“Cisco, IBM, HP in Trouble, Says Credit Suisse, As Cloud Moves Past Them”: is a recent perspective that’s sparked much debate.
It’s not the first claim that Cisco, IBM and HP are being left behind in Cloud, and it probably won’t be the last…
Cloudy prospects ?
- But are sweeping statements like these, underestimating the ability of these Tech titans to adapt ?
- After all they: have a large installed customer base; extensive ecosystems; are investing in startups/partnerships/R&D; and generate significant cash flows each quarter
- Yes, faster innovation is needed in some segments (Cisco & IBM, are ahead of HP there) but refocusing billion dollar companies and retaking market share takes time
- Or does bashing the original Enterprise Tech giants make good headlines ?
- Perhaps its a simpler explanation than that: Stock market nerves
Stock market pressure
- Shareholders want early warnings and guidance from analysts to protect their investments. Analysts duly oblige. Stock buy backs are never enough
- The Tech sector is characterised by: rapid market shifts & commoditisation; hype new Tech will topple market leaders; and fear market leaders lack agility
- Transforming Tech giants involves patience and inherent uncertainty. But stock markets are fickle, short term in outlook and expect higher returns for that additional risk
- Ask Michael Dell, he knows all about that…
Relative positions of the 3 Tech titans
- Cisco is in the strongest position financially of the 3, with its: $59bn cash pile; Q1 results of $12.68bn revenue; 63.2% Gross margins and $2.5 billion of free cash flow
- Though anyone writing off IBM, when Warren Buffet is doubling down on IBM stock, maybe missing the point. IBM has a 104 year history of reinventing itself & is moving up the stack
- HP appears the most challenged of the 3. Its slashing operating costs and split on November 1st into 2 parts:
- HP Inc. (HPI): PC and Printing products & services; and
- Hewlett Packard Enterprise (HPE): essentially an IT Operations business
- As it slims down, HP is revving up its innovation engine. However, it might find itself subject to takeover bids, as businesses seek ever increasing scale in Enterprise IT.
Dell moves in
- Indeed whilst HP and IBM undergo painful restructuring, Dell has made public its intention to acquire EMC for $67bn, along with its crown jewels of VMWare.
- Assuming Dell is successful in the integration, this move will create a rival to HP, IBM and Cisco.
- However, some have recently questioned whether the deal will even close
Research & Development (R&D) and Innovation
- R&D expenditure in their last full financial year ends was as follows Cisco $6.2bn, IBM $5.4bn and HP $3.5bn.
- The World’s 50 Innovative companies (2015) list has just been released by Boston Consulting Group (BCG):
- The rankings place:
- So whilst IBM, HP and Cisco are diverse businesses and at different stages of evolution, they are hardly laggards.
- Not everyone can be Apple…
Microsoft example, offers IBM, Cisco and HP hope
- Doubters on the ability of Cisco, IBM and HP to bounce back might recall that Microsoft’s future 18-24 months ago, was also shrouded in uncertainty
- But with new CEO Satya Nadella and a focus on the Cloud, its come roaring back (albeit still grappling with an aging software licensing business and a mobile unit lagging the market)
- And Microsoft is partnering like never before:
- Microsoft shares hit a 15 year high in October 2015 and it appointed former CTO at Cisco, Padmasree Warrior, as a new board member
Future articles
- We’ll look at the more positive aspects of Cisco, IBM & HP in future articles (including financials and a more balanced view of their competitive positions)
- This is part 1 of a series of articles on: 'Cisco, IBM, HP: still a cloud of uncertainty ?’
- In part 2, we’ll be looking at ‘Defining Cloud’ in simple terms and in part 3: 'Digital Disruption and Enterprise IT'
What's your perspective ? It would be great to know...
(All views are my own)