What is Happening?
On October 20th IBM announced its 3Q2014 earnings, which were down 4 percent year-over-year and missed analyst consensus EPS by a sizable margin. This is the 10th consecutive quarter of declining earnings at IBM. Not surprisingly, the NYSE reacted quickly to the news of another IBM revenue and profit decline. Most financial and industry analysts focused on the details of the earnings and opined that IBM has been woefully slow to capitalize on the growing popularity of Cloud computing, which is gaining traction across both software and infrastructure IT spending.
More importantly, Saugatuck sees IBM’s earnings announcement as representative of the challenges all traditional IT providers are facing. Unique to IBM, however, was the announcement that IBM would back down from the RoadMap 2015 EPS plan put in place by former CEO Sam Palmisano – which has caused a broad array of financial engineering as the firm has attempted to meet its very aggressive targets, including significant share buybacks.
What the announcement indicated or stated:
- This earnings announcement was no doubt significant as evidenced by the fact that Ginni Rometty, Chairman, President, and CEO, personally participated in the announcement. This was a first for an IBM CEO.
- On the earnings call, and in a subsequent CNBC interview, Rometty emphasized that the shortfall was due to an execution failure in the month of September. She reiterated that the core business was solid, in her opinion.
- At the same time, IBM re-emphasized its commitment to its strategic growth areas of Cloud, analytics, and Watson, and announced that to help focus its efforts it will create a new Cloud division – and will trim staff (eliminate layers of middle management) as it focuses resources on growth areas, and moves to become more agile in response to changing customer requirements.
It’s no secret that IBM’s financial performance has disappointed investors and company leadership. We see part, if not much, of the blame being placed on a perception that IBM has been late in, or unable to, transition to being a Cloud-first provider of IT.
A new Strategic Perspective research note for Saugatuck subscription research clients examines this perception through the lens of the recent IBM-SAP HANA deal, providing insight into how both firms have been reinventing and repositioning themselves to be very competitive with Cloud-based business IT offerings. For example: Continue reading
A recent IBM briefing for Saugatuck helped to clarify the breadth and depth of IBM’s Cloud / SaaS portfolio, business strategy, approach, and results. We came away with two key net takeaways:
I. IBM certainly has a broad, deep, useful, and valuable SaaS portfolio. Almost quietly, it’s long-standing positioning as a provider of software, but not applications, has shifted. Mostly through SaaS acquisitions, IBM today is a very significant and competitive business applications provider. One big example: the $1.3 billion acquisition of HCM / Talent Management SaaS provider Kenexa in 2012 (see Forbes article).
According to our recent briefing, IBM’s SaaS portfolio now includes over 120 busienss applications – across a range of functional roles (e.g., customer service, finance, human resources, marketing, procurement, sales) and solution categories (e.g., advanced analytics, BPaaS, Smarter Cities, Watson). By our estimates, IBM is already realizing more than $1B in annual revenues from this portfolio, and we expect Big Blue to at least double their current SaaS revenues within the next 18 months as this portfolio continues to grow (by acquisition and internal development) reach 150-200 by YE2015.
II. But given the acquired nature of much of that portfolio, IBM still faces substantial needs for, and challenges in, organization, coordination, integration, and go-to-market approaches for the assembled Continue reading
What is Happening?
Recently several large infrastructure providers have announced acquisitions or strategic directions. Saugatuck perceives these announcements from two perspectives: they underscore the commitment of multiple large vendors to OpenStack; and they suggest a question about the functionality and/or the maturity of OpenStack. The announcements that Saugatuck views as significant are:
- HP Buys Eucalyptus. On September 11, 2014, HP announced that they would be acquiring long-time AWS emulator Eucalyptus. Marten Mickos, CEO of Eucalyptus and long an OpenStack holdout will now be HP’s SVP of their Cloud division. Eucalyptus’ expertise with AWS APIs makes them especially attractive to HP’s Cloud efforts as it will likely bring HP the ability to offer AWS compatible, OpenStack based Cloud which could be a boon, as usage of hybrid Cloud environments increases. However, Saugatuck also sees this acquisition as suggesting that OpenStack is lacking in a key area – which can be solved using selected functionality from Eucalyptus. Saugatuck’s assessment is that area is most likely in accurately billing for high volumes of provisioning changes that occur in a Cloud supporting numerous users.
- Rackspace remains an independent company. Rackspace, one of the early adopters and main contributors to OpenStack, has been looking for a buyer for quite some time, but gave up on that vision this week with the promise to become the top player in the “Managed Cloud” space. Though Rackspace continues to be an OpenStack shop, they have recently changed their positioning – reflecting a service and support focused strategy, rather than try to compete with the hyper-scale commodity vendors like AWS, Google, and Microsoft Azure. It is likely that they will face competition in the enterprise OpenStack space from HP and IBM, both companies with significant professional services and hosting experience.
- Cisco buys Metacloud. Cisco acquired private-cloud enabled Metacloud to help flesh out their complete Intercloud offering, which depends on interoperability with multiple vendors, based on an OpenStack backbone. Cisco has been a long-time contributor to OpenStack and was a founding member of the OpenStack Foundation in 2012.
- Canonical and AMD create “OpenStack in a Rack.” Canonical, the maker of Ubuntu (the most popular OS on OpenStack) and chip maker AMD have teamed up to create a pre-built OpenStack Cloud in a rack. The cloud, already completely operational is targeted at those who want to deploy an OpenStack private Cloud without the significant effort required to order and install and integrate the components.
I am pleased to announce some of the details surrounding our fourth annual Cloud Business Summit, which will be held November 12, 2014 at The Yale Club in New York City.
Our conference theme this year is “Innovation, Opportunity, Risk and Reward,” with the event focusing on the journey that large enterprise CIOs, CTOs, and senior marketing and finance executives are on as they optimize their Cloud investments, and begin to remake their companies as Digital Businesses. For a short overview of the event, go to: http://cloudbusinesssummit.com/about-the-event.html.
We’ve moved the Summit to a new venue this year. The Yale Club of New York has a spectacular Grand Ballroom that we will be using, along with its elegant Rooftop Dining Room. Both will provide an optimal setting for the peer-level learning and interaction that are hallmarks of our events, fostering an intimate, C-level setting.
Our program / agenda is coming together nicely, with our keynotes and panels offering unique first-person experiences, insights, and best practices Continue reading
What is Happening?
On July 15, IBM and Apple announced that they would enter into a partnership that would allow IBM to procure, manage, and service Apple devices, as well as have IBM develop significant enterprise applications for the iOS platform.
Some detail of the deal include:
- IBM will offer tools to procure Apple devices, deploy enterprise applications, and manage mobile devices
- IBM will develop 100 industry-specific applications designed to run natively on iOS
- Apple is creating a new extension of AppleCare called AppleCare Enterprise, which will be facilitated by Apple and IBM and which will offer extended phone support, as well as on-site device repair and replacement.
- IBM will create and provide iOS-specific backend services designed to facilitate the development and operation of iOS business applications.
Industry reaction has been varied, but almost all agree this is positive for both Apple and IBM. Continue reading
What is Happening?
As part of our ongoing field research, Saugatuck regularly attends industry and provider conferences to gain first person insight and to get a chance to speak directly with user and provider executives alike. Last week was no exception, as we participated in three significant IT vendor events: HP’s biennial Cloud analyst briefings, IBM Impact2014, and ServiceNow’s Knowledge14 event.
For Saugatuck, these events spotlighted how three Master Brands were revamping and extending themselves to better approach – and profit from – Cloud IT and Cloud Business opportunities. This Research Alert presents highlights from our experiences at each event, and offers insight into why and how powerful Cloud adoption trends among enterprises are forcing even the most powerful Master Brands, and their customers, to revamp, retool, and re-imagine who they are and what they do – more than once. Continue reading
What is Happening?
Recent weeks have seen major announcements from IBM including launching a Watson business unit to “productize” cognitive computing, selling the System x (x86) Server business to Lenovo, and significant investments in expanding its focus on Cloud with SoftLayer as a key foundation. On February 18 and 19, 2014, IBM hosted analyst updates to further describe their heightened focus on Cloud. Briefings featured both the PaaS and IaaS layers of the new IBM Ecostack with BlueMix, Cast Iron and Cloudant occupying prominent positions in the PaaS layer, as well as other solutions running alongside BlueMix on top of the SoftLayer IaaS platform. IBM is now actively seeking candidates for its open beta program that will run through June 2014.
Why is it Happening?
Saugatuck sees IBM’s recent announcements as clear indication that IBM is investing heavily in Cloud, and in Softlayer as a platform, acknowledging the ever-decreasing profit in the traditional on-premises x86 server business versus the rapidly-increasing profit potential in Cloud-based offerings. Saugatuck assesses the burgeoning opportunities in Cloud in two general categories:
- Development and Subsequent “Hosting” of New Applications in a Cloud.
- Renovation and Migration of Applications to a Cloud. Continue reading
In recent weeks, IBM has rolled out, through a series of announcements, multiple Cloud platform solutions that will run on SoftLayer, a radically different approach to enterprise software and data that may take a while to gel – and for the significant potential for possible synergies to manifest themselves.
Today, IBM announced it has entered into a definitive agreement to acquire Cloudant, a privately-held company based in Boston, Massachusetts with offices in Seattle, Washington and Bristol, United Kingdom. Cloudant will remain a wholly-owned subsidiary.
Cloudant extends IBM’s Big Data and Analytics, Cloud computing, and Mobile offerings by further helping clients take advantage of these key growth initiatives, particularly for systems of engagement. Client enterprises across Continue reading
What is Happening?
During IBM’s Connect user conference in Orlando this week, the company released the results of its latest global user survey regarding adoption and use of Cloud-based software-as-a-service (SaaS). IBM classed each of the 879 IT and LOB survey participants into one of three enterprise user profiles: Pacesetters (self-characterized as having relatively high rate and pace of SaaS adoption), Challengers (self-characterized as having significant, but not widespread adoption and use of SaaS), and Chasers (self-characterized as having relatively low rates and paces of SaaS adoption and use).
While IBM has begun using the survey results overall to help position and promote SaaS as enabling powerful competitive advantages, Saugatuck sees some key aspects of the survey data as more important – and as critical elements in understanding why some firms are more advanced and successful users of SaaS (and other Cloud-based IT).
The key aspects noted: the most aggressive adopters and beneficiaries of SaaS / Cloud share some important characteristics regarding the function and relationship of IT and LOB leaders. IBM’s data and findings complement and support a position that Saugatuck has long espoused, to wit: the role(s) and attitudes/approaches of IT leaders and groups would change as SaaS / Cloud becomes more mainstream, and as it becomes more important to business success. Continue reading