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Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader. CLICK HERE for advance notice and 33% savings on early orders.
Hewlett-Packard is actively promoting new software, appliances, and services that integrate technology from Autonomy and Vertica, the two data analytics specialists that HP acquired earlier this year.
As Domicity discussed in two previous posts, HP Needs to Fatten Up and Apotheker or Whitman … HP’s challenge remains the same, the company needs a new business model that will generate fatter profit margins to power up its earnings per share and share price. HP is counting on a new Information Management business unit, built around Autonomy and Vertica, to help drive the transition to a higher profit business.
When HP’s previous CEO Léo Apotheker examined the problem of how to grow operating income at a faster rate, his solution centered on boosting the enterprise software sector because it typically returns much higher profitability than the company has delivered in recent years. Even though Apotheker’s choice was expected, because he had spent most of his career in enterprise software at SAP, others would likely have come up with the same answer.
Casting his eye over the current enterprise software landscape for an area where HP could stake out an early lead, Apotheker settled on real-time data analytics as the next ERP-style gold rush. As enterprises drown under a tsunami of digital alphanumeric, text, image, audio, and video Big Data from a proliferating array of sources, additional new traffic generated by smartphones, grids of sensors, and RFID tags, only promise to make an untenable situation worse.
Apotheker believed an IT company that could give enterprise customers the best set of tools and applications for managing and drawing competitive value from data, in real-time as it enters the enterprise, would tap into a mother lode of profit. Moving boldly, Apotheker talked the HP board into paying out major money to acquire structured data query up-and-comer Vertica (revenue an estimated $50-million), and unstructured data search leader Autonomy (revenue an estimated $1-billion). HP and Autonomy looked like as good a path to fatter margins as existed at the time.
The following table contrasts proportional income statements for HP and Autonomy. (Vertica, a private company, did not publish financials.)
Even though FY2010 was a good year for HP, the comparison shows why a big success in enterprise software would provide a needed boost to operating income. HP’s operating margin (operating income/revenue) was 9.5% in FY2010. Autonomy’s was 36.4% despite far higher levels than HP of investment in R&D and selling-related expense (SG&A). HP and Autonomy together helps the picture for the industry giant.
The graph above, Autonomy — Quarterly Revenue and Operating Income Indices, establishes that demand for Autonomy products has increased steadily over the last five years and that operating income is growing even faster than revenue.
Moving data analytics products from Autonomy and Vertica through HP’s powerful direct and indirect sales channels, as well as giving them an extra push with new professional services, should keep the combined operating income for Autonomy/Vertica growing at average rates above 20% for the next several years.
And much of the profitable new business coming to Autonomy and Vertica is cloud-based, which can only help HP’s larger cloud strategy.
[...] Mining data analytics for gold [...]