Thursday, March 12, 2015

Who Blinks First: Greece or Germany?

Some of my most widely read posts, both by numbers and by geographical dispersion, relate to the Euro and the Grexit, dating back to 2012.  This particular one, "Revisiting the Euro and the Grexit," hit it all right on the head.

Today, even the Guardian seems to waking up out of a fog when it writes,
"A month ago, such an outcome(economic collapse or exit) to the Greek crisis looked highly improbable. It now appears far less unlikely, which is one reason why the euro has been under such pressure on the foreign exchanges. At some point, the 35% depreciation of the single currency against the dollar is going to lead to strong exports and a much-needed growth boost."
Bailing out Greece, or Germany blinking, puts another nail in the European experiment.  The EU violated its own rules when it admitted Greece (and others) into the currency union, and a bailout (or other euphemism) is the ultimate practical repudiation of both economic principles and rules.

The multi-year charade that has brought us to this point can't continue by just accepting more austerity: for the economic well being of the people and for the political self interest of its politicians, Greece needs to undertake fundamental structural reforms in taxation, labor market and public pension reforms.  Without some outside representation by the EU machinery in providing technical assistance or monitoring, it's hard to see how blank checks can be written.

If the bitter pill were accepted, how could the current Greek government, elected on a sham platform, continue to hold the confidence of the electorate?

Taking the euro down to stimulate exports helps Germany much more than it will help Greece in the short-term, without labor market and regulatory reform in, for example, Greek ports and shipping.

All eyes may turn to Mario Draghi, but his tune is already tired and won't be enough.

Monday, March 9, 2015

HP Buys Aruba: What Does It Mean?

Here we go again: HP makes another significant acquisition.  The timing, before effecting the separation of HPQ into HP Enterprise and HP, Inc. seems a bit awkward, but there were probably market reasons.

From what I can gather, Cisco having the dominant share in wireless networking (over 50% according to some industry research) couldn't have made a move on Aruba (around 13% according to industry trades) without some concerns about its prior Meraki Networks acquisition and without risks of being perceived by the Feds as anti-competitive.

Dell is probably preoccupied with its recent privatization and with internal redeployment of executives and resources to have done the deal now, but later...that could explain why HP moved now.  Many non-Cisco players have private-labeled or bundled Aruba's technology into their offerings already, including HP.  So now HP leaves Dell, Juniper Networks and Brocade out in the cold to forage over a smaller universe of targets to exploit new wireless standards with enhanced security.

According to Credit Suisse, the $2.7 billion price is 2.6x revenues, and CS projects that the acquisition will contribute about $0.07 per share to HP's FY 2015/16 earnings. According to Argus Research, HP's networking revenues in their prior fiscal year were $2.25 billion, and the annualized run rate of FY15 revenues for Aruba (based on their fiscal second quarter) is $852 million.  So, without any sales force synergies and without significant losses from Dell and other customers, Aruba's revenue contribution should be 25-35% of HP's 2015/16 networking revenues.

One thing this acquisition does point out: the acquisitions of Colubris Networks (2008) and 3Com (2010) weren't the best-timed, and the combination, along with deficient R+D spending dating back to CEO Mark Hurd's time, has failed to add value to make HP's offering credible in the future, without Aruba.

If HP Enterprise is indeed a "nimbler" company going forward and a more astute company, then the sales force, product development team and executives at Aruba will not only stay with HP Enterprise, but they will be enthused and energized by the possibilities for vastly increasing their distribution and market uptake.  If they get frustrated with a big bureaucracy of HP insiders who things the "HP Way," then this acquisition too could fall apart.

Creating an Enterprise-centric company via the split was probably a strong selling point to Aruba's management.  Let's hope that this acquisition is different.