Consolidation and job cuts continue

Layoffs and acquisitions dominated the IT landscape in 2006, but there were also scandals aplenty and the small matter of Microsoft’s Vista OS

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By  Peter Branton Published  December 31, 2006

Introduction|~||~||~|As any historian will tell you, while calendar dates have their uses — planning birthday parties, when to get the dry-cleaning, that sort of thing — they’re not always that helpful in determining just when events really begin. Take Microsoft’s year. Having had a tough 12 months competing against Google for mindshare in the industry, it ended the year looking forward to the launch of the next generation of its major money-spinning products, Windows and Office, to bolster its fortunes in the following 12 months. Sadly, the year we’re referring to here was 2005. While both Vista and Office 2007 did eventually make an appearance this year, they were both so heavily delayed that they’ve only been made available for businesses — consumers will have to wait until January to get their hands on the latest version. Whether they will bother is going to go a long way toward determining just how successful Microsoft will be in 2007; for this year PC manufacturers were doubtless cursing their no-show for the all-important holiday buying season. Estimates as to just how much money the delay of Vista and Office cost the industry overall run into the billions of dollars. Nor is all that money going to come back: while many consumers will of course merely postpone their purchases, others will splash out on something else, a games console, or music player, or indeed just about any other consumer electronics gadget. This isn’t particularly good news if say, you are a mainstream PC chip manufacturer, trying to get a foothold in the consumer market by promoting the PC as the centre of digital entertainment. Intel has this year been pushing its Viiv platform hard in a bid to replicate the success it had with Centrino, however so far it does not seem to be working. While Intel chairman Craig Barrett told IT Weekly this month that he was confident sales would pick up, Viiv seems to lack that ‘killer app’: while Centrino worked because, regardless of marketing, people did want to be able to use their notebook while traveling around, consumers don’t seem to have the same urge to have their PC in their living rooms. We’d never bet against a marketing machine as strong as Intel’s, but it will need to do better next year for Viiv to be a success. It is not as if Intel does not have other things to worry about either; the other half of the Wintel alliance also had a tough 2006, losing market share to rival AMD and being forced to make a number of layoffs in its middle manager levels, amongst other areas. Not that Intel was alone in making job-layoffs in 2006, with a number of other firms cutting jobs this year, including the likes of Sun Microsystems, EMC, CA, Novell and Nortel, perhaps the most sustained round of redundancies we’ve seen for several years. Following on from massive job cuts from big guns HP and IBM last year, then clearly the industry is trimming its sails a little, even if this is not always related to sales — the industry did not see the dramatic slowdown of the post-dot.com boom this year, but more than one CEO stressed the need to maintain profitability. Despite the doom and gloom of most of this article so far, plenty of firms had good years in 2006, with some having exceptional years. HP had arguably the best 2006 of all; having come through a tough year in 2005, it was looking on track to overtake rival IBM as the world’s biggest technology company this year. Unfortunately, while its performance pleased Wall Street, for Fleet Street — or more accurately the press — the big story of the year concerned some questions asked about telephone bills. Despite a multi-million dollar legal settlement this month, the infamous ‘pre-texting’ scandal is far from over; former chairman Patricia Dunn is still facing criminal charges over the affair, as are a number of others. Dunn was forced to stand down as chairman as a result of the investigation. She was hardly the only distinguished figure to exit the industry this year, even if her leaving was unhappier than most. However, other firms did not escape high-level departures in 2006 — or indeed scandal. A number of IT firms have fallen foul of investigations into their accounting investigations. In the US, there has been considerable attention paid to the practice of backdating options grants: giving executives stock options priced at the lowest trading range for the stock during the period the option is granted for, rather than the date they are actually rewarded. While this is not in itself illegal, potential legal issues can arise about how that information is disclosed. Security firm McAfee fired its president Kevin Weiss, with CEO George Samenuk resigning, following its own investigation into its accounting practices. With a number of other firms also involved in investigations, a seemingly arcane accounting issue could well yet have a broader impact on the global IT industry. ||**||Fond farewells|~||~||~|Not all departures were necessarily unhappy events, with a number of senior figures deciding to call it a day. Scott McNealy decided to stand down from his post as CEO at Sun Microsystems this year. While his decision to resign was widely seen as allowing his successor, Jonathan Schwartz, to make the sweeping job cuts McNealy had always resisted, his departure leaves the industry a little short of colour; he was always one of the most controversial — and quotable — of technology leaders. But biggest of all, Microsoft chairman and chief software architect, and the world’s biggest philanthropist, Bill Gates has decided to call time on his career. Gates isn’t going anywhere just yet — he’s not relinquishing full-time duties until 2008, and will be staying with the company after that. However, he has handed over his chief software architect role to Ray Ozzie, a comparative newcomer to the firm. Industry analysts believe that Ozzie’s appointment is a clear signal that Microsoft will be more web-focused than ever before; Ozzie is seen as the champion of Microsoft’s ‘Live’ strategy, where it takes more of a software-as-a-service approach to delivering its technology products. The company had hoped to have revamped its Hotmail software this year, however by the end of the year it had only managed to deliver a limited version. Now, where have we heard that before? Undoubtedly, one of the major drives for Microsoft’s reinvention of its approach is the increasing pressure of the open source movement. Microsoft’s determination to work more closely with open source companies — and hence also have its software work more closely with open source implementations — even saw it pen an agreement with long-term rival Novell this year. While the two promised to make their software more inter-operable, they found it rather harder to actually get along themselves: the two have now become embroiled in a dispute over patent protection. ||**||Open source|~||~||~|Regardless, this year could well be looked back in future years as the year that open source really grew up, with increasing adoption amongst organisations, even here in the Middle East. The first real proof of open source’s impact came when it had its first big-money merger: Red Hat’s decision to buy JBoss for US$420million took a lot of people in the industry by surprise. The second proof of open source’s impact was given when one of those people, a certain Larry Ellison, started making aggressive noises about Red Hat; the Oracle CEO’s announcement in October that his firm would compete with Red Hat to provide support for the latter’s customers doesn’t seem to have dented the open source vendor’s revenue however. Indeed, the increased presence of Oracle in the open source space could yet prove beneficial to firms there; the presence of such a large firm can only grow the market. As to who will get the lion’s share of that market, well time will tell. While Oracle continued to keep itself busy on the acquisition front — it is currently bidding to buy out Indian software firm i-flex — it left the mega-money purchases to others this year. Both IBM and HP spent heavily to bolster their software offerings; IBM spent US$2.3billion in an eight day spending spree in August alone, while HP snapped up Mercury Interactive for US$4.5billion. Elsewhere, Google decided to look up a company less than two years old, buying YouTube for US$1.65billion, spawning a string of “are we back to the dot.com boom/bust” editorials in the process (yes, we wrote one). While the jury is still out on that debate, it should be pointed out that Google’s own end-of-year list shows that last year’s hot website, MySpace, has fallen in popularity this year. Finally, we find ourselves back with Microsoft yet again, as we look at the field of security. Having been criticised for years for making products lacking in security functionality, Microsoft is now under attack for making products with plenty of it: security vendors such as Symantec and McAfee have attacked it for not providing enough information about its Vista software. The real reason for the security firms’ ire is that Microsoft is no longer content to be a partner on security solutions; it wants to make money from that area itself. The vendor’s OneCare initiative may well earn it a lot of cash; it certainly won’t make it any friends. January will see the long-awaited mainstream launches of Vista and Office 2007, which should serve to boost Microsoft’s coffers and will serve as a fitting start to the new year — just don’t mention which year it is starting. ||**||

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