In order to bolster its cloud-services portfolio, Hewlett-Packard (HPQ) has inked a deal to acquire Eucalyptus Systems Inc., a provider of cloud-computing software. Although the financial details were not disclosed, the acquisition is one of the important moves by Hewlett-Packard since its troubled acquisition of Britain’s Autonomy Plc in 2011. The deal is likely to close in the fourth quarter of fiscal 2014.
Post the acquisition, Marten Mickos, the Chief Executive Officer (CEO) of Eucalyptus, will join Hewlett-Packard as senior vice president and general manager of the cloud computing business. The prospective acquisition will help Hewlett-Packard to offer an efficient and improved hybrid IT environment to drive performance.
Eucalyptus is an open source software provider that offers network service for both private and hybrid cloud-based platforms. Eucalyptus has long been associated with Amazon.com Inc. (AMZN). We believe that the alliance between Hewlett-Packard and Eucalyptus will bring additional Internet and cloud service business to the company, thus providing it with a competitive edge against big players like Amazon in the web-based platform market.
Hewlett-Packard’s HP Helion Network, a cloud-based portfolio of products and services that provides users a secure and flexible network will come together with Eucalyptus’ infrastructure as a service (IaaS) cloud software platform. The merger will help Hewlett-Packard to provide an easy-to-install, user-friendly, inexpensive and high-performing cloud computing solution.
It is worth mentioning that over the last 60 days, 13 out of 15 estimates for H-P were revised upward for fiscal 2014. The Zacks Consensus Estimate for fiscal 2014 increased 2 cents to $3.73.
Hewlett-Packard’s traction in the cloud, security and Big Data segments are positives. The company’s strategic focus on the software business will help it to achieve long-term profitability. Moreover, restructuring initiatives to rationalize costs are expected to improve the company’s profitability in the long run.
Nonetheless, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines (IBM) and Oracle (ORCL) should also not be discounted.
Hewlett-Packard has a Zacks Rank #3 (Hold).
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