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April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES Experture / RFG Weekly IT News Snapshots …experts on demand Cal Braunstein, Chief Research Officer ETS 11-04-01 Week in Review This Week the following topics are highlighted: Attacks and Clouds - IBM Corp. released its update to its yearly security trend and risk report, accounting that while security attacks are becoming more sophisticated, the vulnerabilities targeted remain largely the same. Elsewhere, a newly released survey by a data center management association finds that cloud computing adoption is on most data centers' hot lists for 2011 and beyond. Lastly, a recent security attack has exposed customers' names and e-mail addresses for some of the top institutions. RFG believes security vulnerabilities and exploits should remain atop IT executives' list of concerns as attacks become more automated and pervasive. IBM's X-Force 2010 Trend and Risk Report demonstrates that the majority of attacks are Web and e-mail related, and that a majority of the holes found remain unpatched. This suggests that security policies and procedures at enterprises are secondary to ongoing operations and that many administrators are failing to maintain what should be the minimum in security upkeep. While attacks are getting more sophisticated, the majority of the vulnerabilities referenced could be easily plugged with patching and regular maintenance. These problems will exacerbate as cloud computing continues to flourish exponentially. Companies that flock to outsourcers in droves to solve problems – security or otherwise – will be sorely disappointed despite whatever best practices, service level agreements (SLAs), and other promises for improvement are bandied about without first getting their own homes in order. Cloud computing strategies aim to optimize computing efficiencies and leverage applications irrespective of their geolocation; however, complex systems and architectures are breeding grounds for complex security and integration problems. As with all large problems, sound planning and holistic views of processes and problems are required to minimize risk and maximize return. The Epsilon data breach, one of the largest recorded, should serve as a reminder and call-to-action for IT executives to revisit security policies and enforcement across the enterprise. No panacea exists to replace rigorous and repeated revisiting, updating, enforcement, and additions to a centralized set of security rules governed using strong applications and repeated testing. A Financial Transformation - IBM Corp. released its findings from its 2011 banking study. The study concludes banks globally need to invest in insights that will enable the institutions to become more client centric, reduce complexity, and optimize risk. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 RFG believes banks, as well as other businesses, need to develop pricing methodologies that are client centric and map well with the new, and multiple, ways in which customers prefer to work with their providers. Banking institutions, especially those that are the product of multiple mergers, tend to have excess and overlapping applications, processes, and infrastructure. RFG finds that the simplicity savings on the IT side easily matches the 20 – 30 percent range that could be achieved by reducing bank operational complexity. The systemic risk exposures have not diminished and may not improve much over the next five years. IT executives should expect the requirement for banks to reduce their operational risks to cause continued tightening of funds and capital constraints. Thus, IT executives should be looking at alternative methods of financing, such as leasing, rather than use of corporate capital or lines of credit. Moreover, IT executives should be concerned with the rise in fraud attempts and should, therefore, ensure their organizations have eliminated siloed risk and compliance processes and installed advanced analytics that can detect and prevent fraud attempts in real-time. TI Acquires Natsemi To Widen Analog Lead - Two of the oldest names in the semiconductor business, Texas Instruments and National Semiconductor, are to merge to create a powerhouse in analog chips. In the semiconductor market as a whole, the acquisition will allow TI to overtake Toshiba as the world's third largest player after Intel and Samsung, according to IHS iSuppli. Google To Pay $900m For Nortel's Huge Patent Hoard - Google has kicked off the battle for Nortel's last remaining major asset, its hoard of patents. Industry giants from Apple to Ericsson to ZTE are said to be interested in the portfolio, which some analyst expect to fetch over $1bn. Google has agreed to pay $900m, but as a 'stalking horse' buyer, its bid could be topped by a rival. Also on the patents front, HTC has acquired a rather smaller group from ADC Telecommunications, now a subsidiary of Tyco Electronics. HTC will pay $75m for 82 patents, including 14 that are still pending. Most are reported to relate to unspecified 4G technology developments. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 Attacks and Clouds Lead Analyst: Cal Braunstein IBM Corp. released its update to its yearly security trend and risk report, accounting that while security attacks are becoming more sophisticated, the vulnerabilities targeted remain largely the same. Elsewhere, a newly released survey by a data center management association finds that cloud computing adoption is on most data centers' hot lists for 2011 and beyond. Lastly, a recent security attack has exposed customers' names and e-mail addresses for some of the top institutions. Focal Points: IBM released its annual X-Force 2010 Trend and Risk Report this week, detailing the computing-related security risks faced by public and private organizations worldwide last year. IBM gathered the data using intelligence sources, a global Web crawler, real-time monitoring for nearly 4,000 clients in 130 countries, and its large vulnerability database to monitor more than 150,000 events per second. Rising 27 percent from 2009, the company identified more than 8,000 new vulnerabilities but noted that spam had growth flattened by the end of the year. Fewer phishing attacks were reported, though more targeted "spear phishing" became more prominent in usage as targeted e-mails with malicious attachments and/or links grew. Not surprisingly, Web applications vulnerabilities, led by cross site scripting and SQL injection issues, numbered nearly half of all vulnerabilities during the year. Additionally, almost half of all vulnerabilities remain unpatched. Stuxnet ranked as one of the most notable of the year's attacks, demonstrating that specialized exploits for complex, proprietary control systems was possible. A new survey by AFCOM, an association for data center management professionals, found that 70 percent of the 358 data center managers surveyed have or are seriously considering adopting cloud computing technologies. Their 2010 survey found that only 14.9 percent of surveyed managers had clouds implemented, while the responses to the 2011 survey indicated that more-than-double growth rate to 36.6 percent. Additionally, 35.1 percent of respondents were seriously considering moving to the cloud. Other notable findings included that data center expansion is on the rise as 44.2 percent of participants have more floor space than three years ago and another 49.4 percent are planning to build or acquire more room. Data backup and recovery plans were not in place at more than 15 percent of respondents' data centers and a whopping 50 percent lack strategies to replace equipment damaged by a disaster. Epsilon Data Management, LLC., a permission-based e-mail marketer and unit of Alliance Data Systems Corp., announced a breach of its customer files used to send email marketing campaigns to customers banking institutions and retailers. Customer names and e-mails were exposed when an attack allowed entry into Epsilon's e-mail system, which is used to send more than 40 billion e-mails annually. The company handles online marketing and outreach for customers including Citigroup, Inc., L.L. Bean., JPMorgan Chase Bank, NA, Marriott International Corp., and other big brands. The attack was detected on March 30, and is claimed to only affect "a subset' of clients' databases and that financial information was not leaked. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 RFG believes security vulnerabilities and exploits should remain atop IT executives' list of concerns as attacks become more automated and pervasive. IBM's X-Force 2010 Trend and Risk Report demonstrates that the majority of attacks are Web and e-mail related, and that a majority of the holes found remain unpatched. This suggests that security policies and procedures at enterprises are secondary to ongoing operations and that many administrators are failing to maintain what should be the minimum in security upkeep. While attacks are getting more sophisticated, the majority of the vulnerabilities referenced could be easily plugged with patching and regular maintenance. These problems will exacerbate as cloud computing continues to flourish exponentially. Companies that flock to outsourcers in droves to solve problems – security or otherwise – will be sorely disappointed despite whatever best practices, service level agreements (SLAs), and other promises for improvement are bandied about without first getting their own homes in order. Cloud computing strategies aim to optimize computing efficiencies and leverage applications irrespective of their geo-location; however, complex systems and architectures are breeding grounds for complex security and integration problems. As with all large problems, sound planning and holistic views of processes and problems are required to minimize risk and maximize return. The Epsilon data breach, one of the largest recorded, should serve as a reminder and call-to-action for IT executives to revisit security policies and enforcement across the enterprise. No panacea exists to replace rigorous and repeated revisiting, updating, enforcement, and additions to a centralized set of security rules governed using strong applications and repeated testing. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 A Financial Transformation Lead Analyst: Cal Braunstein IBM Corp. released its findings from its 2011 banking study. The study concludes banks globally need to invest in insights that will enable the institutions to become more client centric, reduce complexity, and optimize risk. Focal Points: The IBM Institute for Business Value and The Economist Intelligence Unit surveyed the top 200 banks across the Americas, Asia, Australia, and Europe. Globally, 90 percent of the bankers believe they need to transform their firms to survive and prosper. Banks in mature markets need to reduce operational complexity that is costing the industry nearly $200 billion annually. The potential extra profit that could be derived from reducing complexity is in the 20 – 30 percent range depending upon the size of the enterprise. To become more client centric the financial firms need to create innovative pricing models that are more closely aligned with client segments. Moreover, pricing needs to reflect client holdings across multiple deposit and loan products. Furthermore, the study finds that for many banks client satisfaction in the channels is at best mediocre. Banks currently have insufficient client information and poor risk data, which handicap their ability to modernize and establish good pricing models, IBM notes. The most disconcerting findings IBM noted were in the area of risk and compliance. The study finds systemic risk is on the rise. The top 30 banks are bigger now than before the financial crisis. In many countries bank assets are about 200 percent their national GDP. Moreover, 90 percent of organizations have experienced a rise in fraud attempts. Lastly, 80 percent of financial services firms state that their risk and compliance platforms and processes are not integrated across the business. Meanwhile, hundreds of new regulations in different jurisdictions are on the way while 240 new rule making processes are underway in the USA alone. RFG believes banks, as well as other businesses, need to develop pricing methodologies that are client centric and map well with the new, and multiple, ways in which customers prefer to work with their providers. Banking institutions, especially those that are the product of multiple mergers, tend to have excess and overlapping applications, processes, and infrastructure. RFG finds that the simplicity savings on the IT side easily matches the 20 – 30 percent range that could be achieved by reducing bank operational complexity. The systemic risk exposures have not diminished and may not improve much over the next five years. IT executives should expect the requirement for banks to reduce their operational risks to cause continued tightening of funds and capital constraints. Thus, IT executives should be looking at alternative methods of financing, such as leasing, rather than use of corporate capital or lines of credit. Moreover, IT executives should be concerned with the rise in fraud attempts and should, therefore, ensure their organizations have eliminated siloed risk and compliance processes and installed advanced analytics that can detect and prevent fraud attempts in real-time. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 TI Acquires Natsemi To Widen Analog Lead Two of the oldest names in the semiconductor business, Texas Instruments and National Semiconductor, are to merge to create a powerhouse in analog chips. Focal Points: Analog products are rarely given any prominence in smartphone teardowns, overshadowed by the more glamorous and expensive digital processors and displays, but a high end handset usually has about 30 of these chips, which are also important in sectors such as auto, medical and industrial. Analog chips feature passive elements that are used for mixed signal processing in electronic devices. This is a growth market and one on which TI has focused much of its attention in recent years, especially since moving out of mobile basebands. Its product balance has shifted to analog from the DSPs for which it is best known, and now it has acquired NatSemi in a move to consolidate a fragmented sector. The $6.5bn deal will spark further M&A, suspects Glen Yeung, an analyst at Citigroup, as companies look for scale. "We suspect other analog companies will be forced to consider complementary portfolios, combined salesforces, and eventually 300mm capacity," he said. With the NatSemi purchase, TI gains a largely complementary product range and the ability to put greater resource behind its new unit's sales. TI said in a statement: "National has a rich line-up of high voltage power management products that are well suited to industrial power applications, while our power management product offerings are more oriented towards portable devices. There are plenty of examples like this but the bottom line is that the combination of TI and National means we can engage with customers and an application segment where we have no or minimal engagement today." In 2008, when TI left behind its merchant cellphone baseband business, CEO Rich Templeton said he was targeting increased business outside mobile and in the growth markets of medical, energy and public safety systems, and that the main products to take TI further into these sectors would be low power processing and analog/mixed signal building blocks. His theme since then has been that TI focuses on digital signal "processing" rather than simply digital signal "processors". At that time, analog and DSP accounted for about the same percentages of TI's revenue - around 40% each - but Templeton estimated analog to be 5-7 times the size of DSP, and with more new business available to TI (which then had 13% share, compared to 50% for mobile DSPs, and more in infrastructure). After the closure of the NatSemi acquisition, analog will rise from 43% of TI's revenue to 50% and Templeton says he will target 18% analog market share (up from 14.6% in 2010). The purchase will add 12,000 products to TI's existing catalog of 30,000. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 NatSemi has been struggling over the past year, dropping from fifth to seventh place in the market in 2010 even as TI has gained ground. In 2010, it had 14.6% share of the analog sector by revenue, according to Electronics.ca, widening its lead over STMicro on 10.1% and Infineon on 7.9%. After these three, the main rivals were Analog Devices, Maxim, Linear Technology, Intersil and Freescale. In the semiconductor market as a whole, the acquisition will allow TI to overtake Toshiba as the world's third largest player after Intel and Samsung, according to IHS iSuppli. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 Google To Pay $900m For Nortel's Huge Patent Hoard Lead Analyst: Caroline Gabriel Google has kicked off the battle for Nortel's last remaining major asset, its hoard of patents. Industry giants from Apple to Ericsson to ZTE are said to be interested in the portfolio, which some analyst expect to fetch over $1bn. Google has agreed to pay $900m, but as a 'stalking horse' buyer, its bid could be topped by a rival. Focal Points: If the sale goes Google's way, the search giant will become a far more serious wireless patent holder overnight, gaining over 6,000 items, many of them considered important IPR in new technologies like LTE and OFDMA. According to Reuters, Nortel owns seven of the 105 patent families likely to be essential to LTE. By comparison, Nokia holds 57 and Ericsson 14. Some of the assets could be harnessed directly for Android, Google applications frameworks or cloud networks, but others will be valuable mainly to give it a stronger negotiating position against rival IPR majors like Oracle or Microsoft. Google wrote in a recent corporate blog posting referring to its legal battle with Oracle over Java patents in Android: "One of a company's best defenses against … litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services. Google is a relatively young company, and although we have a growing number of patents, many of our competitors have larger portfolios given their longer histories." Nortel's statement describes its patent mountain as touching "nearly every aspect of telecommunications and additional markets as well, including internet search and social networking." It said the $900m offer had been the result of multiple rounds of bidding from several interested parties. Sale of its patents is the last major step to completing Nortel's exit from bankruptcy protection, which has been delayed several times. At one time there was speculation that it might emerge from Chapter X1 as a rump company focused on IPR licensing, but it seems there is better value for its creditors in making a sale. Nortel's patent portfolio is sufficiently large and valuable to make a material difference to the IPR balance of power in 4G - a balance that is already the subject of intensive legal activity, most recently with Ericsson's decision to sue ZTE over licensing. Success for a non-traditional mobile player on the LTE front, such as Google, could be a catalyst for a change in 4G licensing norms. Google, like Intel, is likely to be more interested in opening up patents to stimulate a massive base of devices that could use its services, rather than becoming a royalty business in its own right. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected] April 6, 2011 EXECUTIVE TECHNOLOGY STRATEGIES ETS 11-04-01 The other main bidders for the assets were said to be Apple and Nokia, though as in previous Nortel sell-offs, some players may wait to show their hands once the stalking horse bid has set the base price. RIM has previously expressed interest in Nortel's IPR, but is unlikely to be able to fend off the giants. Nortel separated many of its formidable pile of intellectual property assets from the sale of other units, notably its 4G, CDMA and GSM businesses to Ericsson. It then divided these into six groups in different technology areas, which could have been sold separately had a single buyer not been found. Also on the patents front, HTC has acquired a rather smaller group from ADC Telecommunications, now a subsidiary of Tyco Electronics. HTC will pay $75m for 82 patents, including 14 that are still pending. Most are reported to relate to unspecified 4G technology developments. Copyright © 2004-2011 Experture and Robert Frances Group, all rights reserved 649 Fairfield Beach Road, Fairfield, CT. 06824; (203) 557-0856; http://www.experture.com/; Contact: [email protected]