TekBlog

HP has acquired Colubris Networks to slot it into its ProCurve Networking business. Good thing or bad thing?
Well HP is naturally gung ho. For Colubris it was a sort of inevitable outcome. Formed only eight years ago, it has advanced wireless networking solutions but in today’s financial climate it would have been challenged to raise the moolah to go much further. Rumour has it that the firm has been looking for a sugar daddy for about 18 months. Under HP’s wing it may have found a little package of synergy.
Marius Haas, SV-P and GM of ProCurve thinks so.
“The acquisition of Colubris Networks will strengthen ProCurve’s hardware, management platform and services, significantly improving the overall performance capabilities of both wired and wireless networks, and will deliver even more best-in-class choices for our customers worldwide” he said.
Aside from the corporate speak this is probably quite accurate. There may be a touch of hyperbole when he goes on to say he is “convinced that ProCurve’s impressive growth and market leadership is unlimited.” After all there is big, big tree trunk in the way of such aspirations. It’s called Cisco.
Nevertheless TekPlus believes the Colubris acquisition is a good move for HP because it gets Procurve into the mainstream WLAN market big time. Colubris is one of the few vendors that have products around 802.11n (High Throughput Wireless) and strong WLAN security portfolio. In addition Colubris has a comprehensive wireless/ mobility services management offering. These three elements added to ProCurve’s very own access points and identity management module makes up a nice portfolio for Procurve’s channel to push into the market.

HP will complete its acquisition of EDS in the next week or so. HP is spending almost $14 billion on buying the services company that had revenues last year of $22 billion. HP says it will establish a new business group, to be branded ‘EDS - an HP company’, headquartered at EDS’s existing executive offices in Plano, Texas. EDS will continue to be led after the deal closes by EDS Chairman, President and CEO Ronald A. Rittenmeyer, who will report to Mark Hurd, HP’s chairman and CEO.

That has all the hallmarks of a portfolio investment. Yet most analysts and blog commentators have focused on what synergies and savings can be expected. They assume that HP’s services revenue of $16.6 billion in fiscal 2007 will be merged to make a services giant that matches IBM. We shall see.

Much has also been made of comparisons with HP’s 2002 acquisition of Compaq for $19 billion. Integrating the two was hard and expensive and ultimately brought down the architect of the purchase, Carly Fiorina. TekPLus does not think too much should be made of such comparisons. While both companies were not crippled they were both certainly limping. They were both based in Texas. Beyond that the parallels disappear. One’s in services and the other was in hardware. One is involved in huge contracts, the other in manufacturing and distribution. One appears to have a future as a standalone subsidiary, for the other integration with an existing business was vital.

The merger is undoubtedly good news for EDS shareholders and even HP’s shareholders are reasonably sanguine as their share price only took a hit of 5% when the news broke. We tend to share the view of Mike Gunderloy at Ostatic, http://ostatic.com/161913-blog/hp-eds-and-open-source#continue
“In the short run, this will be like any other big merger: existing open source and commercial offerings will remain much as they are now…Clearly they’ll start selling HP servers into their accounts”.

But what about the longer term?

Will HP have the skills in place to implement the turn around required at EDS without diluting margins? EDS brings a lot of baggage especially around its weak GDM model as well as high-end consultancy having disposed of its A.T.Kearney business.

We in TekPlus think it depends upon the services mix and what will stay in Technology Solutions Group (TSG) and how Computing Solutions Innovations (CSI) will develop. Hurd, in an interview with Fortune, http://bigtech.blogs.fortune.cnn.com/2008/05/14/hp-and-eds-a-chat-with-ceos-mark-hurd-and-ron-rittenmeyer/ said TSG would simply be educated to go to market with the EDS offerings.

We have noted a lot of prime process level services in vertical sectors as well as managed services going to Asia – either to Indian outsourcers or off-shoring by western majors. If EDS is leveraged in Asia there could be some very quick wins on the cards. TekPlus view errs on the side of seeing positive outcomes. Not so other analysts and bloggers.

Some observers think that the background of HP’s Hurd is cost-cutting. Patrick Thibodeau in Computerworld http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9085078 thinks Hurd has rejected the idea of developing an IBM-like services organization. As EDS is focused on infrastructure services — running data centres, help desks and networks, he says, Hurd can cut costs by replacing people in a data centres with HP hardware and technology.

HP has been going on about its data centre reduction since it was announced in 2006. The company is to shrink 85 data centres, thousands of servers and thousands of applications down to six mega computing facilities at Atlanta in Georgia, Houston and Austin in Texas. It’s the evolution towards cloud computing on which HP is working. http://www.hp.com/hpinfo/newsroom/press/2008/080729xa.html?jumpid=reg_R1002_USEN

Nick Carr at the Rough Type blog http://www.roughtype.com/archives/2008/05/hp_rolls_up_eds.php has similar views on “… an acquisition aimed at boosting profitability through consolidation and cost reduction in a mature business”. With EDS at close to 140,000 employees it has nearly as many people as HP so there is obvious room to make cuts.

Ashley Vance at the Register http://www.theregister.co.uk/2008/07/11/butcher_hurd_hp/ describes Hurd as the Butcher but blends it with a positive if harsh vision of the future. “The $12bn marketing gamble only pays off if people really start consolidating on a massive scale, and they will…Most companies will try and reorganize their own operations before reaching that utility computing end point. So, that’s customer X looking to get rid of gear and then gradually moving applications into the fabled cloud over many years…HP can at least make as much money as possible off the shrinkage”.

HP’s shares were surfing just below $50 in May. Once news of the bid leaked, they slipped to close at $46.83. By August – when HP has to write those cheques for the EDS shares it has bought – the price has slipped further to $44.40. Hurd must demonstrate his ability to burnish shareholder value - that will decide whether he is there for the long term or sees a Fiorina finish.

Data centers are changing fast and networking companies looking at what to do - eyeing acquisitions or investing in new product research or both. They need to come up with technologies that make the servers, storage and related equipment more robust and easier to manage. Here’s one action that just happened.

On 21 July 2008, Brocade – an industry leader in data center networking solutions and services - announced a definite agreement to buy Foundry Networks for $3 billion. The deal is expected to close in Q4 2008. Brocade has about 2,500 employees and Foundry Networks about 1,000.

TekPlus reckons this is a good move by Brocade. It brings together two firms in a sector where surging growth Internet traffic shows no sign of slowing despite the economic turndown. It means more than just consolidation and the cost savings that follow. Foundry’s embedded security (SecureIron solution) will add capability and competitive advantage to Brocade’s existing portfolio. The enlarged company will be able to offer enterprises alternatives to the similar solutions from competitiors – and in particular pose a direct challenge to Cisco.

Uncle Carl is annoyed and does not want to wait for the meeting of the Grand Council. In his latest move to get his niece, the beautiful Princess Yahoo, betrothed to the King of Red Mountain, Uncle Carl is flexing his muscles.

“NOW IS THE TIME” he is shouting from the roof of the palace, calling on the populace below to join him in ousting the great Yang, believed to be the power behind the throne. The Yang has proposed a dowry of $33, the same amount the King offered to pay in May. Since then the Yang has sold some of the Princess’s advertising inheritance to the King’s deadly rival, Prince Google. Perhaps the King thinks the Princess is losing her looks and is not worth as much. His recent proposal was to whisk the Princess away but leave all her household behind for a much reduced dowry.

On the Street, the hucksters are saying the Princess will only get about $23. But they are the common, ugly people only interested in money while the aristocrats are fighting over matters of principle and power. At a price, of course.

The story so far… Encouraged by the Yang, the mysterious power behind her throne, beautiful Princess Yahoo has rejected the advances from the King of Red Mountain. His aim, with Princess Yahoo at his side, was to take over the rich kingdom of Search, already dominated by handsome Prince Google. Then a distant relative of the Princess, Uncle Carl, appeared on the scene. Now read on…
Unbeknownst to the King, Princess Yahoo began a secret liaison with handsome Prince Google. Rumours quickly spread that she had been free with her favours. Then it became official; the Princess had asked the Prince to help her in some very personal matters. The robe of Search was discarded for what some thought was cheap jewellery.
Uncle Carl was furious when he found out. It is not only Uncle Carl who is upset but many of the Princess’s courtiers – or ‘thought leaders’ as they are known – have become disillusioned as well. Many were seen to depart the palace in Silicon Valley, leaving their exotic titles behind them.
Uncle Carl has now set out to deal with the Yang who he blames for the loss of the Princess’s virtue. He has lined up a special gang of heavies to take control of the Princess’s fortunes. And he appears to have made a deal with the King of Red Mountain to come to the rescue of the fair Princess at the right time.
“But I don’t want to be rescued”, said the Princess, “Unless the King pays a proper dowry”.
The King may be looking for more than a bride. He is believed to have been talking to Rupert of Oz and the AOL, great magnates who, if he gained the Princess, might buy her palace and her jewels.
A meeting of the Princess’s own High Council, over which the Yang presides, is scheduled for August. Uncle Carl will be waiting with his henchmen.