HP Bombshell Has Big Data Written All Over It
Analysis: Effectively, HP has traded one thing it was very, very good at (personal computers) and another thing it was a new at (smartphones and tablets) for a software company that knows how to handle Big Data in an enterprise.
If anybody had any previous doubts about the long-term effect so-called Big Data now has on the IT business, they ought to be dispelled right now. Big Data is what Hewlett-Packard's huge Aug. 18 disruption is all about.
Effectively, HP has traded something it was very, very good at (designing, building and selling personal computers) and another thing it was new at (smartphones and tablets) for a software company (Autonomy) that knows how to handle Big Data in an enterprise.
Autonomy knows how to store data, archive it, access it, find it, analyze it, report on it and return it to where it should be kept for all eternity. A big bonus is that it plugs right into cloud systems.
HP can do most of this now, but not in a form that can be distributed natively by a cloud system. That's essentially what this acquisition-- which is going to cost HP a cool $11 billion -- is all about.
Big Data is all about the volume, velocity, variety and value of large data sets that are pouring into enterprise data centers. Overburdened IT systems are having increasing difficulty handling and analyzing these workloads. This is where the future of IT is going, and this is where HP is investing its time, energy and capital.
Change Has Been in the Works for Awhile
HP obviously has been looking at making serious changes for at least a year, following some bad corporate decisions in the last decade that included the $25 billion purchase of a computer hardware company (Compaq) in 2002 and the $1 billion buy of a struggling mobile device hardware and software company (Palm) in 2010.
The company's Q3 2011 quarterly earning report on Aug. 18 even showed the company actually posting a slight revenue downturn. Last February, the stock price was riding at $48.99; in May it slipped to $39.25. On Aug. 19, HP's stock had crashed all the way to $23.50, down 20 percent on the day alone.
These had to be the last straws for the HP board -- especially when they see competitors such as Oracle and EMC posting double-digit profits each quarter.
The question now at hand is this: Can CEO Leo Apotheker, the chief agent of change at the 72-year-old company, transform a hardware company banking heavily on one new acquisition into something akin to IBM, with software and services comprising a much higher percentage of the business?
Wall Street certainly has its opinions. What analyst Scott Kessler of Standard & Poor told Bloomberg News in a video interview Aug. 19 seemed to capsulize what other industry analysts are thinking and reporting.
"It's entirely possible but it's going to be an uphill challenge to say the least," Kessler said. "In one year at HP, we've seen the acquisition of Palm (for $1.2B); we've seen disappointment after disappointment from an earnings perspective; we've seen other acquisitions, and now we've seen this bombshell, where the company is completely changing its business focus, making multiple changes at once. Questions have to be answered at this point."
Is this more of an indictment of Mark Hurd, who's now at Oracle but had been CEO for the previous five years?
"To some extent, it is," Kessler said. "We wonder if this is the right time and right series of actions to take for the company. It's going to be very difficult, we think, to sell the PC business. One wonders now if it made sense to buy Palm, and going forward, can they really be a player in software on a global scale."
On pulling out of smartphones and tablets, the two fastest-growing device segments in the world, Kessler said: "They are saying, 'We do not want to be in that business. We don't think we can do well in that business and we're allocating our capital elsewhere.' They're looking at the enterprise for opportunities, not necessarily those more consumer-oriented areas."
Can Autonomy Be the Answer?
HP surely hopes so. The move to add Autonomy, which first made its reputation as being a very good e-discovery software platform for lawyers and court administrators, is a clear indicator where HP intends to go in the future. It is now a globally diversified, sales-driven company bent on acquisitions, just like HP.
The 15-year-old firm was founded as a result of research and development at Cambridge University and co-founded by CEO Dr. Mike Lynch. It is a fast-growing, multifaceted IT company that put itself on the global storage map by acquiring Iron Mountain's digital archiving, e-discovery and online backup business for $380 million in cash in May 2011.
The move propelled Autonomy, which mostly has been known within the business and legal communities for its widely deployed and respected analytics and e-discovery systems, into the mix as one of the world's top 10 data-protection providers.
Autonomy has been quietly gathering the pieces it needs to become a big-time digital content handler. In 2005 Autonomy acquired Verity, one of its main competitors, for approximately $500 million. In July 2007 it acquired Zantaz, an email archiving and litigation support company, for $375 million.
It bought Web content management provider Interwoven, a niche provider of enterprise content management software, for $775 million in 2009. In June 2010, the company acquired the information governance business of CA Technologies; terms of that sale were not disclosed.
Autonomy, with a market cap of $7 billion, is the second-largest pure software company in Europe (behind Germany's SAP) and has offices worldwide. Its customers include T-Mobile, Exxon, Toyota, Nestle, McGraw-Hill, General Motors, Federal Express, Sony, Kaiser Permanente, the U.S. Department of Defense, and a number of other Fortune 1000 enterprises.
Complements Previous HP Acquisitions
"If the rumors are true [about Autonomy], then HP stands to add a substantial software company to complement Vertica and 3PAR, for instance," Charles King, primary analyst at Pund-IT, told eWEEK. "Really interesting company. They can provide the search analytics at the big data-type software layer that HP lacks right now."
Integrating the Autonomy product set into HP will be a challenge, according to Enterprise Strategy Group e-discovery analyst Katey Wood.
"On the product side, it will mean some serious portfolio rationalization," Wood wrote in her blog. "In archiving, Autonomy possesses its Zantaz archiving line, including Digital Safe, the acquired Information Governance assets of CA, and now Mimosa following the recent acquisition of Iron Mountain's digital assets, while HP has its own Integrated Archiving Platform. In records management, HP has TRIM, where Autonomy has Meridio and iManage content management from its acquisition of Interwoven.
"But like the Brady Bunch, this group must somehow form a family. ... Hold onto your e-discovery hats!"
The next several months may prove to be some of the most critical in the history of a venerable and highly respected company.