11:39 am: A few introductory remarks, and Ina Fried welcomes Roese to the AsiaD stage.

Ina Fried: Hi again, everyone. I’m very excited that our next speaker is John Roese of Huawei. Huawei, for those of you who don’t know — I’m sure everyone in this room does — is, you know, a huge Chinese networking giant involved in all kinds of areas, from making devices, making the networks that devices run on, and has quietly, over the last many years, amassed just a huge talent pool, not just here in Asia, but also in the United States. And John Roese oversees the U.S. R&D arm, which I actually didn’t realize is composed of as many thousands of engineers as it is. John also has an interesting career as CEO of Nortel, and several other technology companies before that. So, without further ado, John Roese.

Maybe, I think, John, the most helpful thing would be to talk first a little bit just about Huawei and what are the businesses it’s in.

John Roese: Most importantly, everybody knows that Huawei is a telecom company selling things to carriers. But this year the company has gone through a complete transformation to become an ICT company, and it’s based on the premise that in the future, most problems will not be solved purely by the consumer, the carrier, or the enterprise ecosystem. You actually have to combine the technologies from them to solve problems.

And so while we had a big carrier business and continue to be currently the second-largest carrier company in the world, in terms of equipment suppliers we quietly have emerged as a consumer company with a multibillion dollar consumer company in the handset business, and now have entered the market as an enterprise player with … about $4 billion in enterprise sales, which makes us probably the second or third largest in the world.

So the company is redefining itself on a premise that the future is not about distinct silos of technology, but how you put them together in a coherent way to actually solve more complex problems in this next generation of ICT.

Ina Fried: So everything’s all related, but let’s break it into silos for a second. What are the different products you guys make? You have networking — both, I think, wired and wireless — although carriers are certainly what you’re best known for. You guys make phones and tablets which have been less in the U.S. but starting to show up first, I think, through smaller carriers and now through some of the major carriers. What other kinds of products do you make?

John Roese: To put it into context, my role in the U.S., I’m responsible for advanced technology across all of the business lines. And I kind of joke with people that, in just my organization, you can go from dealing with people developing photovoltaic technology, to cloud technology, to next-generation cellular technology, to enterprise switches and routers, to core optical networks, to handsets and tablets and smartphones. It’s really the entire spectrum, and it’s probably one of the broadest toolkits of any company in the industry, in terms of providing the communication infrastructure for — everything. It’s a strange answer, but if there’s a way to communicate, there is probably Huawei technology involved in that communication ecosystem.

Ina Fried: And let’s talk about the organization you oversee. First of all, explain to people the scale. Because I certainly didn’t have an appreciation for just how many people Huawei had in the U.S. And talk about what they’re doing.

John Roese: So, obviously, over the years Huawei has gone from out-executing a lot of people in front of us to now out-innovating and being the leader in many segments. We’re now the market share leader and the innovation leader. And as part of that, we realized we had to operate globally. We had to create a global ecosystem of innovation. The biggest change in that was this conscious decision to expand our innovation organization worldwide.

So my charter was to come in and essentially scale the North American organization from a few hundred people to well over a thousand people now, that are all chief scientists, chief technology officers. The average seniority in my organization, from an engineering perspective, is probably 25 to 30 years in the industry, these deep, deep experts that, quite frankly, have created many of the industries that we’re dealing with, in terms of technology. So that thousand-plus people that’s emerged over the last year is the tip of an arrow that, behind it, is today approaching almost 60,000 engineers around the world, many of them in India and Europe, and a huge portion of them in Shenzhen, Beijing and other provinces in China.

Ina Fried: So, 60,000 engineers — some huge percentage of the company’s overall workforce — are actually engineers.

John Roese: Absolutely. As a technical guy, and having been an executive of many companies, one of the things that attracted me to Huawei was it’s still a very technical company. Almost 50 percent of the company is R&D. There are very few companies that have this kind of emphasis on the development of technology, as opposed to other aspects of the business.

Ina Fried: And how did you build this workforce in the U.S.? You’re in many sites in the U.S. and Canada; um, from what I recall, you’ve basically cherry-picked some of the companies on the downturn and grew that way.

John Roese: I answered that question to some folks in the U.S. government; they asked the same question about how, isn’t it challenging to attract people? It was kind of an interesting conversation. I answered it, “One person at a time.” We candidly looked at where innovation was happening and tried to make sure that we had a presence close by, so we could tap into those ecosystems if you want to do advanced terminals, smartphones, tablets. A great place to do that is San Diego.

So we opened a big facility in San Diego. If you want to do cellular wireless — Chicago; Ottawa; Bridgewater, N.J. — great places to do that. Our biggest sites are actually in Santa Clara, where you have this — ecosystem where you can almost find any technology within about three miles of our facility. So it was a very conscious decision to say that there are clusters of intellect within the North American market, and instead of trying to assume that you can bring them to you, it was better for us to go to them and attract them into the organization.

Ina Fried: And I understand that you guys — your chief recruiter — you owe a big debt to Larry Ellison?

John Roese: Well, we actually kind of find it very useful when there’s mergers and acquisitions and consolidations. So when Sun and Oracle combined, we found a lot of people at Sun that basically wanted to rethink where they wanted to work. Sun is a fantastically innovative company, as is Oracle, but the cultures are different. So it was a great boon to us that we were able to be down the street, and be growing very rapidly, and have this idea where people could take their ideas and turn it into actual reality. By the way, we did the same thing up at Ottawa. When Nortel kind of disappeared, one of the things that happened very quickly, en masse, some of the top technical experts in Nortel just kind of walked across the street to a new facility while they opened, and joined the company.

Ina Fried: And that’s how you came to the company, right?

John Roese: Well, I was a little bit later than that. Actually, that team, most of them who worked for me came into Huawei, and then I was kind of off doing other things, and then as we decided to scale it, I guess they gave me a good reference and they say, “Well you should go attract this guy because we liked working for him, he built a good innovation culture and maybe can help you take it to the next level.”

Ina Fried: And talk about that: What was your thinking, how well did you know Huawei when they first approached you? I mean, obviously, some of your former workers were there. What were your concerns? What excited you about it?

John Roese: Well, I think most people, to quote my former neighbor up in Ottawa, the mayor of Ottawa — Larry O’Brien, at the time — he opened the R&D facility for us up there, and his comment was, “Huawei is the largest company I’ve never heard of.” And that was very common in our engagements. And for me personally, I knew about Huawei, I had competed with them, I even tested their technology to prove whether or not it worked and whether it was a real threat, and learned very quickly it was a very real threat to companies like Nortel. But for me personally, I had kind of checked out of the industry after Nortel. I said, four Fortune 500 CTO roles, it’s time to go do something else, I’ll go to that Ph.D. in cultural anthropology.

But then I started talking to Huawei. I saw some of my best and brightest people — people that were Nortel fellows — come into the company, and as I got talking to them, when I came over to SenJen, when I met with the management team, when I met with the folks that were running the company, what I realized is, this is one of those companies that actually truly values technology; understands that you have to invest heavily into it and was genuinely excited about, not what happened yesterday, but what was going to go in the future. For me, as a technologist — every technologist, any engineer — the most valuable thing you can do is take an idea and turn it into reality. It’s not about making money, it’s not about prestige, it’s about turning your ideas into reality. When I saw this engine here, and this desire to innovate into the future, it was just a complete no-brainer to join.

Ina Fried: Now, you talked about building your organization one person at a time, and part of the reason why Huawei has built its organization in the U.S. one person at a time is because the U.S. government won’t let you acquire just about anyone. You guys have tried a couple times. How challenging is that, in a technology industry that is largely built by acquisition? You came from Broadcom; they gobble up a dozen companies a year.

John Roese: No one will accuse government policy of preceding the technical ecosystems and industries. It usually is a couple generations behind. So the current status of our relationship with the U.S. government is really that we’re a bit out of sync. In most of the industries that we compete in right now, the industries have been highly globalized. If you wanted to build a wireless network today in the U.S., your choice of vendors would be, let’s see, a Swedish vendor, a Finnish vendor, a French vendor and two Chinese vendors. Those are the tier-ones. There’s no North American vendor that can build that for you. The last one was Nortel; it’s not there anymore.

So part of our challenge is educating the U.S. government, educating the politicians. And not just the U.S. — around the world — that we’re in a highly globalized environment, the innovation has shifted, the structure of the industry has shifted and there needs to be a rethinking of how public policy and governmental policy relates to understanding a technology and its application and networks.

Today we build the networks for 45 of the top 50 operators in the world. The remaining five, a chunk of them, happen to be in the U.S. And so we’re very patient. Candidly, we’re now engaging very heavily, we’re dispelling myths on a regular basis, and it does make my life a lot more difficult. In fact, some of the U.S. government people made that comment. They said, “We applaud what you’re doing because you’re hiring lots of people in the U.S.” And we’re exporting $6 billion of goods and services into our global supply chain out of the U.S., we’re a great corporate citizen. But we kind of have to get in sync between the public policy and the actual reality of the industry.

Ina Fried: And what do you think it is? Because, I mean, you mention all of your competitors are global, non-U.S. based companies, is it xenophobia, what is really fueling this fear, and are any of the concerns legitimate or are they all fear-based?

John Roese: Well, I think I would say none of the concerns are legitimate in the reality, but perception is sometimes reality in people’s minds. So the punch line is, some people still think the industry that we exist in is the Bell Labs and the Lucents of the past. So, again, we do have to educate them about this future. The second is an unknown. My comment about Larry O’Brien — I mean, the biggest company he’s never heard of. Well, if I went and polled people in Washington, every senator and congressman, and asked them, “Do you even know how to pronounce Huawei?” — the answer would be, probably not. So we have to engage.

There’s an interesting thing: It’s a $30 billion company; our definition of an emerging market is the United States. So when a U.S. company comes into China, there’s a big educational process to kind of convince people that the company is legitimate, it can provide goo technology, it can be a good partner. And so it’s really just a systematic process of getting them to understand the reality. It doesn’t hurt now that we have a highly globalized workforce, that we have a big presence in the U.S., that we’re not in front of them and dialoging and being present. But more important, the thing that will ultimately overcome this is innovation. There is — you can prevent or avoid certain companies, until the technology they develop is so far superior to what you have at your disposal currently, that it creates a competitive disadvantage. And we believe, given our investment in innovation, that we are almost at that point. In many places ,we are clearly out innovating our competitors, and it just is sound public policy to let the carrier infrastructure of the United States — or the terminal industry or the enterprise industry– use the best technology to solve the best problem, because the correlation between global development, economic advancement, user experience, is entirely tied to using the best technology.

If I told you you couldn’t use any state-of-the-art tablet because I didn’t like the country of origin, and you had to go back to using a typewriter, would you do it? Of course not. We’re not quite there yet, but I think that will occur.

Ina Fried: So I want to turn to one of the topics that’s near and dear to my heart — and certainly to much of the audience — which is this mobile revolution. You guys are playing in that in several areas. You’re building, as you mentioned, the gear that a lot of these networks run on. Perhaps not the ones that I get to use in the States, but a lot of the other networks that I use when I travel, as well as, increasingly, some of the devices. And one of the areas that Huawei and ZTE and a number of Asian companies are making huge influences, democratizing these smartphones. Can you talk about the world you guys see, with smartphones everywhere on the planet?

John Roese: Absolutely. We’ve been through this before. A long time ago, Huawei decided that cellular technology — mobility — should be everywhere. And at that time, most of the big players said it wasn’t cost effective to build cellular networks that could be deployed in sub-Saharan Africa or in the developing world. Huawei was one of the few companies that said, “No, no, no — we need to figure out how to do this.” The result was skipping of generations, massive penetration, and today we have a couple billion people sitting on our networks, which is a good step.

Now we’re in a different phase. The different phase is now that you have these mobile networks, there is still a bit of a have-and-have-not world, and that is the smartphone versus the feature phone. I think the day before yesterday somebody mentioned, “Would it be great if there was $100 smartphone, or something better than that”? Well, there is, we build them. In fact, in the U.S. right now, you could go purchase — there are commercials on television from some of the tier-two operators. They’re our customers that essentially are describing $29 Android smartphones, Huawei-branded, no contract, no commitment.

Ina Fried: Now, does that mean you’re building a phone that costs less than $29 to make?

John Roese: Well, the economics are slightly different and more complex, but clearly they’re in that strata of the sub-$100 smart phone. The advantage of that is, once you get rid of this concept of feature phone/smartphone, that everybody has a mobile broadband device, everybody has a media-capable device — think about the capability that can unlock. I mean, I think Vice President Gore mentioned this concept of five billion people on mobile networks, and less than one billion on smartphones. Well, as soon as everybody is on smartphones, every interesting piece of technology you saw here over the last couple of days is contingent on having an interface that can actually do media, can do data, can be fully interactive. There is a huge opportunity, and the democratization of smartphones — which is clearly our message — we are absolutely trying to make sure that wherever there is a mobile user, they are a fully featured mobile user. That has a huge, profound impact; not just on the mobile networks and the devices, but all of these very interesting, over-the-top applications, cloud services and other things that are contingent on a better terminal and a better mobile experience.

Ina Fried: That growth you mentioned is also contingent, of course, on having networks that can handle that capacity; having enough spectrum. How much time does your organization spend looking at solutions? It’s great to say, wouldn’t it be great if the whole world has smartphones. I think we’d have a problem if any country went to 100% penetration. Data networks are struggling today. How much of your time is spent looking at that issue, and what are some of the things you guys are looking at?

John Roese: A huge portion. I mean, the good news is, I did a calculation a couple of years ago to say, how well have we executed as an industry in improving the bandwidth efficiency of networks — and this was wireline networks. But over a 20-year period, we had improved the cost-per-bit ratio by 22 million to one. That’s a pretty good ratio, if you will. We are very good, as an industry, at figuring out ways to increase the available bandwidth. Now the challenge is, it gets a lot harder when you have to deal with laws of physics, when you deal with things like Shannon’s Law and channel bandwidth. And so we are spending a huge amount of time. Given the composition of my organizations and the people in the organizations I run, they’re all advanced technologists and they’re the place where we are exploring not just how to make it more spectrally efficient, but how do we architect the cellular network. Instead of having these big monster cell sites all over the place, move to heterogeneous networks that have multiple tiers and multiple devices and ways to access, different kinds of networks to interface with, spread the spectrum over multiple spectrum channels.

At the same time, we go and lobby very heavily to get the digital dividend, free up spectrum, increase spectrum. That’s a very precious commodity. But more importantly, think about ways to use that spectrum efficiently. Now, most people don’t understand that a lot of the inefficiency in the network is based on the way it’s designed, and the fact that things like the modulation rate degrades as you move away from the cell site. If you can fix that, then the efficient use of spectrum can improve dramatically. Those are the kinds of things that we keep working on.

I actually have a very high degree of confidence that, contrary to public belief, we’re going to run out of capacity on the cellular networks. I think our industry is actually quite good at figuring out ways, creative ways, of improving that cost per bit of the available spectrum or the available capacity of the network. Occasionally we hit a wall, but usually we figure out a way around it. We innovate, we come up with a new approach and we continue to provide that kind of foundational attribute, which is capacity for people to connect.

Ina Fried: I want to get to questions in just a second, so definitely be thinking of them. But since a lot of people don’t know Huawei, and don’t know what you guys do, take us through the labs. What are some of the coolest projects that you can talk about, that you guys are working on? What are the things that you could tell your cousin, and they’d be like, “Wow?”

John Roese: Yeah, absolutely. So, one of the most interesting ones that I’m really excited about is cloud. So everybody knows the term “cloud”; the problem is, it’s kind of cloudy — we don’t actually know what it really defines. But right now, there’s kind of two schools of thought about cloud. There’s this idea that cloud is just a virtualized data center, and it doesn’t really change much; it just makes things slightly more efficient. And then there’s this very disruptive model that people like Amazon and Google have been focused on, which is, let’s just rethink things like storage and compute and really change the economics so that we can kind of give storage away for free and make it up on advertising. So they had to really rethink how the world was created, in terms of some very foundational components like storage and compute.

So we have a huge amount of projects. I think today we have almost 2,500 engineers across Huawei working on cloud-based projects; which, by the way, is bigger than the total R&D staff of most of our competitors in many markets. But most importantly what we have to acknowledge is, the thing that we have to build is not just a minor iteration of the historical data center, but we have to actually take what people like Amazon and Google philosophically have created, which is a radical rethinking of storage and computing, and turn that into commercial offerings.

We are just about to start trialing and putting out technology to show some of these technologies. But imagine an environment where the cost of storage could be one-tenth what it is today. And you do that by delayering and stripping out a ton of technology so that it’s just very simple architecture, very well-architected and orchestrated. If you change the cost of storage fundamentally for a carrier or for a consumer, for an enterprise, what is the implication of that? Everything. You could change your business model; you can no longer worry about, you only get one gigabyte of storage for your email or don’t make those big files because I don’t have anywhere to put them or be concerned about the cost of those hard drives, or the backup is too complex. If you can get rid of all of that by just changing this fundamental component of the cost of storage, it cascades through every one of these ICT ecosystems. So we call that single cloud, it’s a piece of our overall cloud architecture; and, candidly, I think it’s going to be one of these very big disruptions in the overall industry. Beyond that, obviously we’re doing stuff in everything you could imagine, next-generation wireless. Imagine, if you’ve played with an LTE network today, it’s pretty exciting. A 30-millisecond round-trip time, a 20-30 megabit per second of realistic bandwidth; the theoreticals are much higher. The stuff we’re working on pushed the envelope up to hundreds of megabits or gigabits per second over the wireless environment.

Now, it’s hard to say what you do with that. But I have no doubt that creative people will find a very interesting thing to do with gigabit wireless.

Ina Fried: Really fast dropped calls.

John Roese: Well, it’s funny, I was just at MIT last week, and they were showing me holographic video. I asked them a simple question: How much bandwidth does this take? And they said, “Well, basically it’s the equivalent of a whole bunch of high-definition channels combined to create this three-dimensional, high-definition visualization.” So they were talking hundreds of megs or gigabits of capacity to do holographic video. We think holographs are kind of neat, and they’re interesting. I’ve heard it come up a couple times in the last couple of days. But to move that over a network, we’re going to have to rethink and redesign the networks, which might be one of those first applications, but even if that isn’t the one, I have no doubt people will figure out what to do with it.

Ina Fried: Even making Netflix cost-effective. I mean, their pure data shows that right now we’re not in that place where it’s really you can get Netflix for $7.99 a month, but the cost of delivering a movie is approaching that same rate.

Moving on now to the Q&A with the audience …

Q: On this topic of spectrum and bandwidth, we actually had Mr. Gore here mention that one of the main challenges that the networks are facing is video delivery, broadband delivery; this is definitely one of the drivers. And if that’s an issue not only over typical wired networks, it is only more an issue if every single one of us started to want to stream video or these other high-bandwidth applications over the networks. It’s a significant challenge, which as I understand it, faces two very serious walls, which you’ve alluded to. One is the physics itself. And the second is a political wall. As an example, in Europe, one of the issues is you have a lot of small countries and space; they have to divide the spectrum in ways that are actually very, very inefficient and leave very little spectrum for a given country. So my question is, is this actually really a technical problem, or is it more of a political problem that needs to be solved, that will allow us to get that kind of bandwidth necessary?

John Roese: Yeah, well it’s a great question. I mean, the bottom line is, yes, there’s clearly a political piece to the equation. If you carve up spectrum in funny ways, or you decide that it can only be used in certain ways — like frequency division duplexing versus time division duplexing — these create an unnatural burden. Spectrum is a spectrum; it’s just a segment of the airwaves. We’d like to see a little more rational spectrum policy. Clearly it’s improving, and people I think, now — definitely the FCC, and around the world — are really thinking about how to free up spectrum. But it just takes quite a long time to actually accomplish that. But don’t underestimate the technical problem. There is clearly a technical problem that needs to be solved. You cannot take a network that was historically designed to move very low-bit-rate voice calls, GSM and SMS, and suddenly assume it can be an ultrabroadband wireless delivery vehicle for high-definition video, without really rethinking not just how you do things like modulation on the cellular side, but also how you design the network. And so, that heterogenous networking model, which I think is where most of the action is going to be for the next several years, starts to say, well maybe we should redesign the way the network works. Instead of having one tier, let’s have two tiers, let’s have small cells, let’s spectrum up in the 5- and 6GHz range in coordination with 700 megahertz spectrum.

Imagine a device, five years from now, that’s always connected over a 700MHz channel. So it’s got long range, great building penetration, it’s kind of the control channel — that’s where the important stuff flows. But it’s seamlessly able to invoke additional radios when it’s nearby a small cell, that gives it 100MHz wide channel, 4×4 MIMO, so it has a gigabit of capacity potentially to consume video. So those are all theoretically possible. There are technologies that can be built that way, but the design of the network is very different. It means that now you have to start putting those small cells somewhere; you have to decide that it’s okay to put them on light poles or on building walls, and if we have to have a permitting process that says it takes six months and $10,000 per site to get the permit to hang something on a light pole that just is a small cell in the second tier, that’s just not going to work. So you’re absolutely right, both are important pieces of the equation, both are resolvable, but if you just solve one without the other, it probably isn’t going to get us there.

Q: I have a question about Huawei and potential market share and mindshare in the U.S. One thing that I found really disrupting recently was, Google has shifted Chromebooks with an allocation of Verizon data for free each month. And I think that model is — it’s an incredible model, and I think if you were to put it on lower in phones, you could get people to dig in to this data so that they would see the value of it and want to purchase it, but it’s hardly anywhere. I’m just wondering if you have tried this in any markets around the world, and if you think that this might be something that would be disruptive enough to get traction in America? Because there’s no one offering that.

Ina Fried: So the drug-dealer model — the first hit is free. [laughter]

John Roese: Yeah, we’d rather not use that analogy, but generally it’s not us that are going to create that model, in the sense that it’s the carrier that ultimately has to decide what makes economic sense. Now, the good news is that carriers are now more and more engaged with us saying — they used to think of Hauwei as kind of a supplier of technology that kind of kept the other suppliers honest. That’s when we were in the fast-follower mode. Now that we’re the innovator, the dialogue we’re having with customers is fascinating. So I think you’re on to something, and I think that there are markets where the carriers are looking for ways to increase the penetration rate. And I think now Huawei has an opportunity to actually describe new business models, and the carriers are much more willing to listen to us, because they view us more as an innovator. So I haven’t had that discussion especially, but I’m pretty much, on a weekly basis, sitting down with either CEOs or CTOs or the operators.So maybe the next one, I’ll bounce it off of them and see what they say. I think it’s a great idea, and there’s many other examples in the enterprise world where we’ve done that as an industry and it has worked really well. Get people excited.

Cloud storage is a great example. Give them the first 20 Gb, and see what happens. If they like it, they’ll buy more.That’s what Picasa does, that’s what many of these systems do. You’re absolutely right, it needs to be applied to other markets.

Q: I have a question about your intellectual property strategy. Traditionally, IP is still a little bit of a stigma over here, especially in China. But Huawei has a very impressive IP strategy, so I want to know how it is received internationally, and how it compares to when you were at other international companies.

John Roese: I think you’re absolutely right. The perception is that intellectual property isn’t important. Some companies historically — Huawei, seven or eight years ago — said, no, this is really important. And in the last couple of years we’ve been in the top five intellectual property producers in the world, in all industries — a couple of the years we were, I think, number two. Today we have about 50,000 patents PCTs and patent applications globally. So, my — to answer your question very briefly, compared to Western companies I’ve been CTO of, in fact the patent portfolio is larger and the discipline and desire to create it and the willingness to invest in it is absolutely higher in Huawei. They get it, they understand it and I think realize that intellectual property is a critical part of actually being able to compete in the global marketplace.

Q: It seems like on the one hand you have Moore’s law, giving us faster and faster devices capable of consuming bandwidth, and new business models springing up to accelerate that consumption. On the other hand, you have networks struggling to provide enough spectra. I’d like the answer of, well, technology is going to find a way, but do you think that a period of just real latency is almost inevitable at this point, and if not, do you see solutions coming from outside the network world, like smart flash to do caching, to smooth peak times?

John Roese: Absolutely. The solution to these problems will not be just more bandwidth in the network. That’s a great vehicle. I joke that I’ve been in this industry long enough that we go — we oscillate as an industry between finding really long-term solutions to problems by looking at the end-end ecosystem technically, to moments of time where suddenly the network provides more bandwidth, and we think that you can solve every problem by just throwing bandwidth at it. We’re right now approaching a point in wireless where we can’t just throw bandwidth at it. LT is going to give us a bit of a bump, but it’s a bit more time before we get to LT advanced, and in between there, we will have to get very creative on content management, caching, dynamic transcoding, the intelligence of the endpoint, multi-tiered topologies — those are not cellular problems. And so, you’re absolutely correct, which is great for Huawei, because we actually touch all of those, as opposed to only having one tool to solve the problem.

Q: And do you think that’s going to result in an inevitable period where there’s just going to be a lot of latency?

John Roese: I think it’s going to slow things down in certain markets and certain business models, where the assumption of unlimited bandwidth in all environments is true. But you look over the last 20 years, and it has always gone through those cycles. I’m an optimist, I’ve seen us work through them before. The technical work to solve it when you’re in those “periods of latency” is much more complex. And then eventually we have a breakthrough on bandwidth capacity and everybody kind of breathes a sigh of relief and rapid innovation occurs. And then we do it to ourselves again. It’s inevitable.

John Roese Session Photos

And then there was Schiller and Gore.

That would be Apple’s SVP of worldwide product marketing Phil Schiller and former Vice President Al Gore, who round out the stellar list of speakers at our upcoming AsiaD conference.

Taking place from Oct. 19 to 21 in Hong Kong, the lineup is already impressive, with a mix of speakers from China, Japan, Korea and Taiwan, as well as Silicon Valley and elsewhere.

The previously announced speakers include: Alibaba Group’s Jack Ma; Google Android head Andy Rubin; Twitter inventor and product guru, as well as Square co-founder and CEO, Jack Dorsey; Nvidia founder and CEO Jen-Hsun Huang; Asus Chairman Jonney Shih; Sony president and second-in-command Kazuo “Kaz” Hirai; Google+ guru Bradley Horowitz; Hollywood big shot Peter Chernin; Huawei’s North American R&D head John Roese; Microsoft’s Windows Phone head Andy Lees; and a panel of Silicon Valley start-up stars — Joyus’ Sukhinder Singh Cassidy, SurveyMonkey’s Dave Goldberg and Airbnb’s Brian Chesky; Yahoo co-founder Jerry Yang and Asia head Rose Tsou; LivingSocial’s Tim O’Shaughnessy, along with founders of two of its Asian units, Daniel Shin and Paul Srivorakul; Samsung mobile head Dr. Won-Pyo Hong; HTC CEO Peter Chou, who replaces Chairwoman Cher Wang.

Schiller, who reports to Apple’s CEO Tim Cook (and before that, Steve Jobs) is a member of the executive team of the tech icon, where he has worked for 17 years. He is responsible for a swath of Apple’s outward-facing businesses, including product marketing, developer relations and business marketing.

Today, in fact, he was onstage at Apple’s iPhone event, outlining some of its new product offerings. In addition, Apple just opened its first retail store in Hong Kong.

Gore, who had a memorable interview at the fourth D: All Things Digital conference in 2006, needs little introduction. The former VP and Nobel Peace Prize winner is now chairman of Current TV and also continues as a prominent environmental activist.

Gore is on the board of Apple, while also being a senior adviser to Google, which is a neat trick. At the same time, he is a partner in the famed Silicon Valley venture capital firm, Kleiner Perkins, and co-founder and chairman of Generation Investment Management, a partnership that is focused on sustainable investing.

And, as most people know, he knows a thing or two about the Internet.

Walt Mossberg and I could not think of two better people to add to the lineup we have for AsiaD, which has very few seats left.

See you in China in two weeks!

With AsiaD just a little over a month away, Walt Mossberg and I are adding even more speakers to the list, for what we hope will be an awesome event in Hong Kong.

Taking place from Oct. 19 to 21, the conference lineup is already impressive, with a mix of speakers from China, Japan, Korea and Taiwan, as well as Silicon Valley and more.

The previously announced speakers include: Alibaba’s Jack Ma; Google Android head Andy Rubin; Twitter inventor and product guru, as well as Square co-founder and CEO, Jack Dorsey; Nvidia founder and CEO Jen-Hsun Huang; Asus Chairman Jonney Shih; Sony president and second-in-command Kazuo “Kaz” Hirai; Google+ guru Bradley Horowitz; Hollywood big shot Peter Chernin; Huawei’s North American R&D head John Roese; Microsoft’s Windows Phone head Andy Lees; and a panel of start-up stars — Joyus’ Sukhinder Singh Cassidy, SurveyMonkey’s Dave Goldberg and Airbnb’s Brian Chesky.

Now, to add to the kitty:

Yahoo co-founder and former CEO Jerry Yang, who will appear with the Internet giant’s Asia head Rose Tsou. For all of the noise around the company these days, Yahoo has a huge footprint in the region, maintains a big e-commerce business there and holds massive stakes in key firms, such as Yahoo Japan and China’s Alibaba. One of Yahoo’s first big investments came from Asian investor Masa Son, in fact, way back when.

Also on deck is LivingSocial’s CEO and co-founder Tim O’Shaughnessy, who will appear with Daniel Shin, the CEO and co-founder of South Korea’s Ticket Monster, which the daily deals site just bought as part of its aggressive move into Asia. Competing there with its U.S. rival Groupon, as well as a myriad of local social buying services, the market is a tough one.

Because of Samsung’s increasing importance as a global player in smartphones and tablets, we thought it was important to have Dr. Won-Pyo Hong. He heads global product strategy for Samsung’s mobile business, which has surged in the past year to make the Korean tech giant a leader in Android-based phones and tablets, and a significant challenger to Apple.

Also key in the mobile arena is Cher Wang, the chairwoman of three Taiwan companies, including HTC, the important and innovative handset and tablet maker which has been a key player in Android’s success story. But just this week she talked about the possibility of HTC buying an operating system, which would further strengthen its hand in the competitive market.

That’s it for now, but we will have more big names to come, as well as some pretty cool demos we will be putting onstage at AsiaD. So stay tuned.

After our grand tour of Asia last week — with stops in Korea and Japan — it seems like a perfect time to update the speaker list for our upcoming AsiaD conference in Hong Kong in October.

As Walt Mossberg and I said, we are trying to mix both U.S.-based speakers with a pan-Asian selection of speakers from across the region, and the new additions are just that.

For the international confab — this one will be held Oct. 19-21 — we’ve already announced a great lineup, including Alibaba’s Jack Ma; Google Android head Andy Rubin; Twitter inventor and product guru, as well as Square co-founder and CEO, Jack Dorsey; Nvidia founder and CEO Jen-Hsun Huang; and Asus Chairman Jonny Shih.

Now, to add to that terrific lineup:

Kazuo “Kaz” Hirai is widely considered the second in command at the consumer electronics giant Sony, in charge of its key computer entertainment division, as well as now serving as executive deputy president of the whole company. In that role, the dynamic exec is at the nexus of the Japanese company’s efforts around tablets, smartphones, gaming and more. As Sony struggles to reassert its dominance over the arena, Hirai will be a key player in that effort.

Bradley Horowitz — as head of product management for Google+, the search giant’s aggressive effort to break Facebook’s hammerlock on social networking — has a perfect perspective to talk about the fast-growing area and where it is going globally. With locally-based social companies springing up all over Asia, can Google establish one the whole world will use? It’s an important question and Horowitz’s job No. 1.

At Microsoft, Andy Lees is leading one of the software giant’s most important initiatives, as president of its Windows Phone division. His come-from-behind job includes mobile software and hardware, as well as its key partnership with Nokia. With Apple’s iPhone and Google’s Android far in the lead, Lees will need to win in markets globally, especially in Asia.

Peter Chernin is one of Hollywood’s top players and execs. The former top News Corp. exec is now a movie producer — his first effort, “Rise of the Planet of the Apes,” is a big hit. But he’s also been increasingly active in media investing in Asia of late, and has a lot to say about the global nature of entertainment in the digital age.

John Roese heads the North American R&D team for Huawei, the Chinese telecom giant making everything from heavy-duty gear for networks to mobile phones and tablets. The former CTO of Nortel, he’s heading up global development of Huawei’s cloud services for both businesses and consumers. Roese will also talk about the phenomenon of a Chinese-owned company emerging on the world technology stage.

Even in the midst of an economic downturn, there is no denying that it has been a golden time for Silicon Valley start-ups, which have enjoyed unprecedented growth and funding in the Web 2.0 era. But as they seek to expand beyond the U.S., a critical move for them all, we’ve assembled a panel of entrepreneurs to discuss it, including:

Brian Chesky is the CEO and co-founder of Airbnb, the popular online vacation rental site that recently got a huge dose of funding and an equally large amount of controversy. How Airbnb can take the company to the next level, including across the world, while dealing with the kinds of challenges the small management team has to face, will be an interesting topic for discussion.

After stints as president of Asia Pacific and Latin America operations at Google and co-founder of the online personal finance company Yodlee, Sukhinder Singh Cassidy is trying her hand at a small start-up again. She’ll talk about how the recently funded Joyus, a new premium video commerce site trying to pioneer a new way to shop online, plans to expand globally.

Finally, longtime tech exec David Goldberg is now running one of tech’s most successful start-ups at SurveyMonkey, the dominant online survey company. With stints as founder of music site Launch Media, which was bought by Yahoo, and as an Entrepreneur in Residence with Benchmark Capital, he is the perfect person to explain what it’s like being an entrepreneur today in Silicon Valley.

We have even more speakers for AsiaD we’ll be announcing in the coming weeks, so get ready for what’s next.

“We are not announcing how many and in what country,” Elop said this morning. “But there will be substantial reductions in employment in various locations around the world, and that too will affect Finland.”

The Finnish government is already bracing itself for the hit. ”You’re talking about 20,000 people, it’s a big number,” Minister for Economic Affairs Mauri Pekkarinen told YLE. ”We’re talking about far and away the biggest process of structural change that Finland has ever seen in the new technology sector.”

Ugly.

That said, as I’ve noted here before, Nokia’s R&D spend is nearly three times that of its rivals and about five times that of Apple.

Oh, and don’t fret too much, Nokia staffers. Google’s hiring …

UPDATE: Reached for comment, Nokia refused to confirm Pekkarinen’s number. But it didn’t deny it either. “Stephen mentioned that there would be significant changes but the impact of the new strategy on personnel is not known yet until the planning process for implementation of the new strategy is started,” a spokesperson told me. “We have a strong track record and positive experiences of supporting employees in this kind of a situation and will aim to support the employees with different solutions. As always, when impact on employees are known we will announce them, and if job reductions are warranted we will follow all relevant legislation and practices.”

COMPLETE COVERAGE:

• Nokia’s Stephen Elop Talks to Mobilized About the Big Microsoft Deal (Video)
• Massive Layoffs Expected at Nokia
• Nokia’s Microsoft Partnership: Does the New Strategy Add Up?
• Live From the Nokia-Microsoft Press Conference: It’s a Windows Phone World After All
• More From Nokia: Forecast Gets Cloudy, Plus Expected Executive Changes
• Nokia-Microsoft: What Steve Ballmer and Stephen Elop Have to Say in Their Joint Letter
• Nokia Confirms Microsoft Partnership With YouTube Video
• R&D Spending: Nokia Vs. Apple Shows Size Doesn’t Matter
• Not Seeing Much Return on That Massive R&D Spend, Are You, Nokia?
• Nokia: Big and Slow

Nokia has already announced the key piece of its strategy–a shift to Windows Phone for future smartphones. Now the company is set to talk about the financial implications of that and go through the rest of its strategy, which includes a mix of Symbian and even a dash of MeeGo.

The investor event is scheduled to start shortly and due to run until about 2 pm London time. Mobilized will have live coverage, providing our battery holds out. I’ll try to mention only the high points, however. Mobilized loves numbers, but it is awfully early for a whole lot of financial speak, especially for the U.S. insomniacs tuning in.

12:02 pm: Still waiting for things to get going. But if you really want something to do, we have plenty of earlier coverage, including the press conference and the YouTube video of Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop, as well as a chat with Elop on how he made his big decision.

12:05 pm: Okay, things are getting going as Elop takes the stage (the same one as the earlier press conference.

12:06 pm: Elop is reviewing things. Lots of talk of both challenges and gems. If you read his memo, or anything else he’s said recently, you have heard this.

Battle of devices to war of ecosystems, etc. Mobilized has this part memorized.

12:09 pm: Smartphone strategy is just one piece.

Reviewing the three alternatives that Elop considered–MeeGo, Android or some partnership with Microsoft.

As for Google, Elop says it is the case there are some advantages for that approach.

“There’s something happening there. There’s no denying that.”

However, Elop says the company was worried it would be late and be just one of many, and was not sure how it could leverage assets like its Navteq location-based services.

“Our sense was differentiation could be a pretty big challenge,” Elop says. “The risk for commoditization would increase dramatically.”

Feels profit would have eventually moved to Google, with handsets becoming a commodity.

“It felt a little bit like giving up and not enough like fighting back,” Elop says.

12:12 pm: As for Microsoft, Elop says both companies are bringing something to the table.

As expected, Elop is characterizing this as more strategic than just taking a license to Windows Phone. Talking about Nokia services like mapping, local advertising and other things that Nokia can bring to the table.

“It’s far more interesting than a simple licensing deal,” Elop says. This was the only strategy that makes it a three horse race with Google and Apple.

Elop says he is convinced that Nokia will be able to differentiate within the Windows Phone ecosystem on a sustainable basis.

12:15 pm: There were some challenges and potential disadvantages, he acknowledges.

Top among these is the fact that Windows Phone 7 is new on the market.

“It’s early,” he says. “Will it succeed?”

12:17 pm: Also, there is the issue of being locked in or a lack of control. Elop does not disclose terms but says the company has flexibility and “substantial control” over the future of the ecosystem.

“This is not your mother’s OEM deal with Microsoft,” Elop says.

12:17 pm: Elop says the deal is at the “term sheet” stage, noting that the companies have yet to sign the “definitive agreement.”

12:18 pm: Already the engineers are working through, and Elop says this deal will allow Nokia to move far faster than it has in recent years.

12:18 pm: He’s also making the cost-saving argument, saying Nokia can focus its investment, which he acknowledges hasn’t been getting the return it should.

Elop earlier acknowledged that the company expects significant cost savings from the move as well as substantial workforce reductions.

“Bottom line: Products that are more competitive,” he says.

12:22 pm: Operators are excited by a third viable option, Elop says.

“A two-horse race is not a satisfactory [situation] for operators,” Elop says.

Elop says that Microsoft-Nokia will be operator-friendly, as compared with Google and Apple.

12:24 pm: Elop talking about differentiation–a key concern of analysts and investors.

Elop talks about Windows Phone as offering differentiation form Apple and Google, but also insisting that Nokia has the assets and business terms it needs to stand out from other Windows Phones. He focuses on camera technologies and “unique relationship.”

Stresses again that this is not a standard handset maker agreement. But he also says that just because Nokia can change lots of things within Windows Phone, doesn’t mean it should.

Nokia, he says, must “resist the temptation to customize just for the sake of customization.”

12:27 pm: Now talking about Symbian. For those that missed it, Elop reiterates this is a transition strategy, but adds that the company still expects to sell 150 million more Symbian devices before that transition is complete.

12:29 pm: Strategy is more than just smartphones. He wants the company to be a leading force in connecting the next billion people to the Internet via phones in emerging markets. “The market for feature phones is pushing down the price curve and that is an opportunity for Nokia.”

Nokia will do incremental work in that area–things like Nokia Money for people that don’t have a bank account or telephone. Another, Nokia Life Tools, helps connect, say, farmers to market information.

This area is still a target for innovation, he says, but it also faces competition from Chinese-made phones based on MediaTek chipsets.

Elop says that the company must also plan for the future so that it can be disruptive down the road. “As they say in Finland, it is time to shoot ahead of the duck,” he says.

That’s where MeeGo comes in–the mobile version of Linux that until recently was seen as Nokia’s future. Nokia said that team will ship a phone later this year and then see where the future is headed.

12:35 pm: Want to point out this New York Times article that said both Google and Microsoft were offering hundreds of millions of dollars in engineering and marketing support in order to woo Nokia.

12:36 pm: Elop now talking about cost cuts, including significant job reductions.

“We are not announcing how many and in what country,” Elop says, but adds that the company wants to move quickly on that front.

He says that he has made changes to the business to ensure speed, including leadership structure changes aimed at ensuring accountability. “If things go well today, I’ll be the CEO.”

Of note, the two of the three business unit leaders are women–Mary McDowell, who will lead lower-end phones, and Jo Harlow, who will head the smartphone business.

12:40 pm: Nokia looking for a new leader for its services and developer division. The acting head is Tero Ojanpera, but he will soon be looking for other opportunities within Nokia, Elop says.

Also of note, Louise Pentland, who is head of the legal and intellectual property unit, is being elevated to the top leadership team.

“We have one of the strongest patent portfolios out there” he says, adding that he would encourage all players to take a license to said patents. (hear that, Apple?)

New leader of North American sales unit to be named in coming days.

“We are creating a different industry,” Elop says in closing his introductory remarks.

12:44 pm: Elop Brings on CFO Timo Ihamuotila to go through the numbers.

12:46 pm: Ihamuotila acknowledged Nokia didn’t meet the targets it had set out to achieve at its last financial analyst day.

“Our execution did not cut it.” he says.

12:49 pm: Ah, Now on to the good stuff. CFO talking financial impact from Microsoft deal. Says should be good over the long term.

Slide shows royalty payments to Microsoft causing lower gross margins, but says sales and marketing support from Microsoft should lower operating expenses.

“We will receive substantial go-to market support from Microsoft,” he says, without giving numbers.

12:52 pm: Ihamuotila talking now about the company’s long-term targets for devices and services period “after the transition period.”

Device sales to grow faster than the market, with operating margins of 10 percent or more–but this is only after the transition period, which the company has said could last this year and next.

Significant uncertainties in this period.

Ihamuotila shows a slide showing Symbian sales slowly giving way to Windows Phone with lower-end mobile phones remaining about half of sales.

12:57 pm: Ihamuotila shows chart of how it expects to cut R&D with the company investing less in services, more in entry-level phones and far less on MeeGo, though still some. The investment in Symbian will be replaced by a far lower investment in Windows Phone R&D. Overall, R&D should be a fraction of what it was.

1:02 pm: Over long term, Ihamuotila says that the Microsoft deal should help significantly boost the company’s Navteq navigation business.

“We think this new strategy is the best way to maximize long-term value, both to our shareholders and to other stakeholders,” Ihamuotila says.

On to Q&A for financial analysts.

1:03 pm: Question on how Nokia will keep employees motivated, something else and when to expect the first Windows Phone.

“Thanks for the one question” Elop quips, before addressing them in turn.

Elop says that the key is on focused innovation so they see the fresh opportunities (at least for the ones who don’t get cut by the large workforce reductions also promised).

He also pointed to his sharply worded memo, which he said was designed to convey the message that “Here is the truth, we’re making decisions and we’re moving forward.”

Won’t give date on first Windows Phone, but says again that the move will allow a substantially faster pace than the company was on with Symbian.

1:07 pm: Elop is asked about some of the challenges with Microsoft and Nokia each responsible for different pieces of software and services, as opposed to Google and Apple, where things are more integrated.

“We wanted to drive operational simplicity,” Elop says, adding that the companies talked about other arrangements, though not a full-on acquisition. The companies, Elop says, decided not to go with the operational complexity of a joint venture.

1:10 pm: Elop says Nokia has opportunities to differentiate from other Windows Phone devices, but adds it is in Nokia’s interest for there to be other strong handset players supporting Windows Phone.

“We’ve got to make Windows Phone successful,” he says.

Nokia’s mapping technology, he says, will benefit rivals like Samsung and HTC. “We’re willing to make those trades,” Elop says.

1:11 pm: Elop is asked why he feels comfortable with a “bet the farm” strategy on Microsoft, a company he clearly knows well.

Elop points out that it was harder to see how Microsoft would rapidly be successful without someone like Nokia.

“But this is now different,” he says, adding that this is now an ecosystem that Microsoft and Nokia are jointly helping to build.

Mapping and local advertising were not part of the ecosystem before the Nokia-Microsoft partnership.

As for impact of the transition, it’s hard to say, Elop says. Symbian is strong in some places where Apple and Google are present today.

1:14 pm: Asked whether Nokia will remain profitable during the transition. “It’s hard to say financially, and I am not going to provide any further specific guidance.”

1:17 pm: Elop won’t say when the first Windows Phone will ship, but lots and lots by next year at various price points.

“We’ll be shipping in volume in 2012,” he says.

1:20 pm: Another two-parter! 1) Why will Symbian be supported if it is transitioning away? 2) Why does Nokia think it will be able to have double-digit operating margins using someone else’s platform?

Elop: They recognize Symbian is key to Nokia being able to transition, but he agrees that consumers will have to want the Symbian phones Nokia builds. CFO also notes that less than half of Symbian phones are sold through carriers.

As for question on margins, CFO says the company has opportunities for higher margins around services and advertising.

1:23 pm: Asked about how the company is confident Windows Phone can get to lower prices, Elop says that was a key consideration, down to which chipsets will be supported, etc.

Between the two companies there was a lot of work to get a high degree of confidence.

“That was a critical evaluation,” he says.

That said, Elop agrees there is a smartphone market below Windows Phone that Nokia will manage with an evolution of today’s Series 30 and Series 40 operating systems.

1:31 pm: Elop: Some of the hardware designs that would have run MeeGo or Symbian will be repurposed for Windows Phone. Some devices may come out with similar models for both Windows Phone and Symbian.

1:32 pm: Question again on who pays whom in Microsoft-Nokia. Is there a lump payment from Microsoft?

Elop doesn’t answer and instead refers to slide that shows opportunities on both sides. Saying value going both ways. As for Microsoft’s payments, “That is a significant part of the conversation,” Elop says.

1:35 pm: Two good questions: Can Windows Phone be put on any current devices? What happens to QT development layer that Nokia bought and had sought to unify developer approach?

Elop: It’s not as simple as plugging in and downloading on to current phones, though some technologies can be repurposed.

QT continues to be the development for Symbian and lone MeeGo device. Also could have a role on low-end devices.

However, Elop says, “We are not proposing a QT on Windows Phone” approach. Adding another development environment could fork the ecosystem, which is not good for Nokia or Windows Phone, he says. Development environment for Windows Phone will be Silverlight and XNA–Microsoft’s current tools.

1:38 pm: Asked about branding, he says in some cases you will see both Microsoft and Nokia brands. Examples could include Nokia Search powered by Bing or Bing maps powered by Nokia, though he says those are examples and not final choices.

1:39 pm: Asking about tablets, questioner points out that Nokia had an early lead in tablets, but Apple “stole the show.”

“We are not announcing today a specific tablet strategy,” he reiterates, saying that Microsoft creates opportunities.

Elop notes that there are rumors of Windows Phone and Windows that could power tablets.

“We could do that,” he says. “We might do that.”

Also an opportunity for Nokia to step back into the game using its own software.

1:41 pm: Elop wrapping up.

“We have set a new course for Nokia,” he says, adding that despite what has been written, Nokia is still an incredibly powerful company, though perhaps not in North America. “Today we are diving forward” he says. “We have a strong partner in Microsoft who is incented as are we in making this successful.”

Investor guy closes by reminding there were forward-looking statements. He’s still going as people leave the room.

COMPLETE COVERAGE:

• Nokia’s Stephen Elop Talks to Mobilized About the Big Microsoft Deal (Video)
• Massive Layoffs Expected at Nokia
• Nokia’s Microsoft Partnership: Does the New Strategy Add Up?
• Live From the Nokia-Microsoft Press Conference: It’s a Windows Phone World After All
• More From Nokia: Forecast Gets Cloudy, Plus Expected Executive Changes
• Nokia-Microsoft: What Steve Ballmer and Stephen Elop Have to Say in Their Joint Letter
• Nokia Confirms Microsoft Partnership With YouTube Video
• R&D Spending: Nokia Vs. Apple Shows Size Doesn’t Matter
• Not Seeing Much Return on That Massive R&D Spend, Are You, Nokia?
• Nokia: Big and Slow

Nokia spends about five times as much on mobile R&D as Apple. In fact, Nokia has nearly as many engineers working on its smartphone software platforms as Apple does for its entire product line. Says Dediu, “Symbian alone may cost twice as much to develop than the iPhone (including the hardware).”

A shocking metric, if correct. And a pretty dismal return on investment–unless there’s another version of Symbian in the pipeline that will best iOS.

PREVIOUSLY:

• Not Seeing Much Return on That Massive R&D Spend, Are You, Nokia?
• Nokia: Big and Slow

Hamstrung by institutional inefficiencies and the complexity of its legacy platforms, Nokia is spending a lot of money to gain traction in markets in which its handset lineup is clearly uncompetitive, and with little success. Instead it’s suffering steeper share losses at the high end of the market and margin erosion across its entire portfolio. And it’s spending about 4 times as much on R&D as Apple, which has recast the smartphone space from its own vision.

As Bernstein analyst Pierre Ferragu observes, Nokia’s business appears to be melting like an ice cube. “At this stage, we believe that even a good success of Symbian^3 would barely stabilize the business,” he says. “A real comeback will need much more effort … and a lot more time, unlikely to happen in the next couple of years, in our view.”

So what can be done? Though some observers argue Nokia should scrap Symbian, Ferragu says that’s impossible given the number of assets the company has that depend on it. The company can’t really make a big move to Android, either. That would undermine its current service strategy and alienate partners, European carriers looking for an alternative to iOS and Android, and Nokia’s developer community.

What it should do, he says, is redouble its efforts on MeeGo and make it a viable competitor to Android and iOS in markets like North America, while continuing to push Symbian to the rest of the world. And then it should integrate the two through QT, its cross-platform application and UI framework. Says Ferragu, “By migrating all UI developments of Symbian on QT, the company can generate significant cost savings, progressively drive the platform towards a single UI between MeeGo and Symbian and a single development environment for applications.”

What’s left to do after that?

Hope for the best.

As CEO Stephen Elop said during the company’s last earnings call, “Nokia must compete on ecosystem to ecosystem basis. In addition to great device experiences we must build, catalyse or join a competitive ecosystem. And the ecosystem approach we select must be comprehensive and cover a wide range of utilities and services that customers expect today and anticipate in the future.”

“Whatever the strategy is we outline on Feb. 11, we very clearly ensuring that it will give us the opportunity to reopen markets such as the U.S. and some others, where we have not recently been present.”

That’s the gist of Berenberg Bank analyst Adnaan Ahmad’s open letter to Elop and former colleague Microsoft CEO Steve Ballmer. “[Stephen] announce an EXCLUSIVE deal with your ex-colleague, Steve: you get access to their Windows Phone 7 (WP7) intellectual property scot-free and access to the US market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least 30 percent,” Ahmad writes. “Get rid of your own proprietary high-end solution (MEEGO)–it’s the biggest joke in the tech industry right now and will put you even further behind Apple and Google. Focus your high-end portfolio around WP7, and over time you can take the cost down (that’s Steve’s job and cost base) to get this into the mid-range market. Push your Symbian solutions into the low-to-mid-range smartphone market as quickly as possible to defend market share versus Android’s upcoming lowered cost ecosystem.”

An interesting, albeit unoriginal, idea, particularly coming as it does after Elop’s assertion that Nokia “must build, catalyze and/or join a competitive ecosystem” to effectively compete in the handset industry. And it has its merits–for Microsoft, access to Nokia’s massive global market share, and for Nokia, the ability to go to market with an OS that isn’t a joke, as Ahmad notes. That said, while Microsoft is certainly a valuable ecosystm partner, it’s not yet all that valuable in the mobile space. But it could be.

One of the most difficult decisions that a CEO ever makes is whether or not to sell her company. Logically, determining whether selling a company will be better in the long term than continuing to run it stand-alone involves a huge number of factors, most of which are speculative or unknown. And if you are the founder, the logical part is the easy part.

Indeed, the task would be far simpler if there were no emotion involved. But selling your company is always emotional and deeply personal.

Types of Acquisitions

For the purpose of this discussion, it is useful to think about technology acquisitions in 3 categories:

• Talent and/or Technology–when a company is acquired purely for its technology and or its people. These kinds of deals typically range between $5 and $50M.
• Product–when a company is acquired for its product, but not its business. The acquirer plans to sell the product roughly as it is, but will do so primarily with its own sales and marketing capability. These kinds of deals typically range between $25M and $250M.
• Business–when a company is acquired for its actual business (revenue and earnings). The acquirer values the entire operation (product, sales, and marketing) not just the people, technology, or products. These deals are typically valued (at least in part) by their financial metrics and can be extremely large (e.g. Microsoft’s $30B+ offer for Yahoo!).

This post is most applicable to business acquisitions with some relevance to product acquisitions and will be fairly useless if you are selling people and/or technology.

The Logical

When analyzing whether or not you should sell your company, a good basic rule of thumb is:

IF
a) You are very early on in a very large market
AND
b) You have a good chance of being number one in that market

Then you should remain stand-alone. The reason is that nobody will be able to afford to pay what you are worth, because nobody can give you that much forward credit. For an easy to understand example, consider Google. When they were very early, they reportedly received multiple acquisition offers for more than $1B. These were considered very rich offers at the time and they were being offered a gigantic multiple. However, given the size of the ultimate market, it did not make sense for Google to sell. In fact, it didn’t make sense for Google to sell to any suitor at any price that the buyer could have paid. Why? Because the market that Google was pursuing was actually bigger than the markets that all of the potential buyers owned and Google had built a nearly invincible product lead which enabled them to be number 1.

Contrast this situation with Pointcast. Pointcast was one of the first Internet applications to catch fire. They were the buzz of Silicon Valley and the technology industry in general. They received billion dollar acquisition offers that they passed on. Then, due to flaws in their product architecture, their customers started to turn off their application. Overnight, their market collapsed and never returned. They were ultimately sold for a relatively tiny amount.

So, the judgment that you have to make is a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? b) Are we going to be number 1? If the answer to either a) or b) is no, then you should consider selling. If the answers to both are yes, then selling would literally mean selling yourself and your employees short.

Unfortunately, these questions are not as simple to answer as I’ve made them out to be. In order to get the answer right, you also have to answer the question: “what is the market really and who are the competitors going to be?” Was Google in the search market or the portal market? Clearly, in retrospect, they were in the search market. Most people thought they were in the portal market at the time. Yahoo was a tough competitor in the portal market, but not so much in the search market. If Google had really been in the portal market, then selling might have been a good idea. Pointcast thought that their market was much larger than it turned out to be. Interestingly, Pointcast’s own product execution (or lack thereof) caused their market to shrink.

Let’s look at the case of Opsware. Why did I sell Opsware? Another good question is why didn’t I sell Opsware until I did?

At Opsware, we started in the Server Automation market. When we received our first inquiries/offers for the Server Automation company, we had less than 50 customers. I believed that there were at least 10,000 target customers and that we had a decent shot at being number one. In addition, although I knew the market would be redefined, I thought that we could expand to networks and storage (Data Center Automation) faster than the competition and win that market as well. Therefore, assuming 30 percent market share, somebody would have had to pay 60X what we were worth in forward credit to buy out our potential. You won’t be surprised to find that nobody was willing to pay that.

Once we grew to several hundred customers and expanded into Data Center Automation, we were still number one and were more valuable stand-alone than any of the prior acquisition offers. At that point, both Opsware and our main competitor Bladelogic had developed into full-fledged companies (world-wide sales forces, built out professional services, etc). This was significant, because it meant that a large company could buy one of us and potentially execute successfully (big enterprise companies can’t generally succeed with small acquisitions, because too much of the important intellectual property is the sales methodology and big companies can’t build that).

At this point, it became clear that BMC was going to buy either Opsware or Bladelogic. As a result, the calculus, or whether Opsware was going to be number 1 in the market, needed to be redefined as follows:

1. We had to be number one in the Systems & Network Management market rather than the Data Center Automation market, because like the word processor market, the Data Center Automation market was going to be subsumed by a larger market that contained it.
2. In order to be number one, we had to beat BMC+Bladelogic which was a significantly more difficult opponent than either company stand-alone.

Finally, the market itself was transforming due to an underlying technological shift: virtualization. Virtualization meant that the entire market needed to be re-tooled, so we were embarking on a new R&D race to build the best management for virtualized environments. This meant deferring earnings for a very long time.

Based on all of these factors, it made sense for us to at least consider the possibility of acquisition and run a short process to understand the interest in the M&A market. Through that process, 11 companies made acquisition offers of some form. This told me that we were at a local maxima in terms of the market price for Opsware. I.e., the set of potential buyers was convinced that the market was very important and there was no extra premium that we could hope to achieve through better awareness. In the end, based on a lot of analysis and soul searching, I determined that the current local maxima was higher than we could expect to achieve in the next 3-5 years and I sold the company to Hewlett Packard for $1.65B. I think and hope that was the right decision.

The Emotional

The funny thing about the emotional part of the decision is that it’s so schizophrenic.

How can you ever sell your company after you’ve personally recruited every employee and sold them on your spectacular vision of a thriving, stand-alone business? How can you ever sell out your dream?

How can you walk away from total financial independence for yourself and every member of your close and distant family? Aren’t you in business to make money? How much money does one person need?

How can you reconcile Dr. Stay-the-Course and Mr. Sell-the-Thing? Clearly they are irreconcilable, but the key is to mute them both.

A few keys on muting the emotions:

• Get paid (a salary)–Most venture capitalists like entrepreneurs that are “all in”, meaning that the entrepreneur has everything invested in the company and will have very little to show for her efforts if the company does not succeed. As part of this, they prefer that the founding CEO have a very low salary. In general, this is a good idea, because the temptation to walk away when things go poorly is intense and total financial commitment helps one keep his other commitments. However, once the company starts to become a company rather than an idea then it makes sense to pay the CEO at market. More specifically, once the company has a business (as defined above) and becomes an attractive acquisition target, it makes sense to pay the CEO, so that the decision to keep or sell the company isn’t a direct response to the CEO’s personal financial situation as in: “I don’t think that we should sell the company, but I live in an 850 square foot apartment with my husband and two kids and it’s that or divorce.”
• Be clear with the company–One question that every start-up CEO gets from her employees is: “are you selling the company?” This is an incredibly difficult question. If she says nothing, the employee will likely interpret this to mean the company is for sale. If she says “at the right price,” the employee will wonder what that price is and may even ask. If the company ever reaches that price, the employee will assume the company will be sold. If she dodges the question with the standard “the company is not for sale,” the employee may feel betrayed if the company is ever sold. More importantly, the CEO may feel like she is betraying the employee and that feeling will influence her decision making process. One way to avoid these traps is to describe the analysis in the prior section: if the company achieves product/market fit in a very large market and has an excellent chance to be number one, then the company will likely remain independent. If not, it will likely be sold. This is one good method to describe the interests of the investors in a way that’s not at odds with the interests of the employees and is true.

Final Thought

When faced with the decision of whether or not to sell your company, there is no easy answer. However, preparing yourself intellectually and emotionally will help.

]]> http://allthingsd.com/20110118/should-you-sell-your-company/feed/ 1 http://allthingsd.com/20101215/china-surpasses-japan-in-rd-as-powers-shift/ http://allthingsd.com/20101215/china-surpasses-japan-in-rd-as-powers-shift/#comments Wed, 15 Dec 2010 08:00:18 +0000 Gautam Naik http://voices.allthingsd.com/?p=34001 China is on the verge of overtaking Japan as the second-biggest spender on research and development after the U.S., marking another key shift in the rivalry between the world’s economic powerhouses, a new report shows.

China is expected to spend $153.7 billion on R&D in 2011, up from the $141.4 billion it will spend this year, according to Battelle Memorial Institute, a nonprofit that does scientific research for the government and industry. By comparison, Japan is expected to spend $144.1 billion next year, up from $142 billion in 2010.

Despite China’s surge, the U.S. remains by far the biggest R&D spender, making up one-third of the global total.

“China has sustained this kind of growth [in R&D spending] for a number of years and they’re sticking to it regardless of what’s going on in the global economic cycle,” said Martin Grueber, senior researcher at Battelle and co-author of the report, which is published in R&D magazine.

Read the rest of this post on the original site

]]> http://allthingsd.com/20101215/china-surpasses-japan-in-rd-as-powers-shift/feed/ 0 http://allthingsd.com/20101111/motorola-announces-inevitable-microsoft-countersuit/ http://allthingsd.com/20101111/motorola-announces-inevitable-microsoft-countersuit/#comments Thu, 11 Nov 2010 15:20:28 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=52371 On Tuesday Microsoft sued Motorola, accusing it of charging excessive royalties on some patent licenses Redmond uses in the Xbox. Now Motorola has responded in kind.

Late Wednesday, its Motorola Mobility subsidiary slapped Microsoft with a lawsuit accusing the company of infringing 16 of its patents in a variety of products– including Windows, Exchange, Messenger, Outlook, Windows Marketplace, Bing Maps and Xbox.

“[We are] bringing this action against Microsoft in order to halt its infringement of key Motorola patents,” Kirk Dailey, corporate VP of intellectual property at Motorola Mobility, said in a statement. “Motorola has invested billions of dollars in R&D to create a deep and broad intellectual property portfolio and we will continue to do what is necessary to protect our proprietary technology.”

Microsoft, for its part, seems largely unfazed by Motorola’s right-back-at-ya maneuver. Indeed, in a statement, Horacio Gutierrez–Microsoft’s deputy general counsel of intellectual property and licensing–essentially said the company was waiting for it. “This move is typical of the litigation process and we are not surprised,” he said. “We remain confident in our position and will continue to move forward with the complaints we initiated against Motorola in the U.S. District Court for the Western District of Washington and with the International Trade Commission (ITC).”

]]> http://allthingsd.com/20101111/motorola-announces-inevitable-microsoft-countersuit/feed/ 0 http://allthingsd.com/20101103/microsofts-kinect-is-under-pressure-to-connect/ http://allthingsd.com/20101103/microsofts-kinect-is-under-pressure-to-connect/#comments Wed, 03 Nov 2010 12:00:39 +0000 Nick Wingfield http://voices.allthingsd.com/?p=31990 Microsoft Corp. is betting a new product called Kinect will deliver a bigger audience for its Xbox 360 videogame console by letting people play games without a traditional controller.

But Kinect, when it goes on sale Thursday, will also be the most visible test in years of whether Microsoft can churn out breakout consumer products from its huge investment in research and development.

Microsoft faces increasing pressure from investors to show a payoff from those investments, which amounted to $8.7 billion for the fiscal year ended June 30–bigger than the R&D budget for any other tech company. Microsoft has poured a chunk of that money into improving existing products and services like its Bing search engine, as well as more traditional franchises like Windows and Office.

Kinect will be especially visible: an entirely new $150 device sold at retail outlets and aimed squarely at the consumer market, a field in which Microsoft has been more sluggish to respond to trends than Apple Inc. and other competitors.

Read the rest of this post on the original site

]]> http://allthingsd.com/20101103/microsofts-kinect-is-under-pressure-to-connect/feed/ 0 http://allthingsd.com/20101028/steve-jobs-spends-more-time-in-the-labs-less-in-the-air/ http://allthingsd.com/20101028/steve-jobs-spends-more-time-in-the-labs-less-in-the-air/#comments Thu, 28 Oct 2010 15:12:28 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=25192 Apple spent more time and money making stuff last year, and less time making deals. That’s the conclusion you can draw from Apple’s annual 10-K report filed with the SEC yesterday. The company’s R&D budget ballooned up to $1.8 billion in 2010–that’s up 64 percent from 2008. But Apple’s boss spent less time in the air: CEO Steve Jobs, who uses his personal jet to get around on company business and bills Apple for the expense, racked up a mere $248,000 in plane bills. That’s down 71 percent from two years ago.
]]> http://allthingsd.com/20101028/steve-jobs-spends-more-time-in-the-labs-less-in-the-air/feed/ 2 http://allthingsd.com/20100930/hp-names-new-ceo-leo-apotheker/ http://allthingsd.com/20100930/hp-names-new-ceo-leo-apotheker/#comments Thu, 30 Sep 2010 20:20:41 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=49796

Hewlett-Packard (HPQ) has finally named a new CEO, and, despite our prediction that it would choose an internal candidate like Todd Bradley or Anne Livermore, the company instead looked to an outsider.

On Thursday afternoon, HP named Léo Apotheker–former CEO of SAP (SAP)–as its new chief executive officer.

And, in a jab at Oracle–which hired former HP CEO Mark Hurd after his ouster–it tapped Ray Lane, a former president and COO at Oracle (ORCL), as its non-executive chairman of the board. Lane is currently a managing partner at VC powerhouse Kleiner Perkins Caufield & Byers.

Interesting choices. Particularly Apotheker, who was pushed out of SAP this past February after less than a year on the job. (He served as co-CEO with Henning Kagermann for a few years prior.)

Cathie Lesjak, who has been serving as interim CEO, will return to her previous role of CFO on November 1, when the new appointments become effective.

In a statement announcing the move, HP board member Robert Ryan said the company chose to hire Apotheker because he’s “a strategic thinker with a passion for technology, wide-reaching global experience, and proven operational discipline.”

At $40.80, HP shares are down about three percent on the news. Seems investors aren’t too keen on Apotheker’s appointment, even after weeks of leadership uncertainty.

Here’s the release:

Léo Apotheker Named CEO and President of HP

Ray Lane Joins HP as Non-Executive Chairman of the Board

PALO ALTO, Calif., Sept. 30, 2010–The Board of Directors of HP today announced the election of Léo Apotheker as Chief Executive Officer and President. Apotheker, who previously served as CEO of SAP, will also join HP’s Board of Directors. The Board also elected Ray Lane, Managing Partner at Kleiner Perkins Caufield & Byers, as a new member of the Board and designated him as non- executive Chairman. Both elections are effective November 1.

During Apotheker’s more than 20 years at SAP, he was a driving force in making it the largest business software applications company in the world. Apotheker helped develop and implement the most significant changes in SAP history. During his tenure, he transformed R&D and technology platforms and expanded business models and customer segments. Apotheker also helped lead SAP to 18 consecutive quarters of double-digit software revenue growth between 2004 and 2009.

Lane has served on the Board of Directors of more than 20 public and private companies and joined Kleiner Perkins in 2000. Previously, he served as President and Chief Operating Officer at Oracle Corporation. Earlier in his career, Lane also worked at Booz Allen Hamilton, EDS and IBM.

“Léo is a strategic thinker with a passion for technology, wide-reaching global experience and proven operational discipline–exactly what we were looking for in a CEO,” said Robert Ryan, lead independent director of the Board. “After more than two decades in the industry, he has a strong track record of driving technological innovation, building customer relationships and developing world- class teams.”

Ryan continued, “Léo has been a leader in anticipating the transformation taking place in our industry, and we believe he is uniquely positioned to help accelerate HP’s strategy. He has demonstrated success in the U.S. market and also has vast international experience – which will be a major asset as HP continues to expand globally, particularly in high-growth emerging markets. HP has the right assets and market positions, and now we have the best team to realize the company’s enormous potential.”

“HP has a powerful mix of businesses, products and services, one of the most innovative cultures in the industry, and an accomplished management team who have played a critical role in its success,” said Apotheker. “I am deeply honored to be joining the more than 300,000 dedicated HP employees.”

Apotheker continued, “Given HP’s diversified products and services, its financial strength, and its leadership position across markets, no other company is as well positioned to drive – and profit from – the revolutionary changes under way in the marketplace. As we move forward, HP will continue to be a valued partner with our customers as well as a fierce competitor. I look forward to working with the outstanding people at HP to write the next chapter in the company’s long and proud history.”

“I am excited to join the Board of this pioneering company, and look forward to working closely with Léo – and the rest of the Board and senior management team – as they capitalize on the changes taking place across the industry,” Lane said. “I have known and admired Léo for almost 20 years. He is ideally suited to build on HP’s strong foundation, leverage its many assets and keep the company at the forefront of innovation.”

Apotheker will succeed Cathie Lesjak, who was named interim CEO in August 2010. Lesjak, who has served as HP’s Chief Financial Officer since January 2007, remains CFO and continues to serve as a member of the Executive Council. Ryan said, “Cathie is and will continue to be an important part of HP. We are extremely fortunate to have one of the deepest, most talented senior management teams in the industry and to have someone of Cathie’s caliber lead HP during this interim period. On behalf of the entire Board, I would like to thank Cathie and our senior management team for maintaining HP’s focus on serving customers and continuing to execute our strategy.”

]]> http://allthingsd.com/20100930/hp-names-new-ceo-leo-apotheker/feed/ 0 http://allthingsd.com/20100706/nokia-establishes-modem-connection-with-renesas/ http://allthingsd.com/20100706/nokia-establishes-modem-connection-with-renesas/#comments Tue, 06 Jul 2010 16:38:01 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=44234 Nokia is unloading its wireless modem business. The company said today that Renesas Electronics is acquiring the division, which makes inexpensive plug-in USB modems, for $200 million. As part of the deal, Renesas is getting Nokia’s LTE, HSPA and GSM technologies and patents, as well as 1,100 Nokia R&D staffers. It’s also entering into a long-term alliance with the company to develop future wireless broadband standards–high-speed packet access (HSPA+) and long-term evolution (LTE).

“The planned transfer of Nokia’s wireless modem business enables Renesas Electronics to maximize the value of Nokia’s technology assets and engineering expertise in delivering advanced mobile platform solutions to the market by combining them with Renesas Electronics’ market-proven multimedia processing and RF technologies,” Nokia said in a statement.

Unloading a wireless communications hardware business as Nokia (NOK) is doing here might seem an odd move for a wireless communications hardware maker, but in this case it’s quite wise. Wireless modems are a low-margin business. Nokia is far better off dumping it and focusing more of its energy on its smartphone and Internet services businesses, which have been lagging for far too long.

]]> http://allthingsd.com/20100706/nokia-establishes-modem-connection-with-renesas/feed/ 0 http://allthingsd.com/20100603/alan-mulally-session/ http://allthingsd.com/20100603/alan-mulally-session/#comments Thu, 03 Jun 2010 19:27:26 +0000 Peter Kafka http://d8.allthingsd.com/?p=484 Ford CEO Alan Mulally has come to D8 to take the hot seat, a position he should be used to after steering Ford through the recent financial crisis. Ford shunned the bailout money that carried GM through a restructuring and sustained Chrysler through its sale to Italian automaker Fiat.

Ford (F) recently released SYNC, a voice-activation package on some models that integrates the content and functionality of mobile devices with the car itself. SYNC also adds apps to the car, though it’s not clear what these features will mean for the future of American automakers.

Liveblog

Mullaly appears onstage wearing a very bright red vest. Vibrant!

At Walt’s request, Mulally shows off a piece of paper with handwritten notes that purport to explain Ford’s interest in all things digital. Lots of computers are involved in the creation of your Taurus.

12:30 pm: Kara wants to know why cars have been basically digitally ignorant for a long time. Walt: You open the door to you car and it’s 1957 again. Why is that?

For the record, Mulally doesn’t think you should text and drive.

He also wants you to keep your hands on the wheels and eyes on the road. So there’s lots of digital stuff being built into dashboard and console. Like the SYNC iPod/phone, etc., manager.

Ford is playing around with features like allowing drivers to have their text messages read to them. But safety is paramount. All of our data says your safest operation is when you have your hands on the wheel and eyes on the road. But right now, we feel that listening to email and text is a good first step. But we don’t want you sending email and text via voice, at least for now.

12:35 pm: Kara–Why is this taking so long? [i.e., "where is my jetpack?"]

Walt: Yeah! Even fancy German and Japanese cars don’t do it well. It’s pathetic!

Mulally: Don’t blame me! I just got here. Part of the problem is that car development is much slower than consumer electronics R&D cycle. For instance, a lot of competitors have embedded a phone in the car. We’re avoiding that and focusing on interface, so as consumers exchange and swap devices, they can do that.

12:38 pm: A pitch for “My Ford Touch,” which seems to have lots of bells and whistles, but sounds confusing to this frequent walker and subway-taker.

12:39 pm: Walt tries explaining it. “The instrument cluster, which has been on steering wheels forever, is now going to be a on a screen.”

Mulally: Right. We want to make it intuitive. Etc.

12:40 pm: Still trying to explain it. Screen goes on steering wheel and allows customizable controls for operating car, as well as extras.

12:41 pm: Kara–what is that people want to do, anyway?

Mulally: Good question. We watch what people do in cars and try to help them do it, because they’re going to do it anyway. For instance, we’re building in Pandora to our cars. You’ll get the music via the Web, from your cellphone, but you’ll operate it on our panel. Also Stitcher, Open Beak, etc.

A lot of people here are using apps. You’ll get to use them in the car.

12:43 pm: Walt–Will you need a special Ford version of these apps?

Mulally: Yep. You use our API

12:44 pm: Kara wants better navigation services. She doesn’t want to hear a mean German lady giving her directions though.

Walt: Yeah! All of your GPS systems are lousy! The ones on phones are better!

Mulally: We’re with you. That’s why we want to rely on developers to build the good stuff, via our API.



12:47 pm: Let’s talk about the car industry, period. You just got here. You were in aerospace, before. Also, the whole oil spill thing does change the way we look at cars, right?

Mulally: Before I left Boeing (BA), I thought about where the car industry was going. What I decided was that the industry is the soul of Manufacturing–“big M”–all around the world. Lots of stuff goes into this, no matter what country or region. It’s also part of the solution to economic growth, energy independence and environmental sustainability.

On that note: Clearly, the internal combustion engine is going to be around for a while. But we can make them operate more efficiently, etc. Take a v6 and make it run like a v8m, etc. Meanwhile hybrids are tough because you have two different systems: Batteries and internal combustion. Then in the future, we need to move to all-electric. We have a great road map for all of this. First all-electric cars launch this year. Hydrogen is farther out, don’t have the tech for it yet.

12:52 pm: Mulally describes challenges of electric car–need to figure out how and where to get the juice to cars.

12:53 pm: Kara–What about health of business?

Mulally: I like being here much better than testifying in front of Congress.

Kara: How did you get here?

Mulally: I flew! That’s why we have airplanes. For long-distance travel.

12:53 pm: A Zuckerberg hoodie joke.

12:54 pm: Mulally–Time goes fast. Last year, I was testifying on behalf my competitors, who were bankrupt. Now I’m a capitalist. But if GM and Chrysler went away, they’d take the supply base along with them, and they’d probably have put the U.S. into a bona fide depression.

I was asking for temporary help. I didn’t think all of us would end up owning our competitors.

12:57 pm: Mulally–Recovery is coming, by the way. We’ll have 3.5 percent expansion of GDP this year. And Ford is doing well. We’ll have market-share increases.

Kara: What kind of car do you drive?

Mulally: A different one every night.



Q&A

[I hope someone asks about the New York Times series that said that anything you do in your car besides driving is a safety risk. Anyone?]

Q: Please talk about the Mercury situation.

A: We had too many brands. Ford, Mercury and Lincoln. Mercury was supposed to be a gap-bridger between Ford and Lincoln. But the Ford line expanded, so we didn’t need Mercury. “Everybody’s got great options in Ford.” It’s also good news for Lincoln–because we don’t have other premium brands anymore, we’ll refocus on Lincoln for luxury.

Q: Proud Tesla owner Jason Calacanis wants to know why electric isn’t everywhere already.

A: We can make electric cars, but as you know, we can improve them, like battery life.

Calacanis: No. It’s not a problem. Batteries are great at Tesla.

Mulally: Nope. Most of them are too big, too heavy. There’s a lot of room to improve the batteries.

Other point is that the infrastructure has to get there. You need charging stations for people in apartments, in rural areas, etc. When we get there, Ford will be there.

Kara, and Walt want Jason to tell us how much his Tesla cost. Astonishingly, he goes mute.

Q: Did you really say you don’t intend to get a revenue stream from connectivity of cars to data? You don’t want a piece of money made by Yelp, Garmin, etc.?

A: You heard me correctly. We’re laser-focused on safe and efficient transportation. So there’s no conflict of interest.

Q: Walt wants to if these electronics actually sell cars.

A: I demoed this stuff for you, and you’re a tough critic, and you said “whoa!” This technology is absolutely a differentiator.

Q: You’re talking about innovation in cars. Does dealer network have to change too?

A: Absolutely. We’ve been right-sizing the dealer network to match demand for five years. Once you do that, throughput goes up, profitability goes up, interest in improving facilities goes up, etc. Then we can improve consumer experience.

Walt: Because it’s terrible right now.

Mulally agrees without saying so.

Q: China is pushing hard for electric cars. What does that mean for you?

A: I think China is going to continue to take a real leadership position on this. Big population, and they have a chance to really make a difference and maybe leapfrog the past.

Q: There’s that great Ford quote about not listening to his customers, because if he did he’d be in the horse business. So how you do innovate?

A: Stay closet to innovation. And have a point of view about how the industry is going to progress.

Q: Ah! Someone asked about focusing while you drive.

A: Eighty percent of accidents involve taking your eyes off the road. So we’re convinced that the mind has the cognitive ability to do other things while driving as long as you continue to watch the road. So we minimize anything that’s a distraction: Keyboard, certain confusing apps, etc. We are definitely going to be a gatekeeper with regard to apps, because it’s crucial that you not be distracted.

We’re done! Thanks for sticking around. See you in a year!

A note about our coverage: This liveblog is not an official transcript of the conversation that occurred onstage. Rather, it is a compilation of quotes, paraphrased statements and ad-lib observations written and posted to the Web as quickly as possible. It is not intended as a transcript and should not be interpreted as one.

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]]> http://allthingsd.com/20100603/alan-mulally-session/feed/ 1 http://allthingsd.com/20100504/hp%e2%80%99s-next-task-triple-palms-revenues/ http://allthingsd.com/20100504/hp%e2%80%99s-next-task-triple-palms-revenues/#comments Tue, 04 May 2010 20:30:42 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=39809 With its acquisition of Palm, Hewlett-Packard gains a turnkey smartphone division–a venture with a slick smartphone operating system, deep mobile patent portfolio, talented R&D team, the beginnings of an app ecosystem and established carrier relationships. Not bad for the $1.2 billion HP paid for it, though the true cost of the acquisition is likely to run quite a bit higher, according to Deutsche Bank analyst Chris Whitmore.

In a research note to clients this week, Whitmore argues that HP (HPQ) needs to work some serious financial magic on Palm (PALM) in order to make it EPS-neutral in 2011. Specifically, the company needs to triple revenue to $1.2 billion and double gross margins to 44 percent while keeping operating expenses flat.

“By all measures, this appears to be a Herculean task given the declining momentum behind WebOS among consumers & developers,” Whitmore writes. “While we do see merit in HP’s strategy to extend WebOS beyond the smartphone market into slates/tablets/etc, the investment required to tap this opportunity may be larger than expected….”

As Whitmore notes, “In reviewing Palm’s financials, Palm spends ~$500M annually in Opex (R&D and sales and marketing) to support the WebOS platform. Given the severe loss of market momentum behind WebOS, we believe it is reasonable to assume that HP will need to grow this investment by 50-100%, to approximately $750 million-$1.0 billion.”

Obviously, a significant investment. That said, HP has so far given every indication that it’s willing to make it. As HP exec Jim Burns emphasized during a conference call last week, the company plans to pump quite a bit of money into Palm.

“We’re going to increase [spending on webOS],” Burns said. “And we’re going to increase sales and marketing as well. We’re going to take this platform, which today exists for smartphones only, and make it much broader than that….We are going to be investing heavily in this business in the next year.”

]]> http://allthingsd.com/20100504/hp%e2%80%99s-next-task-triple-palms-revenues/feed/ 0 http://allthingsd.com/20100423/palm-hp/ http://allthingsd.com/20100423/palm-hp/#comments Fri, 23 Apr 2010 15:34:59 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=39130 Well, this is a bit ironic, coming as it does on the heels of Palm CEO Jon Rubinstein’s “I believe Palm can survive as an independent company” proclamation Thursday: HTC has reportedly declined to bid on the company, which is said to be shopping itself around.

Evidently the Taiwanese hardware manufacturer took one look at Palm’s (PALM) books and decided an acquisition isn’t worth the trouble. “There just weren’t enough synergies to take the deal forward,” a source close to talks between the two companies told Reuters.

And so speculation about a potential acquirer is turning elsewhere. Lenovo seems to be the leading candidate at the moment. The company has big aspirations in China’s mobile market and a penchant for making big foreign acquisitions. It purchased IBM’s (IBM) ThinkPad business a few years back and tried to buy Packard Bell, so why not Palm?

Well, for one thing, Palm’s market share is too small to be of real benefit to Lenovo. For another, the company is already committed to Google’s (GOOG) Android for the OS to run on its soon-to-debut Lephone.

Finally, Palm’s asking price is said to be around $1.3 billion. Lenovo had about $2.4 billion in net cash reserves on hand the end of 2009. Would Lenovo really spend more than half of that on Palm, a company whose books frightened off HTC? As Larry Dignan writes at ZDNet, it’s hard to make the case that it should.

So if not Lenovo, then who?

How about Hewlett-Packard (HPQ)? With handheld sales that fell by more than half year-over-year in its first quarter, HP is surely looking for a way to revive them and capture a larger portion of the important mobile market. Acquiring Palm could be a good way to do it. Here’s why:

• Yes, HP is a Windows shop with, no doubt, big plans for Windows Phone 7, but that OS will likely figure in devices aimed at the enterprise market. With Palm’s assets, HP could target the consumer space as well.
• Palm’s webOS is scalable. HP could use it in other devices–tablets, for example–differentiating them from those of competitors using open-source operating systems like Android.
• In Palm, HP would gain a turnkey smartphone division–a venture with a slick smartphone OS, a deep mobile patent portfolio, a talented R&D team, the beginnings of an app ecosystem and established carrier relationships.
• Palm and HP both call Silicon Valley home, and former Palm exec Todd Bradley currently heads up HP’s Personal Systems Group. Obviously, there would still be integration risks, but there are clear synergies in culture and location that would at least temper them a bit.
• HP has some $14 billion in cash on hand, more than enough to cover Palm’s rumored $1.3 billion asking price with plenty left over.

That seems to me to be a pretty compelling case. Has it been made inside HP? I can’t say for sure, though we may find out in the weeks ahead.

]]> http://allthingsd.com/20100423/palm-hp/feed/ 0 http://allthingsd.com/20100322/google-shutters-chinese-language/ http://allthingsd.com/20100322/google-shutters-chinese-language/#comments Mon, 22 Mar 2010 19:08:03 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=37019

Google has finally adopted the “New Approach to China” that it announced in January, making good on its threat to end censorship of its services in the country. Earlier today, the company begun redirecting Internet traffic away from its Chinese-language site at google.cn to google.com.hk in Hong Kong, beyond the so-called Great Firewall of China.

Searches that once would have been censored now return results, and the legend that once appeared at the bottom of the page–“According to local laws, regulations and policies, some search results are not shown.”–is no more.

David Drummond, Google’s chief legal officer, announced the move in a post to the company blog:

Earlier today we stopped censoring our search services–Google Search, Google News, and Google Images–on Google.cn. Users visiting Google.cn are now being redirected to Google.com.hk, where we are offering uncensored search in simplified Chinese, specifically designed for users in mainland China and delivered via our servers in Hong Kong. Users in Hong Kong will continue to receive their existing uncensored, traditional Chinese service, also from Google.com.hk. Due to the increased load on our Hong Kong servers and the complicated nature of these changes, users may see some slowdown in service or find some products temporarily inaccessible as we switch everything over….We believe this new approach of providing uncensored search in simplified Chinese from google.com.hk is a sensible solution to the challenges we’ve faced. We very much hope that the Chinese government respects our decision, though we are well aware that it could at any time block access to our services.

To that end, Google (GOOG) has established a page monitoring which of its services are available in China and which are blocked. As of this writing, access to quite a few are either partially or totally restricted.

Google stopped short of full withdrawal from the country. According to Drummond, the company will keep its operations in China, as long as it can anyway. Said Drummond: “We intend to continue R&D work in China and also to maintain a sales presence there, though the size of the sales team will obviously be partially dependent on the ability of mainland Chinese users to access Google.com.hk.

China and its state-run media, which were particularly vocal in advance of this latest move, haven’t yet commented on it beyond a simple acknowledgment that the redirect is in place.


PREVIOUSLY:

• China to Google: Go Ahead and Leave, Ya Big Loser
• Report: Google Bailing on China in Early April
• Beijing to Google’s China Partners: Nice Site You Got There. Shame if Something Happened to It.
• China: We Are in Talks With Google. Also, We Are Not in Talks With Google.
• Chinese Scientists Recalibrate Google’s Evil Scale
• Chinese Schools Tied to Attacks on Google? Where’d You Read That, Mad Magazine?
• World War WAN: Google Hack Traced to Schools in China
• Nearly a Month After Debut, Google’s “New” Approach to China Still a Lot Like the Old One
• Google CEO: Ask Not What Google Can Do for China–Ask What China Can Do for Google
• China on “Google Farce”: Our Internet Is Open
• China to Google: No Worries, We Were Planning to Clone Those Android Phones Anyway
• U.S. State Department to Complain to China About Google Hack. Not That China’s Going to Listen.
• Microsoft: “Don’t Be Evil” Is Google’s Motto, Not Ours
• What’s the Chinese Word for Bing? Google Threatens to Leave China.
]]> http://allthingsd.com/20100322/google-shutters-chinese-language/feed/ 0 http://allthingsd.com/20100317/the-case-for-the-fat-startup/ http://allthingsd.com/20100317/the-case-for-the-fat-startup/#comments Wed, 17 Mar 2010 19:00:09 +0000 Ben Horowitz http://voices.allthingsd.com/?p=22721 Much has been written and said about the current economic downturn and the resulting lessons on how to run high-technology companies. Quite famously, Sequoia Capital, the premier venture capital firm in Silicon Valley, held a mandatory all-CEO meeting in fall 2008 during which it advised them to “Cut spending. Cut fat. Preserve capital.” (You can see the presentation here.)

The presentation catalyzed a movement. Start-ups everywhere adopted a lean, low-burn, low-investment model. To this day, companies seeking funding at our venture firm, Andreessen Horowitz, proudly proclaim in their pitch decks that they are raising tiny amounts of capital so they can run lean.

On the one hand, it is a fact that capital invested is negatively correlated with returns in the venture capital industry. Pumping too much money into a small start-up is unhealthy for both the company and the investor. On the other hand, Facebook has raised several hundred million dollars and is on track to produce fantastic returns for all of its investors.

So what’s a start-up to do? Much of what has been written and said about lean start-ups makes good sense. However, that advice is often incomplete, and some of the things left unsaid are the least intuitive. In this article, I will articulate some of those things left unsaid in arguing the case for the Fat Start-up.

Here is my central argument. There are only two priorities for a start-up:
Winning the market and not running out of cash. Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making “running lean” an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.

What the hell do I know?

“Al Pacino couldn’t be no gangsta, DeNiro in ‘Casino’ he no gangsta
Wanna be, wanna see, wan’ get a shovel
dig Tookie up n*&%^!, cause he know gangstas”

–The Game

At this point, some of you are asking yourselves, “What the hell does Ben know? If he were really smart, then he’d know that thin is in.” It turns out that I have some experience in managing a fat start-up through the dot-com implosion of the early 2000s. This chart offers a brief summary of equity market history when I was CEO of Loudcloud and Opsware (click to enlarge):



Note that the Nasdaq index is very highly correlated to the start-up funding environment. During the two years I was CEO of Opsware, the Nasdaq fell 80 percent, far more than it has fallen during the current 2008-10 downturn. So the 2000-02 environment was at least as traumatic as this one for Silicon Valley companies–and arguably much worse.

Here is a brief summary of Loudcloud/Opsware’s fund-raising history during that time:

• September 1999: Loudcloud founded
• November 1999: Loudcloud raises $21 million at a $45 million pre-money valuation (Benchmark Capital is the lead investor)
• January 2000: Loudcloud borrows $45 million from Morgan Stanley (MS)
• June 2000: Loudcloud raises $120M at a $700M pre-money valuation
• March 2001: Loudcloud goes public on Nasdaq, raises $160 million and is valued in the public markets at approximately $480 million. Total funds raised to this point: $346 million.
• August 2002: Loudcloud sells the managed services business to EDS (this was the only actual business we had at the time) for $63.5 million and becomes a software company (and changes its name to Opsware).
• September 2002: Opsware trades for 35 cents per share or approximately a $28 million market cap.
• September 2007: Hewlett-Packard (HPQ) acquires Opsware for $1.6 billion

During this period, Loudcloud/Opsware had over 20 direct competitors. Almost all the competitors from the Loudcloud era went bankrupt, including MFN/SiteSmith, Exodus, LogicTier, Williams Communication, Global Crossing, WorldCom/Digex and Storage Networks. Those that survived got bought with valuations of less than $100 million (e.g., Totality) or still have very low valuations (e.g., Navisite).

How did we do it?

“I had a dream I could buy my way to heaven
When I awoke, I spent that on a necklace”

–Kanye West

So how did we navigate through the great dot-com crash, crush the competition, emerge as the No. 1 company in our space and sell the company to HP for $1.6 billion? Did we “cut spending, cut now, and preserve capital?” Did we make cash preservation our No. 1 priority?

No, we didn’t. To underscore the point, here are Loudcloud’s average monthly cash burn figures for the quarters ending in:

• Apr 2001:  $39 million
• Jul 2001:  $35 million
• Oct 2001:  $29 million
• Jan 2002:  $25 million
• Apr 2002:  $22 million
• Jul 2002:  $19.4 million

As you can see, we were aggressively investing in the business throughout 2001 and 2002. While we did reduce our cash burn, we did not make cash preservation our No. 1 priority. As it was, over the course of the transition from Loudcloud to EDS, we sadly laid off 400 employees and transferred another 150 to EDS. However, we didn’t scrimp and save our way to a $1.6 billion acquisition: Instead, it’s what we chose not to cut that ultimately got us there.

Loudcloud was a Web-hosting business. Today, we’d call it a “cloud services” business, but people weren’t quite ready for the “cloud” in 2001. We supercharged our hosting business with software (called Opsware) that automated our Web-hosting operations. The other cloud services businesses of our day also had software investments. However, as the macroeconomic climate changed, they all “cut deep and cut now.” In the end, they ended up putting their software in maintenance mode and stopped building new features.

As we weighed a decision to make the same deep cuts in our own software R&D efforts (a move advocated by the intelligentsia of the day, as well as nearly every MBA we had working in the company), I faced a hard decision: Cut deep and get to cash flow break-even quickly or continue to invest heavily in software?

In the end, I decided to run fat so that we could continue to invest in the Opsware software. At the end of the day, I realized that much larger companies like IBM (IBM) could hire smart people and train them. But without a lasting technology-based advantage, it would be increasingly hard for us to defeat them and build our customer base despite early wins with Ford (F), Fox Sports, and the U.K. government (to name just three of our early customers).

Running fat meant that I laid off zero software engineers so that we could keep on investing in our technology, find our product/market fit, and build a lasting technological advantage.

Still, we had to reduce costs or we would clearly go bankrupt. With this new view of the world, I decided that rather than divesting our intellectual property, I would divest our business. Now, that may sound logical the way I’ve described it, but consider these facts:

• We were generating $65 million/year from the Web-hosting business.
• We were a publicly traded company with a market capitalization of close to $200 million.
• All of our investors (pubic and private) believed in and invested in the Web-hosting business.
• We had close to 500 employees at the time. Nearly all of them were supporting the Web-hosting business.
• We had no other business. We had software, but we did not have a software product and certainly did not have a software business.

Despite all of this, we sold the Loudcloud hosting business to EDS and became Opsware the software company. It was not clear that this was a good idea at the time. In fact, the market thought it was a terrible idea: Our stock promptly lost 80 percent of its value, putting our market cap at about $28 million. It’s worth pointing out that this was about $40 million less than the cash that we had in the bank.

During the transition, we shrank our payroll from 450 employees to fewer than 100. Even with this massive reduction in expenses, it would take another three quarters to reach cash-flow break-even, a milestone we finally reached in Q2 of 2003.

One could argue–and many did–that we should have cut a lot deeper than we did given that we only had one customer. Although EDS was a very large customer (it generated $20 million/year in revenue), a brand new software company doesn’t need 100 people. We could have taken steps to reach cash-flow break-even immediately (clearly, that might have helped us get above 35 cents per share). In other words, we could have “gone lean” by cutting deep, cutting now, and preserving capital.

But rather than do what seemed obvious, I decided to keep on investing. Here’s why: In an economic boom, cash is great, but not necessarily a meaningful competitive advantage. If every company is well funded, being super-well funded doesn’t help you win. In fact, being super-well funded can actually screw you.

But in a bust (like the one we were in), having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors. And that’s what we did.

We spent aggressively to match our best competitor’s product, feature for feature. And we used our public currency to acquire important adjacent functionality (network, process and storage management) that our competitors did not have and couldn’t acquire because they didn’t have the cash (or the equity).

In doing so, we were able to beat a really high-quality start-up (Bladelogic) that did not have the massive technical and cultural baggage that came from exiting the managed services business. Bladelogic was eventually sold to BMC (BMC) for $800 million. But I’m firmly convinced that had we not spent the money, Bladelogic would have emerged as the No. 1 company in the space and gotten the $1.6 billion exit instead of Opsware.

In the end, by continuing to invest aggressively in our technological advantage despite a hellacious funding environment, we were able to turn a doomed business into a winning one.

That is the very short version of how we won the market during the great tech recession of the early 2000s.

So did we learn?

“Hegel was right when he said that we learn from history that man can never learn anything from history.”

–George Bernard Shaw (1856-1950)

Every start-up is in a furious race against time. The start-up must find the product-market fit that leads to a great business and substantially take the market before running out of cash. As a result, the top two priorities are always to:

1. Find the product that 1,000 enterprise or 50 million consumers want to buy and grab those customers before your competitors do.
2. Raise enough cash and spend it intelligently so that you don’t go broke along the way.

Clearly, you can’t succeed if you don’t achieve both priority No. 1 and priority No. 2. So why is taking the market more important than not running out of cash? Because the only thing worse for an entrepreneur than start-up hell (bankruptcy) is start-up purgatory.

What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company. You have zero chance of being anything but a very small technology business (see Navisite). From the entrepreneur’s point of view, this can be worse than start-up hell since you are stuck with the small company.

You recruited all the employees, you raised all the money and you made all the promises. You either see it through or leave–without your good reputation. No one wants to work for an entrepreneur who quits his or her own company. This is start-up purgatory, where you work just as hard, reap none of the rewards, and watch all your best people leave you. It sucks to be you.

The Bottom Line

Spending a little or spending a lot is a means, not an end. Choose the right strategy to win the market or you may end up going straight to purgatory.

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

• If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
• You cannot save your way to winning the market.
• The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

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