By Cassandra Mooshian, Analyst
HP ES gains Avaya’s unified communications (UC) and private cloud capabilities as well as service delivery personnel, while Avaya benefits from HP’s cloud portfolio and global reach
HP Enterprise Services (ES) and Avaya entered into a strategic partnership on Tuesday under which the companies will offer Unified Communications as a Service (UCaaS), Contact Center as a Service (CCaaS) and infrastructure modernization services such that the companies can address global demand for collaboration solutions that promote business efficiencies and outcomes. Avaya’s capabilities will be integrated into HP’s Business Process Services practice and drive portfolio enhancements for both companies around mobile applications, networking, software, infrastructure and managed services.
As part of the agreement, Avaya is transferring a group of its private cloud services (PCS) employees and subcontractors to HP’s Business Process Services group, where they will focus only on the delivery of the UCaaS and CCaaS infrastructure and services and solutions to Avaya, not to market. The sales portion of the agreement will be handled by Avaya, delivering the private cloud solutions to customers and retaining its customer relationships, essentially acting as a broker of HP cloud and providing dedicated resources to HP. Continue reading
By Scott Dennehy, Engagement Manager/Senior Analyst
HP will leverage demand for NFV solutions to boost its revenue in the telecommunications vertical
HP’s Communications Services declined an estimated 3.6% year-to-year in 2Q14, driven by reduced customer spending and the company’s emphasis on high-margin, application-focused consulting and systems integration, as this strategy limits revenue opportunities with telecom service providers. TBR believes HP is also losing and/or ceding some services market share to telecom vendors such as Ericsson and Huawei as these competitors bulk up their professional services and outsourcing organizations and move into IT.
However, service providers’ need for assistance in implementing new business models and obtaining operational efficiencies remains strong. Service providers are particularly interested in transforming their network, OSS and BSS domains to reduce opex. HP’s Communications, Media & Entertainment (CME) division will continue to sharpen its focus on these trends and deliver solutions that enable service providers to grow revenue and lower expenses, such as NFV. In February HP officially formed its NFV group, led by Bethany Mayer, who had directed HP Networking since 2011. The establishment of this unit and appointment of a proven leader like Mayer is evidence of how important NFV is to HP’s long-term growth, in the telecommunications segment and beyond. Continue reading
By Cassandra Mooshian, Analyst
Revenue contraction continued for HP Services in 2Q14 despite HP’s accelerated turnaround and R&D efforts
HP reported $7.7 billion in Services revenue in 2Q14 (fiscal 3Q14), down 5.4% from the year-ago quarter and 1.9% sequentially. Technology Services (TS) revenue declined 2.6% from 2Q13 to $2.1 billion, driven down by weak product sales in prior quarters, despite a recent uptick in attach rates in networking and storage. However, TS aims to rely less on hardware sales to drive revenue by building out its proactive care and data center care solutions to better address customer demand. IT Outsourcing (ITO) and Applications and Business Services (ABS) revenues declined 7.8% and 3.9% year-to-year, respectively, in 2Q14 due to customers migrating to cloud infrastructures, which chips away traditional outsourcing opportunities, and account runoffs that drove revenue and profitability pressures. Signings in HP’s Strategic Enterprise Services segment, which includes cloud, security, mobility and analytics, reportedly grew by double digits from the year-ago quarter while TS signings growth was positive for the first time in nine quarters.
HP reported an Enterprise Services operating margin of 4.1% in 2Q14 and TBR estimates operating margin for the entirety of HP Services, including TS, was 7.2% for the quarter, up 60 basis points from the year-ago quarter and 100 basis points sequentially due to better cost controls as a result of restructuring efforts. We expect HP Services’ margins to improve on year-to-year terms while fluctuating sequentially over the next six quarters as a result of improved processes around service delivery and better workforce utilization. Continue reading
By Andrew Smith, Analyst
HP Software’s revenue declined a reported 5% year-to-year to $959 million in 2Q14. The Software group’s decline came amid modest corporate gains, a reported 1% year-to-year to $27.6 billion. Software revenues suffered primarily due to a 16% year-to-year decline in license revenues, which support and services revenue growth were unable to offset. TBR believes the marked drop in HP Software’s licensing revenues is a symptom of the accelerating erosion and contraction of traditional licensing models in favor of services-led, cloud-deployed solutions, particularly for IT service management (ITSM) offerings. Based on 2Q14 results, TBR expects HP Software to continue addressing its go-to-market challenges and realign business strategy during 2H14 to better leverage its portfolio of services-based software offerings, particularly around HAVEn, Autonomy and Vertica. Continue reading
By Jack Narcotta, Analyst
HP’s revitalized PC business and healthy revenue growth of x86 servers indicate some of the pieces are beginning to fall into place
HP CEO Meg Whitman’s multifaceted turnaround plan continues to grow HP’s stockpile of cash, shielding the company from the effects of a volatile market and position it to invest in growing enterprise segments such as cloud, big data and security. However, the prolonged transition of its traditional business model — selling individual products and discrete solutions stacks — to a solutions-led focus will limit HP’s ability to stem attrition of enterprises to vendors offering less-expensive solutions, such as Lenovo, and a growing number of white-box vendors.
Despite HP’s total revenue in calendar 2Q14 increasing only 1% to $27.6 billion, TBR believes HP is making progress aligning its product portfolio to trends in PC markets and strengthening its go-to-market messaging across all facets of the enterprise marketplace. A revitalized PC business, especially consumer PCs, and sustained success in its x86 server business are positive signs that highlight the segments that will fuel HP’s evolution into an end-to-end solutions provider. Additionally, the company’s revitalized PC business and its ability to counter Dell’s and Lenovo’s efforts to infiltrate HP’s x86 server installed base highlight how HP is successfully leveraging an empowered roster of channel partners to sustain revenue growth. Continue reading
By Jillian Mirandi, Senior Analyst
Salesforce.com takes strategic advisory role to Europe
2Q14 marked Salesforce.com’s fifth consecutive quarter of revenue growth acceleration (38% year-to-year), highlighting the company’s effectiveness positioning itself as a strategic advisor and its portfolio as a means to customers’ business transformations. With the number of large-scale deals increasing, Salesforce.com has moved beyond selling CRM and effectively messages its portfolio as a holistic customer engagement suite spanning sales, marketing and customer service.
Salesforce.com is mature in the U.S., evidenced by its increased industry customization to expand its addressable market, and has also taken steps to increase its European presence over the last year. Salesforce.com leverages a country-specific land-and-expand strategy in Europe; the company builds out infrastructure and engages with partners and customers to develop country-specific knowledge that will help tailor its go-to-market strategy to regional preferences. We believe this is the right approach for Salesforce.com, proven by the region outperforming rest of world in revenue growth at 42% year-to-year. Continue reading
By Scott Dennehy, Engagement Manager and Senior Analyst
Cisco’s revenue is improving due to customer adoption of next-generation technologies
Driven by improved revenue in Switching and NGN Routing and strong growth in Data Center and Security, Cisco’s total revenue was roughly flat year-to-year in 2Q14, declining just 0.5%. However, customer demand from service providers and in emerging markets remains sluggish, with total product orders down 11% and 9% year-to-year, respectively. These trends will continue for the next several quarters, and as a result Cisco’s revenue will be flat again in 3Q14.
Cisco is driving customer adoption of its next-generation, high-end switching and routing platforms successfully. The NCS and CRS-X, announced in 3Q13 and 2Q13, respectively, each generated $100 million in orders over the last year, with half of that total coming in 2Q14. The Nexus 9000, which is a key component of Cisco’s SDN strategy, had 580 customers as of 2Q14. TBR expects customer uptake of these platforms to continue to grow, which will help Cisco return to overall revenue growth by the end of 2014. Continue reading