bizzXceleration: Performance, Value and Profit

Trends and Outlooks

Survey: US IT Spending Forecast Worst Since 2001 Forty-five percent of respondents to a new survey from ChangeWave Research said their companies will spend less or no money on IT during the first quarter of 2009, the highest percentage found by ChangeWave since 2001. ChangeWave surveyed 1,926 people in the U.S. involved with IT spending at their organizations. The study was conducted Nov. 6-12. Only 10 percent of respondents plan to spend more in the first quarter, down three points from a similar study conducted in August. "It's not just that the numbers are so horrific right now, it's that this is the point seasonally that we expect to see spending improve. Instead, we're seeing a collapse," said Paul Carton, director of research at the Rockville, Maryland, investment research firm."We're just looking for a break in the gloom," Carton added. "It doesn't even have to go up. Even if the rate of spending levels off, that would be a bullish indicator." The study indicated that IT organizations have already been engaged in some heavy belt-tightening. Thirty-nine percent of respondents said they have spent less than originally planned so far during the fourth quarter, nine points higher than the last survey. And respondents are also feeling increasingly skeptical that a quick economic recovery will occur. Forty-eight percent expect their IT budgets to be lower in the first half of 2009 than during the same period this year -- more than double the percentage of the previous survey. Larger enterprises are pulling back on spending slightly more than smaller ones, according to the study. Forty-nine percent of companies with 1,000 or more employees said they would spend less or nothing on IT in the first quarter, compared to 43 percent of those with between one and 10 workers.

• Wall Street Beat: Clouds Loom for IT Despite Holiday Break
• The Risks, Rewards and 'Repo' Challenges of Financing Tech Purchases
• Gartner Forecasts Four Percent Drop in IT Spending for 2009
• Enterprise Software Revenues Flat in 2009: Gartner

Chip Makers Watch Sales Fall Sharply While accustomed to the boom-and-bust nature of their industry, the companies making the semiconductor chips that run computers, cellphones, digital cameras and even cars find themselves in the middle of a collapse in sales that resembles total chaos. With sales of most manufactured goods plunging in this recession, demand for chips is evaporating. In January alone, chip sales plummeted by almost a third from the previous year, to $15.3 billion, according to the Semiconductor Industry Association. “This is the worst recession the semiconductor industry has seen since its inception,” said Sean M. Maloney, the chief sales and marketing officer at Intel, at a news conference Monday. Consumers have benefited from some of the underlying turmoil. Smartphones and the cheap laptops known as netbooks are getting more powerful even as they drop in price. And the prices for the memory chips used to store information in iPods, digital cameras and cable set-top boxes are plummeting as the companies making the products grapple with overcapacity at their factories. Major chip makers like Intel, Advanced Micro Devices and Nvidia have felt the sting of businesses and consumers curtailing their spending on computers. Last month, Hewlett-Packard, the world’s largest PC maker, reported a 19 percent drop in computer sales, while Dell, the second-largest PC maker, posted a 27 percent decline in desktop sales.  On Monday, the research firm Gartner predicted that computer shipments would dive by 12 percent in 2009 to 257 million units — the steepest decline ever. In the memory chip industry, conditions have turned cataclysmic.

• National Semiconductor Cuts Back, Will Eliminate 26% of Global Staff

From Taiwan, a Tech Warning  The head of Hon Hai Precision Industry Co., the world's biggest contract manufacturer of electronics by revenue, warned that the global technology industry's slump could be more severe than many people think. The statement by Hon Hai Chairman Terry Gou is a stark sign of the rapidly weakening outlook for the technology sector from an executive known for his public swagger and for his company's rapid growth. The comments reflect broader damage in recent weeks to Taiwan's technology industry, which makes a large share of the world's personal computers and other gadgets for brands such as Apple Inc., Hewlett-Packard Co. and Dell Inc. "The worst has not come yet" with the economic downturn, Mr. Gou told reporters Friday after a charity event. He said Hon Hai plans to reduce its global work force, but didn't provide details. The company's work force numbers hundreds of thousands of people, most of them in mainland China. "The problem is three times worse than everybody thinks," he added. Taiwan's contract manufacturers now make more than three-quarters of the world's laptop computers, and produce a large share of the liquid-crystal-display panels used in flat-screen television sets. Because of the broad mix of customers and products these companies have, they offer a useful barometer of the broader tech sector's health. Many of the big manufacturers are hurting. Quanta Computer Inc., Compal Electronics Inc. and Wistron Corp., the world's three biggest contract producers of laptops by revenue, have cut forecasts for fourth- quarter shipments. AU Optronics Corp., an LCD panel maker, said it expects the number of panels it ships to TV and monitor makers to fall about 30% in the fourth quarter from the third quarter. The world's two largest contract makers of computer chips by revenue, Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., have both cut their revenue forecasts for the current quarter and asked employees to take unpaid leave. Taiwan makers of dynamic random access memory, the main form of computer memory, have urged the government for assistance. The government has vowed to help, but insisted the companies come up with their own rescue proposals.

Managing IT in a downturn: Beyond cost cutting With growth slowing and valuations declining, businesses badly need to extract value from their IT functions. The operative questions are, “How much?” and “How?” As CIOs choose a path, they need to determine whether they can afford to take a “through cycle” perspective, balancing short-term financial improvements and the possible impact on longer-term capabilities. They must also consider the need to act quickly to generate cash, even if such moves prove less attractive once the recession ends. Almost all IT organizations can and should reduce IT spending in 2009. But this will be difficult. Many companies have built up complex application environments that require ongoing support. Contractual commitments to vendors can be difficult to modify. Adding to the challenge, organizations rarely agree internally on business priorities for IT. Still, with sufficient management focus, it’s possible to cut costs dramatically and quickly. Companies can trim and rationalize demand for new applications. Existing IT capacity, like servers and storage, can be shared and application maintenance spending capped. Taking a “zero based” view of an organization (reimagining it from scratch) may help to peel away unnecessary management layers and eliminate non-value-adding functions. Meanwhile, companies can renegotiate some contracts to reflect changing market conditions and can accelerate efforts to move operations offshore. Some businesses, however, face tougher challenges. They must substantially improve their cash positions just to survive. As they cut near-term costs, these IT groups will need to reduce investments and rationalize organizations aggressively.

Crisis for tech workers: Life after layoffs? San Francisco - Signs everywhere point to the plight of the laid-off tech worker. Tech consultancy BearingPoint files for bankruptcy. Hewlett-Packard's profits plummet. Silicon Valley employment falls for the first time in several years. With daily layoffs and few new jobs available, techies have seen their careers careening off track -- and now they need to reinvent themselves or get off the tech train altogether. There's no question the job market is getting worse: Companies are shifting more IT operations overseas, gutting IT staffs, and replacing seasoned veterans with cheap labor, all in a desperate effort to cut costs. Business survival trumps technical innovation. The sage advice that techies should hone their business skills to make themselves more valuable has taken on a chilling sense of urgency. So far some 200,000 tech workers have faced the firing squad, according to TechCrunch. Gold says he has a strong technical background with little business acumen, which was part of his problem. Over the past few years, he realized that he wanted to make more money than the salary technical skills commanded. Tech salaries have been under assault from cheap foreign labor for years. Even worse, Gold figures a majority of technical skills are now easily commoditized and able to be shipped elsewhere. "The day of the IT expert is a thing of the past," he says. Yet this doesn't mean the end of the tech career, rather a change in the skill sets that make it up. Gold believes business skills coupled with technical ones can guard against offshoring, outsourcing, and even H-1B competition. "Very few IT people can tell you the business strategy, and they are good candidates for the outsourcing model," he says.

Business leaders worry: who will mind the IT store? Micro Focus, a vendor that provides tools for regenerating COBOL applications into more modern formats, has just released an interesting survey that states that business leaders may have issues with their IT departments going forward. Basically, the survey of 450 North American and European executives (mainly C-level executives) found, is that they are worried that they won’t have enough skilled individuals to maintain and modernize all those legacy systems they have. Instead, there’s been a lot of emphasis on recruiting for the sexy new stuff, such as Internet and Web 2.0 skills. Loraine Lawson, who me pointed to the study, has a headline that says it all about the urgency of this challenge: “Recession is not the time to lose business leaders’ confidence.” The survey found that nearly two thirds (60%) of CFOs in Europe and US say having the skills to modernize core IT assets are the most valuable in a recession. However, most of the recruiting budgets are going to manage Internet-based technologies. Over half of all those polled (56%) confirmed newer, web-based technologies are the skills being recruited for the most today. Fewer than one in seven (13%) of the CFOs surveyed are convinced that they have the skills available to maintain their core IT assets. The study was conducted by Micro Focus, in conjunction with leading international business school INSEAD. As Micro Focus CEO Stephen Kelly put it: “Failure to safeguard these assets is tantamount to a ‘ticking time bomb’ for global business. Organizations must quickly adjust their IT investment strategies to deal with recession realities. Everybody knows that Web 2.0 solutions have huge potential to transform all types and sizes of organizations but their development shouldn’t be at the expense of protecting and developing the IT assets at the heart of the business.” Of course, there’s a self-serving aspect to the study — legacy modernization is Micro Focus’ business — but it nonetheless points to a situation that’s been brewing for years. Much of the world’s applications and data reside on mainframes, for example, yet many members of the generation trained in mainframes and large systems are nearing retirement age.

Strategic Trends & Structural Shifts

The State Of The Personal Computer It doesn’t matter whether your favorite operating system is Windows, Mac OS X, or Linux or you want a computer that just works—technology pundits are always writing about the “next big shift.” Every year, the predictions are the same: Windows users are frustrated, Linux/MacOS will take over. During the final months of 2008, we thought it would be interesting to take a closer look at the state of personal computing and consider the future of each platform. Indeed, 2008 is already shaping up to be a year of milestones. Microsoft Windows Vista reached SP1 status, making it the choice of new PCs across the board; AMD’s Radeon line once again became competitive against Nvidia’s recent GPU dominance; and the launch of Intel Core i7 marks the chip giant’s first major design change since the original Core Duo launch. This has also been a year of transition and change for Apple Mac OS X and Linux. The release of Apple’s new unibody MacBook and MacBook Pro has created new interest in potential “switchers,” while Linux has seen its most mainstream success to date with the growing popularity of netbooks. The question is: what will 2009 look like? Will Microsoft’s market share continue to erode after the lackluster release of Windows Vista and rising threats of malware? Will Mac OS X users still be willing to pay an “Apple Tax” and benefit from the relative lack of malware? Will Linux’ success with netbooks open the way for The Year of Desktop Linux?

Less is Moore Constant improvements mean that more features can be added to these products each year without increasing the price. A desire to do ever more elaborate things with computers—in particular, to supply and consume growing volumes of information over the internet—kept people and companies upgrading. Each time they bought a new machine, it cost around the same as the previous one, but did a lot more. But now things are changing, partly because the industry is maturing, and partly because of the recession. Suddenly there is much more interest in products that apply the flip side of Moore’s law: instead of providing ever-increasing performance at a particular price, they provide a particular level of performance at an ever-lower price. Many companies, it seems, would also prefer computers to get cheaper rather than more powerful. The recession is hurting the computer industry, albeit not as badly as the bursting of the dotcom bubble did in 2000-01 (see article), but those companies that enable their customers to benefit from the flip side of Moore’s law, and do the same for less, will be best-placed to ride out the storm. A good example of this is virtualisation: using software to divide up a single server computer so that it can do the work of several, and is cheaper to run. The more powerful that machine, the more computers it can replace and the less, in effect, each “virtual” machine costs.

SOA gets an obituary San Francisco - SOA is dead but services remain alive, according to a prominent analyst who published an obituary for SOA in a blog post on Monday. In her blog, Anne Thomas Manes, vice president and research director at Burton Group, pronounced SOA dead. "SOA met its demise on January 1, 2009, when it was wiped out by the catastrophic impact of the economic recession. SOA is survived by its offspring: mashups, BPM, SaaS cloud computing, and all other architectural approaches that depend on 'services,'" Manes wrote. Instead of becoming a savior, SOA "instead turned into a great failed experiment -- at least for most organizations," Manes said. SOA failed to deliver on promised benefits and after the investment of millions, IT systems are not better than before. In some cases they are worse, with costs higher and projects taking longer, she said. Interviewed Monday afternoon, Manes said successful SOA implementations have resulted from major IT transformation efforts rather than just slapping a bunch of interfaces on applications. "Those companies have seen spectacular results from these efforts, but in those circumstances, SOA was part of something much bigger," Manes said. Companies need to become more in tune with what businesses require and understand what the problems are, she said. What is required is an examination of application architecture rather than project-by-project integration, Manes noted, but with the difficult economy, funding for SOA has dried up, she said.

A future without programming Such views may be a bit far-fetched, but it's true that do-it-yourself application development has never been more appealing. With IT budgets being squeezed, along with the growing dysfunctional relationship between IT staff and managers, it's no wonder the promise of cheap "codeless" development that sidesteps IT resonates loudly with businesspeople. "We also have a whole new wave of business users that are not intimidated by the notion of application development," says Mike Gualtieri, analyst at Forrester. Coghead and others, such as Caspio, Zoho, and Wufoo, are just the latest attempt to bring application development to the masses. From Cobol to 4GL to scripting languages to, recently, Microsoft's Oslo for model-based software development, the Holy Grail is to make it easier for nonprogrammers to program. Now Coghead CEO Paul McNamara believes cloud computing tools increase the number of potential software builders in the world tenfold. There are areas where codeless software development makes sense, mostly with business apps that have multiple records, business logic, notifications, and other straightforward features. For instance, Jim Heagney, an accounting and systems consultant, tapped his experience with Great Plains and other ERP integration projects to develop a virtual-events scheduler, called Inexpo.

Mock debate ponders developer methodologies Proponents of agile programming from IBM staged a mock debate Wednesday, pitting agile methodologies against the traditional waterfall method to stress the benefits of agile and its short, iterative development cycles as opposed to the follow-the-plan style of waterfall. IBM's Scott Ambler, practice leader for agile development, played the role of the traditional development proponent and PC user in the staged debate during the SD West 2009 conference in Santa Clara, Calif.. He was intentionally outwitted in the debate by Terry Quatrani, UML evangelist at IBM, who served as the agile proponent and purported Mac user. Pretending to talk up initial requirements modeling supported in traditional development, Ambler stressed the need for detailed estimations and project plans. Detailed specifications, he said, were "absolutely critical to your success." But Quatrani countered that a requirements list is like a grocery shopping list, with people changing their minds once they get to the supermarket. "Your requirements are just an initial estimate," of what the development team wants to do, she said. Then, developers do what the customer wants, said Quatrani. Ambler also promoted use of an architectural specification. "Otherwise, how will the programmers know what to build?" he said. Quatrani responded that use of modeling was important but for developers to use just enough of it -- a sketch. "I'm going to be actively involved with my programmers," she said. Ambler, again in his role as the traditional development advocate, stressed the need for detailed, comprehensive specifications. "Detailed documents are a very good thing and critical to your success as software developers," said Ambler. "I have three words for you: Test-driven development," said Quatrani. Again, she stressed building what the customer wants. Documentation can be "the anchor around my neck," Quatrani said. Some is needed but not necessarily all the detailed specifications, she said. With active participation of the customer, the agile developer knows what the customer wants, she said.

Where to next for ERP et al? (part 1, SAP) If you look at the numbers as Larry Dignan, Brian Sommer and I do each quarter you might easily conclude that the market running order in 2009 would be the same for 2009 as it has been for 2008: SAP, Oracle and Microsoft. I doubt that will change significantly but what matters in software marketing is mindshare. In that sense everything is up for grabs. That is assuming the market doesn’t collapse altogether, a prospect that isn’t out of the realms of possibility either. In talking to Dale Vile from Freeform Dynamics, he confirmed much of what I am seeing in the market: no real panic among CXOs but a firm expectation of a significant slowdown. There are regional variations with most of the gloom in the US/UK. Both Dale and I would go much further. We believe that the market - and vendors - are in for a very nasty surprise, possibly as early as Q1 of 2009. I believe that IT departments could find themselves in crisis as boards demand value from IT combined with more cost cutting. It is hard to see how this will pan out because unlike the last downturn, CIO/CTO’s have adjusted to shelfware problems and have little of the fat they needed to shed at the turn of the century. Their biggest problem remains the difficulty they have in communicating with the business. Many put this at the CIO’s door. The last six months have taught me the reverse. It is the business that needs to pay attention to IT. Technical people I speak with know far more about what needs to be done than their business counterparts give them credit for but are rarely given the floor with which to speak with conviction. That has to change. If business recognizes the contribution IT can make, then the IT landscape changes and introduces a new dynamic into the sales process. I sense there is a likelihood of that happening, especially given the question marks we are seeing being placed in the value of licenses and their attendant maintenance and support costs. Mind you, if it was that simple then things might have changed a long time ago. The often toxic relationships I witness are a legacy of the past. Now is the time for the whole business to come together. On  the buy side front, Vinnie Mirchandani, Ray Wang, Frank Scavo, Brian Sommer, Mike Krigsman and myself (to name but six) are not going away anytime soon. We will continue to fight the customer corner in our own styles against an increasingly frustrated market. We’re only a few more data points in the buying decision cycle but the question remains: how much longer will buyers continue to hand over three times the license fee over a 10 year period and continue to smile while watching project continuing to fail?

Proving I.T.'s Value to the Executive Suite For more years than anybody cares to remember, people have been talking about the need to bridge the great divide between information technology and business. But when it comes to making specific recommendations to achieve that, everybody tends to fall back on a wide range of empty platitudes.To actually bridge the divide, I.T. people need to understand where the business hurts. That means I.T. people need to gain some level of visibility into the business. But you can't get that visibility if you spend all your time working in the boiler room, so in order to get an invitation topside, an I.T. manager needs to effect a result that will get the attention of the business side. The question is, where is the best place to start making a difference that will get noticed by executive management?This brings us to the marketing department, which invariably is the least-understood area of any company's operations in terms of how it spends money to create a positive result that can actually be measured. In the absence of any real measurement tools, most investment in marketing campaigns is based on an article of faith that assumes there is a definable return on that investment. Moreover, most marketing departments are not all that efficient because they don't conclusively know what campaign is working and, more important, when is it actually working.Want to bridge the gap between technology and the business side? Try the marketing department.

• The Great Business Process Divide and IT

Hunker down or flourish - The choice of today’s service groups But first, the key question any service leader must answer is this: Do I just want to hunker down and ride out the recession or do I want to emerge from the recession with a bigger, better and more competitive service group? That one answer will dictate a lot of future policy and operational decisions. It will also go a long way to explain the morale of your team during recession, too. Why? Service firms are people businesses. People have careers and needs that go beyond immediate monetary payments. They want a ‘career’, ‘advancement’, ‘to feel wanted/special’ and ‘to be part of a growing, exciting entity’ to name a few. Let’s face it, it’s no fun being in a firm that’s contracting, letting people go in dribs and drabs. That environment is depressing, de-motivating and just plain sad. Who wants to die a death of a thousand cuts? Even if you have to hunker down for a period of time, don’t miss the opportunity to speak with your team about the post-recession future. Discuss, frankly, the plans for the group. Give people hope and a reason for continuing to work with your firm. If you don’t, the best and brightest will leave for greener pastures. And, once they go, what will your service group be without people? In my materials, I covered a multitude of revenue, cost and morale points. One of the more important revenue items was to encourage service groups to reassess their solution set. Is it still relevant in this economy? I’ve been to two service firms this week alone that have sold the same solutions, the same way with the same messages for many years now. In both cases, their offerings are out of step with today’s new market realities. I’ll be working with one or both firms soon to fix this issue but the frequency with which this occurring is jarring.

MSFT as Exemplar

Ditch the Windows Code Base Now I was shocked when I read last week's column by esteemed PC Magazine Editor-in-Chief Lance Ulanoff regarding Microsoft and its strategy for developing a newer and better OS. Let me summarize his points in a single sentence: Microsoft is doing just fine and everything is okay; move along, nothing to see here. He goes on and on and on with the argument that Microsoft just needs to tweak and tweak; that the company should not even consider throwing out the Windows spaghetti code and start a new code base from scratch because, well, that would be bad! It would be bad because Windows is now a legacy product and far too many applications rely on the base code. God knows what would happen if Microsoft began from scratch, he muses. And, according to Ulanoff, it's stupid to even think along those lines. Underlying his thesis are a number of ideas that I doubt Ulanoff fully considered, since he tends to write his columns late at night when he's half asleep. How else to explain his screwball logic and shrill commentary? Anyway, as he sees it, Microsoft simply is not capable of coding anything from scratch even if it wanted to, at least not without messing it up so badly that Western civilization would collapse or Linux would take over (both options being the same thing from the Microsoft point of view). In this regard I must agree with Ulanoff. Of course, if you reread his column he never actually says any of this. But if you follow the logic—what little there is—you'll see that this is his real point.

My Windows 7 Wish List The buzz surrounding Windows 7 has begun to amp up, and I'm already assuming that this product will be little more than Windows Vista with a few added gewgaws that are relatively unimportant. While nothing on my wish list will be implemented, I figured I'd complain in advance anyway. 6. Get off the cloud! There is nothing more annoying than Microsoft and this cloud computing crapola. It has its place in certain situations, but too often I've been doing something on my laptop on an airplane and suddenly the machine wants to contact the Internet for some reason or other. It's ridiculous. These are just six of the many wishes and suggestions I have for the folks at Microsoft, who seem to be rushing Windows 7 as fast as they can. In the end it will just be another incomplete product.

The Vista follies: Windows' tortured 2008 Microsoft is used to criticism; after all, it's a standing joke that the third version of any Microsoft software is the first one that works right. But the backlash against Windows Vista in 2008 was unprecedented. The new OS had been out for a year, finding its way into new consumer systems through 2007 but not getting much adoption by business. Throughout 2007, InfoWorld heard IT staffers and CTOs grumble about the new OS, despite some nice features for IT, such as unified install images. Application incompatibility, a UI rejiggered without any user benefit to its changes, and a bothersome security mechanism increasingly annoyed individual users and small-business consultants. But Microsoft was embarrassed by revelations that its own execs had trouble with Vista and that computers labeled "Vista Capable" in fact could not run Vista, calling into question Microsoft's honesty, as well as that of many PC makers. The result was a messy lawsuit that is still dragging on, as it became clear that Microsoft was split internally about the accuracy of its "Vista Capable" certification claims. During the six months of this anti-Vista brouhaha, Microsoft held firm to the June 30 kill date for XP and indeed pulled the plug as promised. But it also started talking about the "downgrade" option that let many users buy Vista Business or Vista Professional, then use that license to replace Vista with XP. Microsoft also let PC makers continue to sell XP on new systems by using the downgrade approach to call it a Vista sale. As the Vista doubts became mainstream, Microsoft began to talk up Windows 7, the Vista-based successor to Vista scheduled for release in early 2010. As InfoWorld's Kennedy has shown in his tests of the Windows 7 pre-beta version, Windows 7 is essentially Vista with some interface changes, a claim Microsoft CEO Ballmer concurs with -- but he quickly adds that Windows 7 is "a lot better." And Microsoft has continued to work on Vista, with the SP2 update now in beta. SP2 helps boost Vista's speed, Kennedy's tests show. As 2008 draws to a close, Vista has returned to being a quiet failure as the world waits for Windows 7.

Why businesses are embracing Macs It's not your imagination. Apple Macintoshes are turning up in businesses beyond the creative departments, increasingly becoming a normal part of the IT fabric. One recent IT survey by researcher Information Technology Intelligence shows that 23 percent of respondents had at least 30 Macs in their businesses, 12 percent had at least 4,000 Macs -- and 68 percent said they would let users choose Macs as their work PCs in the next year. A Forrester Research survey of larger enterprises showed that Macs now account for 4.5 percent of deployed systems. (Both IDC and Gartner report that Macs now make up 9.1 percent of all PCs sold to individuals.) IT's acceptance of the Mac appears to be genuine, not a grudging response to unwanted user demand: "Desktop managers are painting a rosy future for Apple on the corporate desktop," the recent Forrester report states. One reason is the quality of the Mac hardware and operating system; Information Technology Intelligence's survey shows that 82 percent of IT respondents rated the Mac platform as very good or excellent, compared with 60 percent for Windows Vista. The growth in Mac adoption has been driven by several factors, everything from Apple's conversion to an Intel-based platform with several virtualization options to run Windows to the Webification of corporate applications, the rise of software as a service, and Apple's dramatic ascendance in consumer mindshare.

• Macs work as part of your business's IT
• IBM finalizing free Symphony office suite for Macs

Other Industry Exemplars

Rethinking Software Support Oracle Corp.'s lucrative business selling maintenance contracts could come under pressure if companies turn to lower-cost alternatives as the recession drags on. Consider Santa Fe Natural Tobacco Co. The small cigarette maker, which is a unit of Reynolds American Inc., recently switched its service contract for Oracle human resources software to Rimini Street Inc., a software support company that says it charges half of what Oracle does. How many of Oracle's customers follow suit is an open question for the Redwood City, Calif.-based company, which garnered nearly half of its $22.4 billion in sales last fiscal year from highly profitable maintenance and support contracts. Customers pay maintenance fees to Oracle and rivals like SAP AG for the right to get upgrades to their products, bug fixes and help-desk support. The contracts typically come up for renewal every year and are paid for annually. Oracle charges a fixed 22% of the price of a software package, which can cost hundreds of thousands of dollars, for maintenance. But the economic downturn might prompt some cost-conscious companies to stick with older software and look for alternative support services. "There's going to be a breaking point soon where customers say they're spending too much on maintenance and not getting enough value," said Forrester Research Inc. analyst R. Ray Wang. "Investors should take note." Critics say Oracle needs to reassess its one-size-fits-all business model because customers might move away as more outside options become available and as the recession prompts companies to become more vigilant in their spending. Customer irritation over software companies' maintenance pricing policies resurfaced last year, when SAP customers protested a rate hike. It soon spread to other companies. Jefferies & Co. said recently it expects Oracle's maintenance revenue to slow as license sales fall off.

Ex-Allies Square Off In a Tech Turf War  With a big product launch Monday, Cisco Systems Inc. is propelling the technology industry into a new era: Giant companies that once prized profitable cooperation are invading each others' turfs. Cisco announced it will start building its own servers, the powerful machines that run corporate computer centers across the globe. Its "blade" server, which it designed and developed for two years under unusual secrecy, places it in direct competition with long-time partner Hewlett-Packard Co. For years, Cisco enjoyed heady growth in its core business of making the switches and routers that allow computers to communicate with each other. Hewlett-Packard dominated the server market. The two cooperated with each other, as well as with the makers of storage devices and software, each providing complementary pieces of the data centers that make corporations and the Internet run. But that has been changing in recent years. The maturing tech industry has set giant companies on a collision course, as once-disparate technologies take on new capabilities in a "convergence" of computers, software and networking. With the recession expected to shrink sales across the industry, tech companies are turning on each other in their search for growth. Since Cisco's core networking markets began slowing in 2005, it has taken on the likes of H-P, Microsoft Corp. and International Business Machines Corp. It is also picking new fights as it expands into home electronics and entertainment systems for sports stadiums. Cisco Chief Executive John Chambers says the company expects to deploy its hoard of cash during the economic downturn to expand further into areas where it hasn't historically competed. In February, the San Jose, Calif., company took on $4 billion in debt in part to add to its war chest for acquisitions. "The fact that we have $29.5 billion gives us a huge competitive advantage," Mr. Chambers said in an interview just before raising that capital. "Cash is king, queen and the royal family." Cisco's new rivalry with H-P provides a particularly good window into the industry's latest offensives. As Cisco moves onto H-P's territory, H-P is stepping up its own investments in networking gear that competes with Cisco's. Those outside Cisco say the move into servers could be difficult. "This is, by far, the riskiest, most bold move they [Cisco] have made in their history," says Zeus Kerravala, an analyst at tech research company Yankee Group. Cisco's chief technology officer, Padmasree Warrior, says the company has moved boldly in the past, and suggests the old rules are changing. "We're going to compete with H-P. I don't want to sugarcoat that," she says. "There is bound to be change in the landscape of who you compete with and who you partner with." Battles are breaking out across the industry. Within the past year or so, H-P has fueled a new rivalry with IBM in tech outsourcing by buying services giant Electronic Data Systems Inc. Microsoft set its sights on Internet-search giant Google Inc. by attempting to buy Yahoo Inc. Sun Microsystems Inc. is moving beyond its core market in servers and software to take on database-software leader Oracle Corp. Later this month, Dell Inc. says it plans to introduce new data-center management software that will compete with existing offerings by H-P, IBM and others.

IBM could shake up Silicon Valley with Sun deal  If IBM Corp. scoops up Sun Microsystems Inc. for at least $6.5 billion in cash, as the companies are discussing, IBM would be making an opportunistic grab for a deep well of technology that Sun has nearly buried itself developing. The proposed acquisition would be IBM's biggest yet. It would shake up Silicon Valley and the corporate computing world, marrying two traditional foes whose animosity was relatively recently squashed. Merging the corporate cultures of Armonk, N.Y.-based IBM and Santa Clara, Calif.-based Sun would be a challenge, and lots of Sun's jobs would probably be cut. Sun revealed plans in November to jettison up to 6,000 jobs, or 18 percent of the global work force, after slashing 7,000 jobs the previous three years in several rounds of layoffs. But Sun would come relatively inexpensively, because its shares have been on a steady downfall since the dot-com bust. Although $6.5 billion would represent a significant premium over the market value of less than $4 billion that Sun had before the talks leaked, Sun's last quarterly report shows it with more than $2.6 billion in cash and securities that could be readily converted to cash. IBM would get access to many businesses that use Sun's servers or software and could be pitched on buying other things from IBM. Despite its long-running financial problems, Sun's customer base is loyal: market research firm IDC estimates that there are more than 1.6 million active Sun servers in use worldwide. "Sun has a wealth of technology and intellectual property," said Jean Bozman, a research vice president with IDC. "You have to look at Sun in a three-dimensional way. It provides hardware, it does servers and storage, it has software — it has all these elements that would go into the next-generation data center, not just one or two. And it has historically been on the leading edge of technological trends." As of the end of 2008, Sun owned 10.1 percent of the worldwide server market. IBM held nearly 32 percent and HP had nearly 30 percent. In addition, many of Sun's customers are heavy hitters in finance, telecommunications and the government. Those are areas where IBM also has a strong presence but is looking for an even bigger footprint as it rolls out new services geared toward digitizing key pieces of infrastructure, from electric utilities to water supplies. Although Sun and IBM worked together to spread the Java programming language, which became a key ingredient of the Internet, the companies' relationship appeared to make its biggest improvement after Jonathan Schwartz took over from McNealy in 2006. Schwartz reached out to IBM and CEO Sam Palmisano to brainstorm ways they could cooperate — especially since they share Microsoft Corp. as a rival — and the companies ended up announcing an August 2007 pact to collaborate on server technologies.

• I.B.M., Looking to Buy Sun, Sets Up a Software Strategy
• Gathering clouds The takeover talks between IBM and Sun highlight a shift in the industry.

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