It’s fun watching large techno-conglomerates spin “open source” technology, the free code that could kill them. That’s why Hewlett-Packard’s (HPQ) announcement yesterday that it would invest $1B into cloud and OpenStack technologies was interesting.
HP plans to pump $1 billion over the next two years into cloud-computing products and services. It will be launching a Helion line of cloud products based on the open-source technology for building virtualized data centers, OpenStack.
Is HP committing suicide? Or is it being smart? I think it’s that latter, and it’s refreshing to see the HP turnaround story evolve in a more interesting way than most of the other sleepy techno-conglomerates.
Let’s set aside for the moment that this classic marketing press release could actually mean very little — after all, $1B is a relatively small slice of HP’s $16B in cash. What’s more interesting is its close association to OpenStack. HP seems to be raising its hand to point out that it is a co-founder of the movement.
This part is not trivial. HP’s new cloud initiatives will include HP Helion, a portfolio of cloud products. These will all be based on OpenStack technology. The Helion line includes a commercial version of OpenStack tested and supported by HP, a development platform for applications, an “indemnification program” that protects customers’ code as it is developed on HP OpenStack technology, and a professional services division. This suite of offerings is quite comprehensive, and it represents a bold move to embrace the open-source model.
As we’ve tracked closely, open source technology is taking over the world. This is challenging traditional IT vendors who aren’t used to competing with products that are free, yet now, they find it a requirement. HP is strategically positioning itself as a provider of services, support, and value-added product built around OpenStack. You can fight the movement, or you can go with the flow.
HP’s move with Helion is both creative and timely, and offers more evidence to me that CEO Meg Whitman’s turnround leadership at HP is having positive effects. Revenue and operating income at HP have stabilized and the stock price is up under Whitman’s watch. First quarter earnings per share of were $0.90, up 10% from the prior-year period, versus the previously provided outlook of $0.82 to $0.86 per share. Revenue was basically flat at about $28 billion. Cash flow from operations was up 17% year-over-year.
The company’s cash coffers are growing, as its cash position increased $1.6 billion in the first quarter, giving the company flexibility to experiment with some big bets such as this. With a P/E ratio of about 9, it’s not an especially expensive stock. Q2 earnings will be released later in the month.
(Disclosure: Long HPQ stock. Mostly because it seems to be going up and I like what I see.)