I found an analyst report which picked Cisco as the "big winner" in the move to cloud computing. Remember. Cisco's original advertising positioned the company as supplying the "plumbing" for the Internet. Making routers and switches, like plumbing fixtures, should not remain a high margin business as Asian companies start to get global scale. Despite integrating hundreds of acquisitions over the years, the company has settled into a low growth phase, when it has to go out and acquire software companies. Making components and even boxes, like servers, shouldn't attract new shareholders. To its credit, CSCO has been able to maintain margins in its core router and services business, while also generating very healthy service margins. Despite its healthy business and modest valuation why it would be a big winner in cloud computing doesn't follow for me.
I liked this quote which I read as part of an IBM cloud computing discussion: "IT industry must go beyond delivery of components—even integrated components. This environment demands that the IT industry deliver integrated expertise."
In this regard IBM overall looks like it is positioning itself well as a provider of solutions to businesses looking at implementing private cloud computing models in stages. Their offerings feature well designed, integrated systems which I presume are manufactured for them by others. At the heart of their offerings is the image of deep expertise both at the customer level and at the research scientist level. The magic of expert knowledge should enable them to earn a healthy profit on customer implementations, because they are not selling boxes, or blades, or plumbing. Biri Singh seems to be HP's internal cloud computing guru, and hopefully his team will be built out and his portfolio should grow.
An entirely discrete issue is the so called "big data" opportunity. Years ago, the buzz word was "business intelligence," or "BI." Most of those implementations came in late, over budget and didn't provide value. Nobody that I've talked to at some mega-cap user companies can really describe what this might mean for their companies in specific, operational terms. Selling this concept to users will require some magic, and again the magic won't be in boxes, switches, routers, or servers. Autonomy seemed like it was to be the magic that might differentiate HP's offerings in this field in the future.
CEO Whitman made this statement in the conference call: "And we want to transition this to faster-growing, higher-margin sections related to strategic enterprise services. What we consider strategic enterprise services, cloud, security, information management and analytics, and application modernization." Looking at the Autonomy website, this seems to be the portfolio of offerings which it successfully brought to market to top tier customers around the world. Putting HP's Chief Strategy Officer in charge of this business seems like it will make extracting value from this acquisition take longer to realize.
As the CEO stated, the core of HP will be the ESSN business, along with Services and Financing. As this business builds and receives a bigger R and D budget, its revenue and earnings should increase. Offsetting this will be a drag from PSG and a transitioning IPG. It's too early to get excited about this stock unless the price were lower. Can several companies co-exist on The Cloud? Not according to the Rolling Stones:
Enjoy the Memorial Day Weekend.