseeable future. The company expects to do more than $100 million in revenue this year.

Still, Basile would like to go public, and will be watching the IPO both of Fusion-io and of Groupon to see how the market reacts to them. If they react well, he says he plans to hire bankers by the end of the summer. “I don’t have a compelling reason yet, but if the markets react favorably it would be in our interest to look at the public option very seriously,” he said.

Meanwhile, Fusion-io will debut under the trading symbol FIO on Thursday. You can expect CEO David Flynn to make the rounds with a series of interviews tomorrow on CNBC and elsewhere. When last heard from, the company said in an updated S1 filing with the U.S. Securities and Exchange Commission that it expected to price in the range of $13 to $15$16 to $18 a share, in order to raise $185 million. A price in that range would value the Utah-based company north of $1 billion $1.4 billion (see today’s latest updated S1 filing here). It is one of two companies set to go public on Thursday, the other being Taomee Holdings, a China-based company that produces media for children.

As Dow Jones Newswires noted yesterday, Fusion-io’s debut is coming against the backdrop of a market that has been declining in recent weeks, giving it a certain headwind. And there’s already been plenty of criticism of Fusion-io’s prospects. As noted, two customers, Facebook and Apple, account for about 70 percent of revenue, while 10 customers account for more than 91 percent of revenue. (The Wall Street Journal commented on this in March.) As risks go, a concentrated set of customers is a classic one. If one or two suddenly stop buying–a fair risk when you consider that Facebook and Apple will soon complete construction of their respective data centers–then sales can drop just as suddenly. Investors like seeing a large, diverse customer base.

I asked Basile about that and whether the same long-term risk applies to Violin. “It is a legitimate risk,” he says. Violin doesn’t have the same kind of concentration. While AOL is a big customer, he says, Violin has no significant customer who accounts for more than 50 percent of sales. Its revenue splits roughly even, with about half of its sales coming from “channel” customers who build Violin’s memory arrays into their own products, while the other half buy Violin products directly to integrate with systems they’ve purchased from other vendors.

Then he pointed to language in Fusion-io’s S1 filing as a way of making a point about the wider prospects for flash memory use in the data center. Yes, Fusion-io has a handful of big customers, but it also has more than 1,500 end-customers. Among those are customers of Hewlett-Packard, IBM, Dell and Supermicro, who all sell Fusion-io’s cards as an option on their own servers. Among them they sell about 9 million servers a year, and if you do the math, he says the current run rate reveals that 12,000 of those servers have flash cards from Fusion-io. “That leaves a lot of room for growth.” Room enough for both companies, he said.

]]> http://allthingsd.com/20110607/flash-madness-fusion-io-ipos-thursday-but-first-violin-raises-40m/feed/ 0 http://allthingsd.com/20110501/sony-apologizes-for-the-playstation-network-breach/ http://allthingsd.com/20110501/sony-apologizes-for-the-playstation-network-breach/#comments Sun, 01 May 2011 12:50:21 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=5595 Sony apologized for losing the personal data of some 77 million customers of its Playstation Gaming Network, at a holiday weekend press conference in Japan held overnight U.S. time. The Wall Street Journal’s Daisuke Wakabayashi was there, and reports that Sony executive Kazuo Hirai, Sony’s number two and widely seen as the most likely successor to CEO Howard Stringer, bowed deeply to apologize for the hassle the company’s customers are undergoing as a result of the breach. It also said it hopes to partially restore service on the gaming network this week and to have it back up and running fully by the end of the month.

Hirai said that some 10 million customers out of the 77 million in total, may have had their credit card information taken. This would explain reports by security researchers who have seen hackers chattering about trading data stolen from Sony in online forums that circulated late in the week.

Asked why Sony didn’t inform customers about the implications of the breach sooner, Hirai said that “sifting through the data took a long time.” He said the company has been under a sustained cyber-attack for about six weeks, and that the personal information of Sony executives and their families have been published online.

The attacks, which were carried out against a data center in San Diego, are taking place against the backdrop of Sony’s recent tangle with the hacker George Hotz, after he uncovered a method to jailbreak the Playstation 3 gaming system in order to allow it to play games that Sony hadn’t approved. Sony sued him, but ultimately settled out of court. However the wrangle enraged hackers in a loosely affiliated community operating under the name “Anonymous.” Hotz has denied any connection with the current round of attacks, as has Anonymous.

Whoever carried out the attack and whatever their reason, the damage to Sony is worsening by the day. Sony’s shares fell more than 4 percent in Tokyo Friday and are now trading at their lowest level in nearly two years. It’s not yet clear how much of a hit to its earnings this incident will cause, though one has to assume that many customers are probably lost both from the Playstation Network and from Qriocity for good.

Hirai said the company may offer to pay fees that credit card companies charge to issue new cards for affected customers. Add to that the costs from additional security measures that will certainly follow, the expense from multiple lawsuits–some of which are already filed–and the cost to respond to regulators and lawmakers around the world who are now lining up against Sony, and it appears this problem is going to get expensive really fast.

]]> http://allthingsd.com/20110501/sony-apologizes-for-the-playstation-network-breach/feed/ 3 http://allthingsd.com/20110419/liveblogging-intels-earnings-conference-call/ http://allthingsd.com/20110419/liveblogging-intels-earnings-conference-call/#comments Tue, 19 Apr 2011 21:38:50 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=5231 Intel proved its mettle in its quarterly results, easily outdistancing the muted expectations of the market, then took a bit of a victory lap during its conference call with analysts.

Intel CEO Paul Otellini criticized third party research firms–he didn’t mention any names, but he was talking about Gartner and IDC–for giving the idea that the PC industry is on the wane, when their information isn’t as complete as Intel’s is, especially in emerging markets.

While they’re forecasting the market to grow in the single-digit range this year, Intel sees the PC market growing in the low double-digit range, Otellini said, and he expects it to continue into 2012. “I want to be clear that our views differ from some of theirs,” he said. The PC market is getting more complex, and at nearly 400 million units sold per year, it’s bigger than it’s ever been. The research firms don’t see as much data as Intel sees. “While some channels–like PCs sold through consumer retail outlets in mature markets–have deep visibility, other channels, especially in emerging markets, are not well-reflected” in the forecasts from the research firms.

I wonder what Gartner and IDC are going to say in response to that? It seems Otellini has just called their research methods worthless.

Otellini also talked about a forthcoming announcement in May around manufacturing process technology. Having sold its first 32-nanometer processors at the start of last year, it’s time to start thinking seriously about the move to the next manufacturing node, and also the one beyond that. The next is 22 nanometers, and the one beyond that is 14, which should hit the market about 2013 or so. Intel says its going to spend between $9.8 billion and $10.6 billion in fiscal 2011 on capital expenditures as part of bringing up the new technology, and another $15.7 billion in combined research and development plus management and general costs.

Otellini and CFO Stacy Smith both talked about the implications of that shift, and both talked about some big announcements around process technology coming in May. “What we’re realizing is that competitive advantage is becoming very important,” CFO Stacy Smith said. “We’re getting paid both for differentiating, and in terms of pricing.” Pressing the manufacturing nodes forward–which is something Intel does better than anyone else in the world–will indeed give it an advantage not only over its distant rival Advanced Micro Devices in the PC world, but also give it a better chance of combating the persistent competitive threat from ARM chips that not only rule the world so far in smart phones and tablet, but which are starting to show up in mobile PC roadmaps.

Otellini said while demand for PCs among consumers in the US and Western Europe remained soft, demand was strong in emerging markets. Demand for servers–the big surprise of the day–and PCs at business were also strong. He also said that Intel recovered quickly from the design flaw discovered last month in the Sandy Bridge family of chips. He also said that Intel sustained some damage to sales and marketing offices in Japan, but “nothing major that would hinder our ability to service our customers.” Intel is seeing no disruptions in its supply chain as a result of the earthquake there.

He talked at length about Intel’s sales to cloud providers, calling it a “major driver” of the company’s growth. Sales in the Data Center Group grew 32 percent year on year and were led, Otellini said, by sales in China. Sales of Intel chips into storage systems were also strong, up 45 percent over last quarter and 65 percent year over year.

My liveblog from the conference call–joined just a few minutes late–is below.

2:40 pm: Joining a tad late after a technical glitch. Intel CEO Paul Otellini is talking.

Our views differ from the views of the analysts. The PC business is a global industry, it is 400 million units a year. Some channels, especially those in emerging markets, aren’t very visible to research firms. Basically he’s slamming IDC and Gartner for their pessimistic views. “Our projection for 2011 remain in the low double-digit range.”

“We see no reason for 2012 to be materially different from what we see in 2011.”

He says to expect an increase in Capex around the 22- and 14-nanometer manufacturing technology. “We see a need for more features [on chips],” he says.

CFO Stacy Smith is now talking.

The company fixed the Cougar Point problem–referring to the “design errors” found on a chipset accompanying the Sandy Bridge processor–and completely mitigated the revenue impact that was expected.

2:44 pm: First quarter significantly better than our expectations.

Sandy Bridge boosted average selling prices.

Acqusitions of McAfee and Infineon wireless business added about $500 million of the $2.5 billion in new revenue seen year over year.

The Cougar Point impact to gross margin was about 3 percentage points. That explains the 1 percent quarter on quarter drop on that important figure.

First quarter puts us on track to exceed financial goals for the year. Expect another year of double-digit revenue and earnings growth.

We are making some critical investments in process technology that will have a very rapid ROI or return on investment.

Q&A is getting started.

2:48 pm: Glenn Yeung from Citi: Help us understand the emerging markets and growth seen there.

Smith: Emerging markets are well over 50 percent of business. The dynamic is one of economics. Desirability of the technology is high and affordability is high. The price point of a PC is within 1-2 months of income. Penetration rates are so far pretty low.

Otellini: My comment on the channel strength for Sandy Bridge is emerging markets. Most of the machines sold with Sandy Bridge are white boxes in emerging markets. Those markets are still surging in terms of notebooks.

2:50 pm: Yeung with a follow-up. He’s asking about the investment in process technology. Otellini used the word “revolutionary” to describe the 22-nanometer leap that’s coming. He’s asking him to shed some light on what he means by that.

Smith: The Capex number is driven by a few things. Unit growth and ability to meet demand at 22-nanometer and 14-nanometer technology. It give us performance cost and power efficiency advantages. The biggest single chunk of the Capex is with the development fab for 14 nanometer, we’re going to make that fab bigger. That will allow us to bring more products to 14-nanometer technology and ramp it faster.

Otellini: On the process technology, only a teaser today. We’ll be disclosing that technology in early May. When you hear that announcement you’ll understand why that phrase is appropriate.

2:52 pm: Question about how we should think about seasonal trends in the second half of the year.

Smith: We closed McAfee and Infineon, and they added half a billion in Q1 and should add another half a billion in Q2. The second quarter is usually kind of flat compared to the first, which is in line with the pattern we’ve seen over the last five years. We’re not seeing anything that would cause it to be any different than before. Second half tends to be about 2-3 points higher than the first in terms of revenue.

Otellini says to expect to see a lot of tablets with Intel chips demonstrated at Computex. Google’s Android Honeycomb source code will ramp over the course of the year for a number of customers.

Losing Nokia, Otellini says, “took a lot of wind out of our sails” around landing Intel chips in smart phones. Intel has redeployed resources from that. “I would be very disappointed if you didn’t see Intel based phones 12 months from now.”

2:56 pm: Question from BMO. For the total PC market, what is the percent the third parties companies are missing?

Otellini: They are all over the map. Gartner is at 6 and IDC at 7 percent growth for the year, and we’re seeing low double-digit growth.

Q: What about Medfield, the phone processor. What are the metrics that are getting customers interested in it? Is it the fact that you’ve been able to make it competitive with ARM chips?

Otellini: Its both. The product is very good in terms of performance, especially in media processing. And the power envelope is right where you want it to be.

2:58 pm: Question from UBS: You called out storage as up 45 percent within the Data Center Group. We’ve seen this group grow faster than we thought. What’s the longer term growth?

Otellini: We recognize that this group has had phenomenal growth. Expect a deep dive on that at the analyst meeting and on the market for Xeon class chips today and tomorrow. (No mention of Itanium-based servers, by the way. -ed.) Traditional servers, we’re out-growing the market by a factor of 2-3x. We think a big piece of the market is high performance and cloud, and the conversion of other parts of the data center from proprietary to Intel-based designs, you see growth that is representative of all the growth of the Internet. We’re benefiting quite well.

UBS asks about the transition from 22 nanometers to 14 nanometers. Is there anything that is driving the speed now in terms of moving to 14 nanometers and what can you do at 14 versus 22 nanometers?

Smith: I’m going to punt for another few weeks. More to say around 22 nanometer and the secret sauce there, and it will carry into the 14 nanometer node.

What we’re realizing is that competitive advantage is becoming very important. We’re getting paid both for differentiating and in pricing. As we get out to 22 and 14, we’re going to bring capabilities to process technology more quickly than we have before. 22 nanometer will intercept with smart phones and notebooks more quickly, and we’ll get paid for performance and cost over the long term.

3:03 pm: Chris Danely of J.P. Morgan asking about factory utilization rates. He wonders if there may be shortages coming.

Smith: We’re running not too hot, and not too cold. Not anticipating shortages. We have responsibility to respond if demand is hotter, and if demand is less, we now have the tools to respond to both circumstances.

Danely: It seems as though perhaps some of the OEM customers have a more tempered forecast. What’s the difference?

Otellini: We won’t characterize specific customers. I think those who are more enterprise centric than those who are focused on consumer markets in the U.S. and Europe are seeing numbers closer to ours.

Smith: The elephant looks very different depending on what part you’re looking at. Mature markets look tough. Emerging markets look pretty good.

3:06 pm: Question about how much Sandy Bridge accounted as a percentage of sales.

Otellini: Doesn’t want to get into that level of granualarity. He calls it the fastest manufacturing ramp.

Smith: More than 50 percent of my CPU inventory is Sandy Bridge. That’s a good indication of the next few quarters.

3:07 pm: Smith says he’s seeing a little upward tick in component costs, including some impact from Japan.

Average selling prices have a very rich mix. Sandy Bridge ramped at a higher end of the price range, and the mix is going to come down a little.

3:09 pm: CLSA Securities with a question: What’s driving the demand? Is it Windows 7 on corporate PC?

Otellini: In the middle of last year we saw the market recover. The most recent data we have is that 75 percent of enterprise PCs are running WIn XP. If you think about a 3-4 year refresh cycle, we’re not even halfway through it. The combination of the Win 7 machines look good.

Question from Goldman Sachs: If I think about this third-party data issue. Is the Gartner and IDC data really off by 20 percent?

Smith: That misses how much inventory levels came down in the fourth quarter. We were worse off than seasonal. There was a significant bleeding off of inventory ahead of Sandy Bridge release. When we go off and do our looks across the channel we see inventory levels being healthy, and that says something about the health of the supply chain.

Q: That’s a little different than just the third-party data is wrong. Is it just really off?

Otellini: The comments I made were on third-party data year on year. I think our experience is that on an annual basis our numbers are closer than theirs. They correct over the course of the year to be aligned.

Smith: When I talk about Q1, you also can’t lose sight of the fact that Q1 was a 14-week quarter.

3:14 pm: Hans Mosesmann, Raymond James asks about the foundry strategy. What part of the incremental capex is part of that?

Smith: It’s not a driver of our capex. We’re interested in talking to some very specialized companies. We’re not building a broad-based foundry business, and it’s not part of our capex number.

Otellini again teases about a forthcoming announcement on process technology.

3:19 pm: Question from Credit Suisse: Asking about the weakness in consumer sales in the U.S. and Europe. Is it because of tablets?

Otellini: It’s a little bit of everything. Add one more thing. In 2009 and in the first half of 2010, consumer market for notebooks was strong contrary to GDP at the time. I think people bought a lot of machines and we’re just early in the cycle. A consumer refresh isn’t what you’d expect in a mature market right now. Clearly some tablet cannabilization is impacting that. But the bigger impact is macroecononomc.

Q: What inning are we in in the enterprise upgrade cycle?

Otellini: Top of the fourth, three on, no outs.

3:22 pm: Question about notebook and desktop mix going into Q2.

Smith: What we saw was an inventory burn in Q4 that led to units being slightly above seasonable. Q2 looks pretty seasonal.

Q: What do you expect of total wafer production in 2011? Is it consistent with PCs?

Smith: Wafers will grow faster than total available market as we move to the new process.

Craig Ellis, Caris and Co. asks: Are you expecting any change in the mature markets for PCs?

Otellini: I don’t think it has to happen. We don’t build it into our numbers.

Now a question about design wins on the tablet front, and what OS Intel will be stronger on versus others.

Otellini: I don’t have an update. We’ll do a number count on May 17. It’s 35 or so. The bulk of the units this year will be Android-based.

3:28 pm: That’s a wrap. We’ll see you back here for Q2 results on July 20.

]]> http://allthingsd.com/20110419/liveblogging-intels-earnings-conference-call/feed/ 0 http://allthingsd.com/20110414/hp-itanium-fans-rally-to-chips-defense-hope-to-change-oracles-mind/ http://allthingsd.com/20110414/hp-itanium-fans-rally-to-chips-defense-hope-to-change-oracles-mind/#comments Thu, 14 Apr 2011 22:33:37 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=5103 Remember the day last month when Oracle said it would stop building software for computers using Intel’s high-end Itanium server chip? No? Well a lot of people do, and they’re not happy about it one bit.

So unhappy, in fact, that with help from Hewlett-Packard–the company that makes something like 90 percent or more of the servers using that chip–they have taken to YouTube to try to persuade Oracle to change its mind.

The Connect Advocacy Committee is a group of HP enterprise customers who banded together basically to tell HP what they thought about this or that product. Many buy HP’s Itanium-based servers and also run Oracle software on those HP systems. The group has 52,000 members. In the videos–there are three; you can find the first one below–HP partners who have for one reason or another hitched their wagon to the Itanium train and rely on Oracle software describe how the decision is going to cause trouble for them and for their customers.

Oracle made its move, it said, because it’s convinced that Intel plans to retire the Itanium line of chips, which are both expensive and aimed at a fairly narrow set of applications, and to nudge customers toward its more mainstream line of Xeon server chips, which are getting a lot more powerful and more capable of handling workloads that only a few years ago only an Itanium could. Intel and HP shot back that Oracle was wrong and that Intel had no plans to end Itanium production. Oracle stuck to its guns, saying that Intel wasn’t being entirely honest with its customers.

Meanwhile, Intel says nothing about Itanium has changed. Kirk Skaugen, general manager of Intel’s Data Center Group, took to the keynote stage at the Intel Developers Forum this week in Beijing and reiterated that the forthcoming version of the Itanium chip, codenamed Poulson, remains on schedule for release by this time next year. Another version of the chip, about which nothing is known other than its codename, Kittson, is, given prior Intel statements that Itanium upgrades will come in two-year cycles, expected sometime in 2014. Intel has yet to say anything publicly about plans for Intanium chips beyond Kittson.

Oracle, which usually spares no opportunity to say something snarky about HP, was today uncharacteristically quiet and had no comment.

]]> http://allthingsd.com/20110414/hp-itanium-fans-rally-to-chips-defense-hope-to-change-oracles-mind/feed/ 1 http://allthingsd.com/20110323/meet-kevin-clark-master-not-of-the-force-but-of-data/ http://allthingsd.com/20110323/meet-kevin-clark-master-not-of-the-force-but-of-data/#comments Thu, 24 Mar 2011 00:30:40 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=4302 Last week you may remember I paid a visit to San Francisco, primarily to check in on Hewlett-Packard and its new CEO, and also to visit with Salesforce.com.

I had one other destination, and it got part of me excited like an eight-year old going to a toy store. It was the Letterman Digital Arts Center in the Presidio of San Francisco, home of Industrial Light & Magic. This is the part of the George Lucas entertainment juggernaut that makes all the cool things that happen on movie screens look devastatingly real. The geek part of my heart swelled with anticipation. This is, after all, one of the places that the Star Wars Universe calls home. Its visual trappings, like the Darth Vader mannequin pictured, are everywhere. As I approached, I resisted the urge to bow before the Yoda statue outside the entrance, but I did take a picture.

Naturally I was there to talk tech. And with a little help from the Force (actually it was ILM’s kind publicist) I caught up with Kevin Clark, Lucasfilm’s director of information technology, who like anyone else with that job title is constantly grappling with the basic questions of how to get the most productivity out of the machines under his command. One recurring problem: making changes to the live production environment, something he compares to rebuilding a race car while’s its on the track. But then most companies aren’t in the business of rendering the visual effects that will make or break the films coming out for the summer blockbuster season like “Transformers 3″ or “Pirates of the Caribbean 4.” Clark and I met just outside the ILM data center. Tomorrow, I’ll take you on a video tour inside.

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