Tag Archives: hpe

Cisco Pressured By Enterprise Trends Ahead Of Fiscal Q3 Earnings

Negative trends in the enterprise market — large companies and government agencies — are lowering expectations ahead of Cisco Systems ‘ ( CSCO ) fiscal Q3 earnings, due out Wednesday after the market close. Many large companies are outsourcing business computing workloads to cloud computing service providers such as Amazon Web Services, part of Amazon.com ( AMZN ), lessening their need for the routers, switches and other networking gear sold by Cisco and others. Analysts polled by Thomson Reuters estimate Cisco earnings minus items will rise 2% to 55 cents, though they see revenue falling 1% to $11.97 billion. “We see three major issues into this earnings release, including weak IT data points, all signaling industrywide IT spending weakness, less visibility around service provider spending, and global macro exposure,” Kulbinder Garcha, a Credit Suisse analyst, said in a research report. “Year to date, we have seen weak IT spending indications from large bellwethers including IBM ( IBM ), EMC ( EMC ), Juniper ( JNPR ), Brocade ( BRCD ) and SAP ( SAP ),” added Garcha, who has an underperform rating on the stock. JPMorgan analyst Rod Hall, in a research report, cited negative enterprise market commentary from Intel ( INTC ), Oracle ( ORCL ) and Hewlett Packard Enterprise ( HPE ). Reports of slower tech spending was a factor in the stock market’s plunge early in the year. With many tech companies struggling to meet expectations recently, an in-line quarter for Cisco might be good enough to move shares higher, said Citigroup analyst Jim Suva. RW Baird’s Jayson Noland was another analyst citing slower spending of late. “Our partner survey results indicate a softer-than-expected April quarter, with improved prospects for growth for the remainder of calendar 2016,” Noland wrote in a research note. Cisco stock, up 1% near 27 in early trading in the stock market today , is about even in 2016. Cisco stock is up 20% since touching a two-year low in early February.

Cloud Computing Not Seen Cannibalizing Server Market, As Assumed

Dell owner Michael Dell as well as investors in Hewlett Packard Enterprise ( HPE ) and IBM ( IBM ) — the big 3 computer server companies — ought to appreciate Bernstein’s latest take on how much the cloud is cannibalizing the server market. It’s not, says the investment bank. “Isn’t it unbelievable?” chided Bernstein analyst Pierre Ferragu in a Friday research note re-issued Tuesday. “The cannibalization theory most investors and industry observers take for granted and as an axiom to any proper thinking about the future of this industry is just plain wrong: The cloud grew from zero to approximately 20% of total enterprise compute while shipments into traditional data centers kept stable” from 2005 through 2015, he said, using Gartner and Bernstein estimates that showed server shipments near 8 million units annually during those 11 years. “Want a last nail in the coffin of this silly cannibalization theory?” Ferragu wrote. “Over the same 2005-2105 period, virtualization went from zero to about 70% penetration, increasing on average the utilization rate of servers by a factor of approximately seven times. This didn’t trigger any cannibalization either (although countless sell-side analysts and investors take it for granted that virtualization killed the server market).” What happened was “very simple,” Ferragu explained. From 2005 through 2015, thanks to virtualization and the cloud, the cost of computing fell sharply. That sharp fall “never meant money spent on compute capacity decreased,” he said. “It meant the amount of compute consumed by enterprises went through the roof. Nothing was ‘moved to the cloud.’ The cloud brought exceptionally cheap compute and enterprise used it to grow their consumption of compute.” In December, Gartner said Q3 server shipments rose 9.2% from the year-earlier quarter, and server revenue rose 7.5%.  By company, what became Hewlett Packard Enterprise on Nov. 1 led the world in Q3, with server revenue up 9.1% to $3.7 billion for the quarter, followed by Dell up 9% to $2.4 billion, then IBM up 5.1% to $1.3 billion, after it sold its lower-end x86 server business to Lenovo. “Dear reader, you probably consume 1,000 times more mobile data than in 2005, about 100 times more Internet traffic in general and you use on average about 1,000 times more transistors in your life,” said the analyst. Total cloud revenue will grow about 50% annually over the next five years, and assuming cloud revenue per server will grow at 10% annually, largely due to Amazon ( AMZN ) Web Services, “this still leaves us with about 40% per annum growth in server count,” Ferragu said. “As we saw absolutely no sign of slowdown while the cloud went from zero to 20% of compute, our intellectual honesty forces us to consider traditional enterprise data center will remain broadly stable. … “The cloud will grow easily to well over 50% — actually 60% in our forecast — of the total of compute volumes in five years.” In the stock market today , shares of HPE rose nearly 1% and IBM rose a fraction. Privately held Dell is in the process of acquiring storage systems leader EMC ( EMC ), which was flat Tuesday.

After 16 Quarters Of Revenue Declines, When Will IBM Bounce Back?

The IBM ( IBM ) revenue numbers stand out like a broken arm. Deep into a major transition that has shed multibillion-dollar businesses, IBM has reported 16 straight quarters of year-over-year revenue declines. And it’s not done yet. Another three quarters of declines are expected by analysts polled by Thomson Reuters. In the past several years, Big Blue has shed computer hardware units, reshuffled its software businesses and realigned its workforce to reduce costs as it focuses on growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas that it calls strategic imperatives. Since 2010, IBM has invested about $30 billion in these areas. They include the creation of a new business unit, Cognitive Business Solutions, with its backbone being IBM’s advanced Watson computer. Watson is being used in health care, the Internet of Things, analytics and other fields. IBM says Watson can address a total market opportunity near $2 trillion. “We continue to make significant progress in our transformation to higher value,” IBM CEO Virginia Rometty said in the company’s first-quarter earnings release last Monday. “We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud.” The IBM transformation is showing progress. IBM revenue from strategic imperatives rose 26% in 2015 in constant currency to $29 billion, compared with a 12% decline in overall revenue to $81.7 billion. Strategic imperatives now comprise 35% of total revenue, up from 22% two years ago. IBM has targeted strategic imperative revenue to reach $40 billion and at least 40% of revenue by 2018. But when will the revenue slide reverse?  UBS analyst Steven Milunovich, in a research report, says that 2017 is likely the turning point. “IBM is trying hard to transform its business and also to change the narrative from legacy loser to cloud and cognitive winner,” Milunovich wrote. He added, “Just because strategic imperatives gains the upper hand does not mean IBM’s top line is off to the races, but it could mean the worst would be over.” As to whether Watson and its Cognitive Business can save IBM, Milunovich says that it’s too soon to know, as IBM does not disclose the Watson-driven revenue just yet. “Old IBM is in secular decline, but we believe cognitive eventually could create a material new revenue stream drawing from outside existing IT budgets. We don’t expect revenue to be material for another three years, but the narrative is important now, and eventually Watson could be a $10 billion business,” he wrote. Milunovich has a neutral rating on IBM and price target of 150. IBM stock was flat, near 148, in afternoon trading in the stock market today . IBM stock hit its all-time high of 215.90 in March 2013. It hit a six-year low in February but is up 27% since then. IBM Turnaround Remains ‘Painful’ Credit Suisse analyst Kulbinder Gracha has a more negative view on IBM and says that revenue won’t stabilize until 2018. “We see a painful multiyear turnaround from here, which drives underperformance,” Garcha wrote in a research note. “We believe that large parts of IBM’s business (hardware, operating systems, services) are being impacted by the cloud.” As to Watson, he said, “While we do believe the opportunity here is significant, it is also very early, with the commercial impact of such initiatives that may take several years, if not decades.” Garcha has an underperform rating on IBM stock and a price target of just 110. Other giants in the information technology field are also going through transitions and struggling to accelerate revenue growth. They include Hewlett Packard Enterprise ( HPE ), Oracle ( ORCL ), EMC ( EMC ) and Cisco Systems ( CSCO ). “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett Packard Enterprise, Cisco, Oracle, EMC and Dell,”  wrote RBC Capital Markets analyst Amit Daryanani in a research note. Of these competitors, he says, HPE is closest to IBM’s model, with Cisco another. Dell is acquiring EMC. Daryanani has a sector perform rating on IBM stock and a price target of 155.