How could a company as mighty and diverse as HP have had so many issues with executive management?

HP stumbled mightily in 2011, and it had nothing to do with product or people. Even sales remained strong, though the PC business is changing. HP’s mighty stumble was a crisis of confidence due to a chain of shenanigans at the very top. This culminated with the short reign of Léo Apotheker, leaving HP to reassure the market of its strategy.

HP And the Enterprise IT Industry

Sometimes, it’s hard to get a sense of scale when talking about very large things. How big is the solar system? How far away is the nearest star? The same is true of earthly things, exemplified by popular misconceptions about the global financial crisis. It’s difficult for people to understand just how much money a trillion dollars is.

In my little world of enterprise storage, it’s difficult to reconcile “big storage” players like EMC and NetApp with “big storage and everything else” players like HP, Dell, Oracle and IBM. Sure, EMC and NetApp lead the pack in terms of market share, but they’re nowhere near as large as the integrated players. HP has more than 7 times the revenue of EMC, which makes 3 times more than NetApp.

This old slide might need updating, but you get the picture…

HP is an incredibly diverse company, dominant in the PC, printing, and blade server market and top 5 just about everywhere else, including networking, services, and enterprise storage. And HP has nearly 325,000 employees, all working to move the company forward in one direction or another.

NetApp is a motorcycle, with one drive wheel pushing it forward at high speed; HP is more like NASA’s shuttle crawler-transporter, a 16 motor mammoth. Single-purpose companies can be agile, but they can also be derailed by market downturn or technological shift. Storage specialists like NetApp continually try to innovate and acquire to keep themselves vital, while larger companies like Cisco and EMC try to diversify while maintaining market leadership. HP doesn’t need to try; it is diverse.

HP Is a Very Large Thing

I watched HP's rise in the server market of the 1990's

HP has long been synonymous with innovation, high-technology, and silicon Valley. I have been an HP customer as long as I have been in IT, and watched as they integrated technology from Apollo and Convex in the 1990’ s. The server products that resulted became the dominant UNIX platform, but HP’ s innovative storage concepts didn’ t take the market by storm.

After HP merged with Compaq (which brought Tandem and Digital Equipment Corporation), the company vaulted ahead in the Wintel market and also gained valuable storage expertise. Throughout the last decade, HP was firing on all cylinders and dominant in nearly every arena. The company owns half the blade server market, is tied for first in servers, leads in PCs and printers, and is a contender in networking and storage. It’s simply impossible to say what HP is in a single sentence.

HP storage has an extremely broad product range, which management is working to reconcile. Acquisitions of LeftHand, Ibrix, and 3PAR gave HP storage shot in the arm to be sure. An injection of startup mojo has energized the marketing and product groups within HP just when the company needed it. HP’ s market share has grown somewhat as a result, though not as much as the hyper-focused NetApp. HP networking similarly took on 3Com, bedeviling Cisco in the Ethernet switch market.

The Executive Soap Opera

It takes a lot to bring a mammoth to its knees, but a shot between the eyes usually does the trick. While the many engines of HP push it forward, the company’s upper management has seemed, at times, suicidal. Business schools could design an entire curriculum around the folly of Patricia “I spy” Dunn and Mark “penny-pinching” Hurd. Who would think that HP management could top this?

From August 2010 through September 2011, HP dominated IT headlines in completely the wrong way. The board wanted a change, and selected Léo Apotheker to transform HP. But it was a soap opera from the very start, with Oracle hiring Mark Hurd and sending Apotheker into hiding among accusations of corporate espionage while at SAP.

The new CEO didn’t seem to understand HP at all, though he was intent on steering it in a new direction. Apotheker set about dismantling HP’s consumer and end-user businesses, killing Palm/WebOS and threatening to sell off the PC business. The company was to focus instead on enterprise computing, but these drastic moves spooked the entire industry.

It wasn’t long before HP’s board struck again, with a shake up at the hands of Ray Lane and former eBay CEO Meg Whitman brought in to replace Apotheker. The first order of business for the new HP executive team appears to be reassuring the entire world that management has not gone completely insane.

Stephen’s Stance

To an outsider like me, the most disappointing thing about HP’s mighty stumble is that it has nothing to do with the people who really make the company what it is. I have met many creative, hard-working individuals in HP’s storage, server, networking, and printer groups, and they could not be more different from the executive soap opera. I only hope that this new board and CEO will bring some stability and let HP cruise forward once again.

Disclaimer: HP has sponsored the Tech Field Day events which I organize, and has on occasion invited me to attend events at their expense.  But I do similar work with nearly every company in the IT industry, and this piece is my own opinion.

© sfoskett for Stephen Foskett, Pack Rat, 2012. |
HP’s Mighty Stumble


This post was categorized as Computer History, Enterprise storage, Gestalt IT. Each of my categories has its own feed if you’d like to filter out or focus on posts like this.

© Stephen Foskett for Gestalt IT, 2012. | HP’s Mighty Stumble
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However, recently something shot across my bow that just blew my mind. This is the true future of computing and it is awe inspiring, sexy, and enough to send chills down your spine.

Historically, human vs. computer competitions have been restricted to Chess or Go matches. Limited possibilities for all parties. Decision tree algorithms can be used to narrow down the selection of moves to a win for the computer. Don’t get me wrong, DeepBlue versus Kasparov (http://www.research.ibm.com/deepblue/) was awesome. While I was not glued to the TV for that, the concept is amazing.

This time, IBM has stepped up the game and created their Watson (/DeepQA) supercomputer to compete against the 2 best Jeopardy players, Ken Jennings and Brad Rutter. Seriously, a computer against two amazing knowledge/trivia minds.

Watson embodies the latest in natural language processing and data retrieval technologies. Those crazy IBMers have developed an amazing set of massively complex algorithms that, effectively allow the Watson system to handle the various types of queries that are common from Jeopardy. Watson is able to learn about the reliability of certain algorithms in various scenarios and assign weights that determine which answer it believes is correct. Plus, Watson is in an isolated environment… so, no need to worry about it going all Skynet on us! The implication of the isolated environment is that the content needs to be brought to Watson and it is using a limited subset of what is potentially available on the Internet and other online sources.

One of the key concepts to understand about Jeopardy is that it does not just provide answers.  Rather, the answers are stated in multiple fashions. So:

• “William Shakespeare was known to perform his plays here.”
• “What is the Globe Theatre?”

Instead, the question could be asked:

• “Belmont, Pomfret Castle, and The Earle of Glouchester’s castle were all locations found performed in this theatre.”

Or:

• “This theatre was built in 1597-1598 in Bankside in Southwark, London.”

Plus, the category is commonly used as a clue to the answer: “R- You Serious” may imply that the correct answers begin with the letter “R”.

The coverage from Engadget (http://www.engadget.com/2011/01/13/ibms-watson-supercomputer-destroys-all-humans-in-jeopardy-pract/) is great and contains two amazing videos.

While this exhibition is going to be awesome, this is not just a publicity stunt for IBM. Natural language processing is a highly complex task that researchers are digging into. Think about all of the algorithms that exist to make Watson work. Yet, the Jeopardy contestants can answer questions quicker. As they improve the natural language functions of computing environments, the possibilities open up as to what can be processed, speed, and accuracy. Rather than approach Google with a logical list of search terms, you could ask your question the only way you know how and expect a heavily weighted answer that should be correct. Plus, translation services for international languages could be drastically improved and more accurate. The possibilities are endless. This should be appealing to more than just the computing nerds in the world.

I could get blissfully lost in trying to think about the complexity of such a system. Oh you crazy IBMers!

Check your TV listings for Jeopardy on Feb-14, 2011 and you can see some amazing processing for yourself.

Picture selection from:http://www.blogcdn.com/www.engadget.com/media/2011/01/watson-new-02-gal.jpg

Links:

• http://www.research.ibm.com/deepqa/deepqa.shtml
• http://www.research.ibm.com/deepblue
• http://www.watson.ibm.com/index.shtml
• http://www-03.ibm.com/innovation/us/watson/index.shtml

© Bill for Gestalt IT, 2011. | “Future Of Computing” For $1000, Alex.
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One of the amusing aspects of being self-employed is watching all the giants battle it out. Every company is gunning for someone, but the amazing thing is that they rarely point their sights directly at each other: NetApp is gunning for EMC who’s more focused on HP who wants to knock off Oracle who’s fixated on IBM. It sounds very “high school romance” but this is deadly-serious business.

The Enterprise IT Ladder: Dell, HP, Oracle, and IBM

Dell -> HP

No question about it: Dell wants to beat HP. It was bad enough back when PCs were king, with Dell constantly undercutting HP on price and supply chain efficiency. Dell went to retail, elbowing HP aside on the shelves at Staples, and even introduced a line of printers. But the enterprise data center has taken things to a whole new level. Dell’s plays in blade servers and storage are drawn from the same playbook, only there’s more in-house IP and R&D involved this time. Dell arguably got the iSCSI prize in EqualLogic but couldn’t seal the deal for 3PAR, settling on Compellent instead. They’re working hard in the professional services market; Could networking be next?

HP -> Oracle

For the longest time, HP wanted to be IBM. Then Oracle stomped on their servers with Sun and started flaunting their software-heavy profit margins. Appointing Leo Apothiker as CEO sends an unambiguous signal: HP’s gunning for Oracle. The printers, PC’s, servers, storage and networking gear isn’t going anywhere (HP’s got fights picked in each area), but software and services are the only way to make shares of HPQ perk up. Watch for some startling acquisitions and more bizarre rear-guard antics from Ellison and company.

Oracle -> IBM

Although Oracle is clearly enjoying poking sharp sticks in HP’s direction, they’re focused forward. Larry Ellison has seen the future, and it looks an awful lot like IBM: Massive services revenue, a “we do it all” executive sales pitch, and “hate to love us” handcuffs on the C-level executives at the largest global corporations. It’s worked so far: ORCL shares have risen steadily since the end of the last recession.

IBM -> IBM

IBM has seemed aimless for a decade. Armonk has won every enterprise IT war it’s fought, leaving it nowhere to turn. Spinning out the printer and PC businesses sent a signal that IBM was a different kind of company, and Wall Street is singing the chorus. In many ways, the middle-aged IBM of the 1980′s is the enemy of the new, with the company dreaming of a return to the “Mad Men” Big Blue of yore. Although this is much exactly what HP and Oracle are aiming for as well, IBM is the aloof valedictorian who just needs to keep his grades up until graduation.

Tag Team: EMC and Cisco -> HP

Cisco is like a mini IBM: All of their historical rivals are dead and buried, forcing them to look outside their traditional market for growth. Cisco seems loathe to climb the HP/Oracle/IBM ladder, seeking instead to take enough of their market to maintain solid revenue growth and profitability. Their blade servers smacked HP, which responded with a challenge in the networking space. Realizing they needed help, Cisco looked around for an “enemy of my enemy” to mount a serious IT infrastructure challenge.

What happens when you combine the market leaders in enterprise IT verticals like SAN storage, encryption and authentication, server virtualization, backup, and records management? You get EMC Corporation, the biggest company most “regular people” have never heard of. Something about “information.” Wall Street seems to have a hard time making sense of this company, too.

EMC seems overly concerned about smaller competitors (NetApp, Symantec, cloud providers), but the combination of EMC and Cisco is formidable indeed. The two and their joint venture, known as VCE, have the sales muscle to go head-to-head with Dell, HP, and IBM in the enterprise data center, and their control of key components make them a hard team to ignore.

The Wolves: NetApp and Juniper

NetApp -> EMC

Back in the 1980′s, Honda decimated the American carmakers with just a few models; They sold millions of Accords and Civics while GM watch whole brands disappear. That’s NetApp in the enterprise storage space. They pull in top-tier revenue quarter after quarter with essentially a single product line, taking on dozens of storage devices from HP, HDS, IBM, and EMC. Especially EMC. Talk to NetApp insiders and you’ll hear those three letters frequently, with precious little attention paid to anyone else. Data Domain might have made them a broader play, but NTAP shares have risen steadily since losing that takeover battle with EMC. Now NetApp is stripped down and running hard to close the revenue gap, too.

Juniper -> Cisco

Cisco is vulnerable in their core networking markets, and Juniper is ready to take them on. Since their $4 Billion acquisition of NetScreen in 2004, Juniper has been cherry-picking up-and-coming technologies in every market Cisco dominates, from the WAN to wireless. Though JNPR shares have taken their lumps, this is every bit a “Dell” to Cisco’s “HP”. The various networking sub-markets include many agile competitors, but Juniper is like NetApp: Insiders have a single-minded focus on the market leader.

Stephen’s Stance

The enterprise IT game is getting serious. Emerging from their historical strongholds, Dell, HP, and Oracle are each undermining the other, and everyone is chipping away at IBM. They each realize that they must focus upward for real growth rather than fighting a rear-guard against smaller and newer competitors. The challenge for HP and Oracle will be to expand rapidly enough to keep Wall Street from noticing the erosion from below.

Meanwhile, Cisco and EMC have joined forces out of necessity to grown both revenue and share price, while their own bases are chipped away by Juniper and NetApp. The upstarts can flourish within the verticals of networking and storage, but the VCE team is seems tenuous and uncertain. The joint venture can challenge the full-line players on a customer-by-customer basis, but history shows that only an integrated vendor can rock the enterprise IT world.

Although the information economy is growing, it will not be enough for everyone to survive. These competitors are too cut-throat to allow a smaller challenger to live, and each faces a real threat himself. The largest have a strong base to draw on, while the wolves will always find something to eat. It is those in the middle that face the most serious threat.

© Stephen Foskett for Gestalt IT, 2010. | Every Company Is Gunning For Someone Else
Read more posts categorized as All, Featured, Networking, Server Virtualization, Storage

Today, IBM alerted the world that they had not fallen asleep at the wheel by kicking out an awfully-impressive midrange storage array, the Storwize V7000. This seems like an excellent device, filled with proven engineering borrowed from the successful SAN Volume Controller (SVC) line of storage virtualization products. But closer examination (and IBM’s own Tony Pearson) reveal that it contains exactly nothing from their Storwize acquisition apart from the name.

SVC 6.1 + Disk Hardware = V7000

Let’s get one thing out of the way immediately: As I’ve said many times (including on stage at Storage Decisions last month), SVC is about the only IBM storage product I genuinely like. Its well-engineered, useful, and performs well. It’s just too bad its native habitat is a jungle of weird and expensive IBM gear.

SVC is really an enterprise storage array without any disks, just as HDS’ USP VSP is a storage virtualization engine with disks. It does all sorts of great things, from thin provisioning to replication to automatic tiered storage to painless migration (once you’re migrated to it, at least). Fibre Channel comes in, magic happens, and Fibre Channel comes out. And it runs on commodity servers, which surely gives IBM a healthy profit margin but doesn’t seem to translate into lower cost for customers.

Green = SVC 5; Pink = SVC 6.1. No Storwize.

The new Storwize V7000 is essentially the SVC software running on server hardware that includes both dual controllers and a bunch of internal hard disk drives. This can connect to up to nine “dumb” expansion storage enclosures. Hardware-wise, it’s very like the typical midrange modular storage systems sold by EMC (CLARiiON), HP (EVA), HDS (AMS), and NetApp.

Software-wise the V7000 is all SVC. Much of the software is directly derived from SVC 5.1 (green stuff in IBM’s diagram), while some new tech is mixed in, too. But pretty much everything (green, blue, pink) is shared with SVC 6.1 other than the hardware. It’s just incredible what advanced software running on commodity hardware can do, and IBM is right up there with folks like HP and EMC who are adopting this engineering model.

Where’s the Storwize?

Then there’s that name. This isn’t just the V7000, it’s the Storwize V7000. When I heard the name, I was expecting that it would include some data reduction/optimization/compression/whatever technology from Storwize, the company IBM acquired in July. This would match EMC’s acquisition of Data Domain, Dell’s buy of Ocarina, and HP’s rollout of their cool StorOnce software.

But there’s no Storwize in the V7000 apart from the name. This is a straight-ahead midrange storage system with no special bit-crunching powers apart from the thin provisioning already offered by SVC. I asked the IBM folks about this, and they confirmed that they needed a name and thought Storwize was fitting.

Right from the horse’s mouth. No Storwize software here (yet).

Stephen’s Stance

With everyone and their brother (well, EMC, HP, Dell, and NetApp) rolling out primary storage deduplication, I expect this situation will change. Perhaps “Storwize” will become the IBM equivalent of “StorageWorks” – sprayed across every product. Or maybe it will become IBM’s midrange brand. But sooner or later I expect IBM will include their compression technology, too (I dare not call it “data reduction” or face The Wrath of Tony).

So the Storwize V7000 is a really nice midrange product built on proven software and ought to compete nicely with EMC, HP, and HDS. It’s maybe even a little better than the competing modular storage products. My interest would be piqued, however, by news of a larger scale-out cluster of V7000 systems. The SVC can already scale out like this, with 4-pair I/O groups.

But even without compression and scale-out, I could see myself recommending the V7000 to midrange storage buyers. Good work, IBM! Now, let’s talk about the rest of your storage products…

V7000 Diagram courtesy of IBM

© Stephen Foskett for Gestalt IT, 2010. | IBM’s Storwize V7000: 100% SVC; 0% Storwize
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I believe that the v7000 will cause IBM some real problems around the XIV message; with the new GUI, the v7000 is pretty much as easy to manage as an XIV and realistically, that was XIV’s biggest selling point. The v7000 is more flexible, potentially more scalable and more performant that the XIV and I wonder how much of an influence that it’s development had on Moshe’s departure. I like to tease IBM that Barry Whyte is the new Moshe; he was brought up on the mean streets of Glasgow and no one crosses a WeeGie.

There are some features missing at launch which are interesting; the scalability for example seems to be being constrained for some reason. Certainly SVC can support an 8 node cluster at the moment and Barry has stated that there are no real issues going beyond this. So why doesn’t the v7000 not have clustering from day one? Perhaps to allow XIV some breathing space to get the long roadmapped clustering out of the door. A cluster-enabled 7000 would be a very interesting prospect and I wonder whether we’ll see a v9000 which offers clustering?

v7000′s integration with VMware does at first glance appear to be lacking; at the announcement, I don’t think VMware even got mentioned but v7000 shares all the current SVC/VMware integration points. However I do believe that IBM need to up their game on the VMware integration.

No compression or dedupe; this isn’t suprising really as IBM haven’t have StorWize for that long although it’s long enough to for StorWize to become the storage brand; certainly in the mid-range space. But I’d expect to see announcements around compression and dedupe in the next twelve months, I think IBM will motor on that one with their big focus on Storage Efficiency, it’s really obvious that they intend to do so. I’m pretty sure I saw Steve Kenniston sitting in the audience at the v7000 launch, I’d expect him to be on stage next time.

There’s a few really nice little touches which show that IBM are listening to customers and understand some of the day-to-day pain of the Storage Admin; for example, the v7000 comes with a USB key which can be plugged into a PC and all the initial configuration can be built there without the need for a serial cable. Once you have finished the configuration; plug the key into the v7000 and it’ll configure itself. So many laptops these days don’t come with serial ports, this shows some real thought on IBM’s part.

SONAS integration; will we see a unified interface from IBM to enable SONAS, SVC and the v7000 to all be managed from a common simple GUI? I know NetApp will jump up and down if anyone was to call that Unified Storage but I can see IBM doing something like that. There’s probably little reason why SONAS and SVC cannot co-exist on the same physical hardware. SONAS will certainly get Storwize integrated; I’d expect a rapid rebrand of the SONAS product to bring it in line with the Storwize branding.

OEM relationships with LSI, NetApp and DDN are probably going to become less crucial to IBM; IBM will have control of their own storage destiny again and I fully expect the number of OEMed products to reduce with the LSI relationship probably the first under serious pressure.

And IBM do amuse me; if EMC or NetApp had launched the v7000; there would have been fireworks, orchestras and ticker-tape parades; we would have had a teaser campaign and the whole works. This was all rather understated, there were bold statements made but there wasn’t the chest-thumping that we have come to expect from storage announcements.

© Martin for Gestalt IT, 2010. | Wize Up
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Larry Ellison is on a tear at Oracle. Who will he buy next?

Oracle has its sights set very high. Although the company is best-known for its namesake database software, a steady string of acquisitions has transformed the company (and its colorful leader, Larry Ellison) into an industry powerhouse. Much speculation revolves around Oracle’s next move, and a surprising meme is developing, suggesting that the company is looking at making another massive purchase. Could HP or NetApp follow Sun into the hands of Oracle?

Basic Facts

Companies typically combine with each other in one of three ways:

1. A straight purchase, using cash to buy up all of the shares in a public or private company. The acquiring company is in command here, offering a price per share fixed well above the current market rate. Purchases can be friendly or hostile, and bidding wars can break out if a rival wants to challenge the buyer (or push the price up). Companies sometimes lack enough cash on hand and will finance a portion of the purchase from an investment bank or by using bonds.
2. A stock swap sees the buyer trade their own shares (or those of a new company to be created) for those of the purchased company. This is advantageous if the buyer lacks enough cash to make the deal happen and can even see odd small-for-large acquisitions. But stock-based acquisitions are risky, since the value for stockholders varies continually right up until the deal closes and a slide in price can tank the deal entirely.
3. A combination cash and stock deal, where shareholders get both cash and shares in the new company in exchange for their shares. This is less risky for shareholders than a stock swap, but less attractive than a straight purchase, since the final price can vary based on the value of the stock included in the deal.

Like any company, Oracle can use any of these mechanisms to acquire other companies. They paid about $7.4 billion to purchase Sun and paid $10.3 billion for PeopleSoft, among their many acquisitions. Since both were all-cash deals, one can presume that Oracle prefers this over a stock swap or merger.

Oracle currently has $23.6 billion in cash and short-term investments and quarterly gross profits of around $5 billion. ORCL stock is currently priced at $27.42 per share for a market capitalization of $137.79 billion. Oracle could easily spend up to $20 billion on an acquisition, and could potentially engineer a much-larger deal by borrowing tens of billions more or using their stock.

The purchase of Sun gave Oracle all the server hardware expertise it needs, but it is lacking in storage and networking, two of the highest-margin areas of datacenter hardware. It would not be at all surprising to see Oracle invest in these areas.

You would probably also like to read my other articles in this subject area:

• The Enterprise IT Acquisition Game
• Meet the Enterprise IT Superpowers
• Everyone Loves 3Par – Here’s Why!

The Case for HP

Larry Ellison has been clear that his target is to unseat IBM as the preeminent enterprise IT superpower. Although HP is on the rise, Oracle as a traditional software vendor seems more fixated on the full-line services/software/hardware market at IBM. Oracle scooped up ousted HP CEO Mark Hurd last month, and the two companies appear to have buried the hatchet over the resulting spat extremely quickly. They appeared friendly and supportive at Oracle Open World as well.

HP’s annual revenue of $110-120 billion dwarfs Oracle’s $26 billion number, but their annual gross profits ($26 billion and $21 billion for HP and Oracle, respectively) are comparable. This reflects the differing profit margin of hardware and software. For comparison, IBM’s gross annual revenue is just under $100 billion but their $43 billion annual revenue must have Ellison drooling with envy. Assuming no overlap, integration difficulties, or customer defections, a combined Oracle/HP would instantly be dominant in terms of both revenue and profit. But that’s not a likely outcome, at least initially.

An Oracle and HP combination would certainly create an earthquake in the IT market, but the massive overlap between the two raises difficult questions about the role of Sun’s hardware assets. HP competes or leads just about everywhere Oracle/Sun sells hardware. On the other hand, Oracle is making the most of Sun’s software assets (Java, Solaris, virtualization and cloud technology, and even ZFS). Perhaps the deal makes sense even if Sun’s servers and SPARC technology is jettisoned.

But could Oracle pull off a deal like this? HP’s market cap is over $90 billion and Oracle could never raise the $100 billion in cash they would need for a straight acquisition. The two companies would have to merge, and Ellison’s control of the combined company would thus be greatly diluted. He currently holds 1.2 billion ORCL shares, or just over 27% of the company. An HP deal would put Ellison at the helm of the biggest ship at sea, but he would have to share command with many others.

The Case for NetApp

Although Oracle just introduced some impressive Sun ZFS-based storage devices, the company isn’t even a blip on the enterprise storage radar. The entire external disk storage market is only worth $20 billion according to IDC, but is attractive for margins higher than other hardware areas as well as its strategic value as a part of the enterprise IT stack. Therefore, a storage acquisition makes a great deal of sense for Oracle.

Larry Ellison is a major investor in storage startup Pillar Data, and this little company has some impressive technology, but an acquisition there is not the slam dunk many claim. Building Pillar into a force into the enterprise storage market will take effort and time, and that acquisition would be imperceptible on either side of Oracle’s balance sheet.

“Moving the needle” for Oracle would take a much-larger purchase. NetApp is the perennial top-five enterprise storage company, bringing in nearly $4 billion in revenue and $2.5 billion in gross profit annually. They have a wide range of SAN, NAS, and backup technology as well as software, services, and solid sales presence. An Oracle/NetApp combination would have little Sun overlap and would place the company in a duel with IBM for the number-two spot in external storage sales.

NetApp’s current market cap of $17 billion makes the acquisition financially practical for Oracle as well. They could offer a 20% premium right off the bat and could prevail in the resulting bidding war with IBM without resorting to trading shares for the company. They would even have enough left over to consider buying Symantec or Juniper Networks in another year!

Stephen’s Stance

An Oracle acquisition of NetApp makes so much sense, I’m surprised it hasn’t happened already. Combine very little product overlap, a “doable” price, and a poke-in-the-eye for IBM and you have a winner for Larry Ellison. No other available company offers the solid enterprise storage portfolio and sales of NetApp, and few other companies could make the purchase. The recent NetApp/Oracle ZFS settlement makes it look like something could already be in the works. Unless Oracle really is content to stand pat with Sun’s ZFS storage systems, I expect a NetApp deal within a year.

A combination of Oracle and HP is much harder to swallow. Although it would deliver an un-matched smack to the head for IBM, I just can’t see how it comes together. Larry Ellison isn’t about to give up control of his company, and Oracle is nowhere near having the cash to make it happen. I call HP/Oracle a pipe dream.

Image credit: Oracle_Photos_Screenshots

© Stephen Foskett for Gestalt IT, 2010. | Could Oracle’s Next Acquisition Be HP or NetApp?
Read more posts categorized as Featured, Storage

The players are lining up for the biggest acquisition game enterprise IT has witnessed in a while

Today is the (a?) day of reckoning in the 3Par saga, with Dell widely expected to make a counter-offer higher than HP’s bid. But this mega deal, like the Data Domain war before it, sends a strong signal to the enterprise IT world: It’s open season on data storage companies! But the rising superpowers are also likely looking at networking as an area of expansion. The game is afoot!

The Competitors

The simple fact is, enterprise IT prefers to buy from large, established names like HP and IBM rather than smaller and less-familiar companies with names like Ocarina, EqualLogic, or even 3Par. The acceleration of sales by enterprise providers is what makes these big acquisitions so successful and why others involving less-powerful players often fail to deliver the same results.

Full-line “superpowers” like IBM, HP and now Dell and the new Oracle can influence purchasing decisions across a broad spectrum of hardware and software. Many large organizations are tightly coupled to one of these vendors, and will give their products stronger consideration even when they are new or unfamiliar. HP is already flexing their muscle selling their broadened network lineup, and Dell found that it could do this in data storage.

Software vendors like Microsoft, Citrix, and Oracle adamantly maintained a neutral stance toward hardware, but Ellison and company seem serious about changing this. Oracle’s success in selling Sun hardware will likely dictate further software acquisitions for Dell and HP, though IBM already has strength there. Then there is Intel, the wild card who just got wilder with their acquisition of McAfee.

Companies with narrower focus like Cisco, EMC, NetApp, Juniper, and Brocade have the same power within their sphere of influence but cannot pull in wholly-distinct products. Cisco is in the midst of this fight with their technically-excellent UCS blade servers: Although they were certainly a strategic CIO-level vendor in the largest organizations, “blades from a networking company” isn’t the as easy a decision as “networking gear from a full-line company.”

The Game

Then one must consider the market in contention. The enterprise IT space is not expanding, especially in the United States. This is very close to a zero-sum game, with Oracle’s or Dell’s wins being HP’s or IBM’s losses and vice-versa. There is massive money in play, and flexibility enough for it to swing between the competitors, but growth is not unlimited.

Enterprise storage and data center and campus networking are two areas where smaller companies retain enviably-large slices of the pie, explaining the interest in these spaces among the superpowers. These verticals still have room for sales to grow without displacing a fierce full-line foe, and the superpowers have lately been weak here. Storage and networking are enticing opportunities, but each slice is similarly dominated by “vertical superpowers” and partners EMC and Cisco.

So this is the game: Four full-line enterprise superpowers battling each other for datacenter dominance and coveting the extra profits of a few verticals. HP clearly believes they can chip away at EMC and Cisco in storage and networking; Dell and IBM have so far focused mainly on storage; and Oracle hasn’t made a move in either direction, instead challenging the other three in the core server and software space.

Pawns or Knights?

So where does this leave the smaller players? Are they merely pawns in the game, waiting to be sacrificed, or are they knights who can wield power across the field? The largest (Cisco and EMC especially) appear to have ambitions of their own as well as the financial and technical strength to shake up the game. They are unlikely to be acquired by the superpowers. Brocade, too, has broad strength in storage and networking but maintains relationships across the board that make an acquisition difficult.

Strong vertical players like Juniper, NetApp, Riverbed, and Compellent are ripe for acquisition, as were Foundry, 3Com, Data Domain, and 3Par. IBM, Dell, and Oracle are all likely buyers of the networking players, though HP may consider filling in where 3Com was found lacking. All four will likely take a strong look at the remaining storage players as well, with the loser in the battle for 3Par likely to be hungry indeed.

One should also consider the potential impact of smaller acquisitions. Although they would not immediately “move the needle” for a massive superpower, there are many excellent technology companies that could be bought low and pushed strongly. The enterprise-class technology at Sepaton, Pillar Data, Xiotech, BlueArc, Extreme Networks, Force10, Blue Coat, Isilon, CommVault, FalconStor, and many others should not be overlooked. If a superpower can drive a larger acquisition to succeed, imagine what they can do with strong but inexpensive technology from one of these!

Stephen’s Stance

This game is nowhere near finished. The 3Par acquisition will not only generate revenue, it will shake up the ranking of data storage array dominance. This is very likely to kick off additional acquisition in the data storage space, spurring either Dell or HP to pick up additional technology and perhaps causing IBM or Oracle to engage as well. With no easy alternatives to 3Par, I expect Compellent, Xiotech, and Pillar to get closer looks, but Sepaton and BlueArc are just as ripe. NetApp may be too expensive at this point, but would be a nice match for Oracle’s strategy.

HP’s acquisition of 3Com could also signal a race to integrate datacenter and campus networking technology into the stack. Many are suggesting a Brocade acquisition, and it would be much cheaper than Juniper, but OEM ties make it a difficult purchase for any of the superpowers. Extreme and Force10 would be excellent and less-expensive alternatives.

We should also keep our eyes outside the superpower space. Intel showed that they can make big moves, and Microsoft might consider a diversification into hardware as well. One should also look to the East, where Huawei could try to enter the Western market with a merger or joint-venture to cast off the China stigma. Although I would love to see a rebel alliance rise (imagine Juniper, NetApp, and Symantec joining forces!) this is not a likely scenario.

Image credit: Chess Board by mosdave

© Stephen Foskett for Gestalt IT, 2010. | The Enterprise IT Acquisition Game
Read more posts categorized as Featured, Networking, Storage

This may seem like a bold statement to make, however we need to look forward to where the industry is headed.  First of all, vendors want us to buy their unified hardware stacks; it represents that move back to a consolidated architecture that kept one vendor dominant in the mainframe days – IBM.  “No-one gets fired for buying IBM” the saying goes (or used to go), demonstrating how IBM was seen as the data centre supplier for all things computing in the 70’s and 80’s.  Of course we know that politics within organisations and the cost of IBM hardware eventually broke the monopoly, but the status quo worked well for many companies for many years.

Now, Cisco, EMC, VMware, HP, Oracle and potentially many others want to own your data centre.  They want you bought into their computing stack.  Over time, I suspect many of those same companies want to move you to their cloud infrastructure offerings, even if they don’t offer them today.  This will be both directly and indirectly.  There will be the direct model, where the vendor offers cloud services to you under their name; there will be the indirect model where their technology powers the cloud provider, or is offered as a service.  It’s at this point the 3Par acquisition becomes much more interesting.

3Par already have many customers in the cloud services sector.  In fact they sell their hardware on the virtues of multi-tenancy, reduced cost through thin provisioning, tight integration with virtual hypervisors and so on.  In this growth sector of the industry, cost is a key driver and no end user or company will pay more than they need for storage.  This means Enterprise arrays like those from Hitachi and EMC won’t play a central role in this future, but rather storage devices which provide the highest efficiency will.  Where do all the major players stand?

• EMC have entered the market with a brand new platform – Atmos.  Although withdrawn as a direct service, Atmos continues to be available from partners.  EMC have chosen to use their own technology as the foundation for cloud.  In addition, VPLEX provides the ability to virtualise the storage layer, including federation features that fit well with VMware.
• HP have a strong blade server offering for their cloud infrastructure.  Matrix provides orchestration for the server, network and some parts of the storage layer, however this work is incomplete and doesn’t fit well with the high end XP arrays.  Slotting 3Par into the storage layer would provide a storage platform well suited to HPs unified computing infrastructure.  It means EVA can be quietly dropped and XP can be retained (in whatever future guise) for high end customers (including mainframe) and if required, gradually dropped.
• Cisco have chosen to partner with EMC rather than acquire storage technology itself.  In fact, looking and both EMC and Cisco, they need each other; EMC have no server platform, Cisco have no storage; it’s a mutually beneficial arrangement, a bit like Jack Sprat and his wife.  At this stage, Cisco could have purchased 3Par and provided and end-to-end solution, but clearly that would be a big step and would require kicking EMC to the kerb, something they obviously don’t want to do (yet).
• Hitachi have server and storage offerings, however Blade Symphony is mainly sold in domestic Japan and not widely advertised globally.  They do have the potential to provide an end-to-end offering as Hitachi also sell networking equipment.  Key for Hitachi will be credibility in a market they don’t currently play in.
• IBM should have all the components of a consolidated infrastructure but there doesn’t appear to be a lot of discussion about their offerings.  They appear to have two strategies – Dynamic Infrastructure and Cloud Computing but their offerings aren’t clear.
• Dell clearly wanted 3Par to fit into their medium to high-end storage offerings.  Today Equallogic has successfully met their SMB requirements, but they OEM technology from EMC (CLARiiON and Symmetrix) for the rest.  Acquiring 3Par would remove that dependency and allow Dell to offer end-to-end technology as their own products.
• Netapp have a self-proclaimed unified architecture that does fit well with virtualisation from VMware.  However they don’t own any other parts of the technology stack and so must partner to deliver unified offerings.  Netapp are covering all bases by offering solutions with VMware, Microsoft and Citrix, but none of these could be described as the unified stack other vendors have.
• Oracle already provide an integrated infrastructure based around their Exadata acquisitions and of course all of the Sun Microsystems technology, however I’m not sure many companies would see the Oracle offerings as other than tied directly to their database platform and not for virtualisation.

Overall, 3Par fit the requirements of HP & Dell to provide integrated technology offerings.  The move to the cloud will require leaner and efficient storage products, plus tight integration and orchestration.  It’s all about positioning today for bigger returns tomorrow.

© Chris for Gestalt IT, 2010. | 3Par Acquisition: The Future For The Storage Industry
Read more posts categorized as Featured, Server Virtualization, Storage

Who will power the enterprise? The smart money is betting on a few superpowers taking over.

After years spent focusing on personal technology, businesses are increasingly turning back to the enterprise. There are many reasons for this, but the biggest one is the poor economy. Individuals simply have less free cash to spend on gadgets and software, and the meagre profits are increasingly going into the pockets of a single company: Apple.

The corporate IT market is much more dynamic and competitive, with a few very large “superpower” companies discovering their power to drive purchasing decisions. If a supplier can create an integrated “stack” of hardware and software, they can push product purchases that might otherwise be overlooked or postponed. This is the main reason that enterprise IT acquisitions work so well: Where a small company must fight to sell their product, a large one can hitch it to a much more strategic sale and have it pulled along.

The old IBM model is the prototype, with that company once selling everything from office equipment to datacenter gear as well as the consulting and integration services to make it all work.

HP has spent almost two decades bulking up to become the new IBM, buying their way into open systems laptops, desktops, and servers (Compaq), networking (3Com), services (EDS), and storage (Compaq, LeftHand, Ibrix, and perhaps 3Par). HP has been remarkably proficient at executing on this enterprise plan: In talking to enterprise IT folks, I often hear IBM-esque sentiments regarding the new HP. They tell me they’re willing to give HP the benefit of the doubt when it comes to new technologies and products, buying on basis of the company’s reputation and ability to make everything work. This bodes well for the company’s post-Hurd future, and HP has the most-complete “enterprise stack” in the business.

But HP has a target on its back, pinned there by Dell. The folks from Round Rock believe they can be more efficient (and thus profitable) than HP in the same markets, and have been making moves to fortify their enterprise offerings. Dell was always more of a manufacturing than R&D business, but they have shown a desire to broaden their focus. Intrigued by the high-margin mid-enterprise storage business built from their EqualLogic acquisition and their success selling EMC storage, Dell is moving into the enterprise. They matched HP/EDS by purchasing Perot and have made smaller buys in storage (Ocarina, Exanet) as well as the big move for 3Par.

The next big emerging stack player is Oracle. The acquisition of Sun gave Oracle a strong hardware base to complement their command of enterprise software, and many expect further acquisitions. But Oracle is playing a different game than HP and Dell, focusing on the high-margin enterprise space and ignoring more competitive outlying areas. Many suspect the company might make a play in the network space (Brocade, Juniper, and F5 have been mentioned) but storage is possible as well. CEO Larry Ellison is a major investor in Pillar Data Systems, so many expect a spin-in here. But Oracle has the appetite for something much bigger, even EMC or NetApp.

Then there is Cisco, who have attempted to parlay their data center networking strength into a broader position. But Cisco’s halting moves into storage (Fibre Channel switching and SAN extension) did not displace the market leaders, and their server products (UCS) have not made much of a dent on HP, IBM, and Dell either. A solid partnership with EMC has delayed further forays into the enterprise storage market, and Cisco seems puzzlingly interested in low-margin access businesses (Linksys, Flip) and their Cius tablet.

There are other players in the enterprise space as well. EMC has diversified under CEO Joe Tucci, taking a dominant position in server virtualization (VMware) and making a strong enterprise security acquisition (RSA). But the many faces of enterprise storage remains EMC’s strength, and they seem content to partner with Cisco for a stack sale. Hitachi, NEC, and Fujitsu also offer varying enterprise hardware and software stacks, but their comparatively small sales presence in the US market limits their ability to execute. In the final analysis, only IBM, HP, Dell, and perhaps Oracle can claim to be enterprise IT superpowers at this point.

Image credit: Steam Engine by Stuck in Customs

© Stephen Foskett for Gestalt IT, 2010. | Meet the Enterprise IT Superpowers
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But there’s an amazing short-term win to be had for whoever acquires 3Par. According to IDC, the race for number two in external disk storage system sales is a bitter fight. IBM, NetApp, HP, and Dell are all within striking distance of each other, pulling in between $500 and $579 million dollars while big daddy EMC makes more than any two of them. The battle between HP and Dell in storage arrays is a dead heat, with just $6 million separating the two.

The 3Par acquisition creates a massive market-share shift!

It’s no wonder HP and Dell are fighting over 3Par! That acquisition is good for an easy $50 million in quarterly revenue, and a strong sales push could make this $60 million. This extra revenue cements the buyer ahead of his rival and makes him a challenger to IBM and NetApp. It wouldn’t be all that surprising to see the winner vault into the number 2 spot within a year.

This is a huge win for HP or Dell and a serious egg-on-the-face moment for NetApp, IBM and the loser. Sure, $1.7 billion is a lot to pay for $250 million in revenue, but the winner gets immediate bragging rights and a serious prospect of breaking free of the second-place pack. 3Par’s technology is unique in being a real tier-1 threat. This was an issue for the company as a startup, but becomes a serious asset in the hands of HP or Dell (or, dare I suggest, Oracle or NetApp). A well-executed transition and sales execution will cement HP or Dell as the most-credible competitor to EMC within a few years.

Stephen’s Stance

The 3Par acquisition makes so much sense, one wonders why it didn’t happen sooner. Dell clearly sees this as a higher-end repeat of their success with EqualLogic and gives them a chance to earn some additional enterprise credibility. An HP acquisition makes just as much sense, giving them fresh SAN technology and letting them pull ahead of Dell once again. A big deal like this also gives HP’s Dave Donatelli some internal clout in the aftermath of the Hurd fiasco. I expect a counter-offer or two before this is done, but 3Par remains attractive at even a billion more.

Will anyone else join the fray? IBM seems happy with XIV, though the market doesn’t see that product as tier-1. I expect them to stand pat. Oracle should jump in, given the souring of their Sun-era Hitachi OEM deal. Passing on 3Par leaves them with no enterprise SAN chair when the music stops, but they might not feel that they need this kind of hardware. Cisco could use the 3Par technology to reject EMC, but they might not be ready for that move. Another idea is perennial second-place storage company NetApp, who might be able to afford to play this game and could really use a new product line.

What’s left for the loser? Not much. There isn’t another startup with credible tier-1 SAN intentions. Compellent is a great alternative in the midrange SAN market, and Xiotech has great SAN technology here, too. Everyone assumes Oracle will pick up Pillar, and then there’s BlueArc and Isilon waiting in the NAS space. But none of these are a slam-dunk in terms of market share, and the value question looms large when it comes to any high-P/E acquisition. Expect more acquisitions in the coming quarters, but the 3Par game looks like a highlight.

© Stephen Foskett for Gestalt IT, 2010. | Everyone Loves 3Par – Here’s Why!
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