Hewlett Packard Enterprise Seems Focused on Hybrid Cloud

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It looks like Hewlett Packard Enterprise CompanyHPE is pushing hard to become the global leader in providing hybrid cloud infrastructure. This is evident from the two back-to-back acquisitions made within a week.

Last week, the company announced a definitive agreement to acquire SimpliVity for a total cash consideration of $650 million and followed it up with another agreement to acquire Cloud Cruiser for an undisclosed amount.

Why are the Latest Buyouts Important?

The acquisition of Cloud Cruiser will enhance the capabilities of Hewlett Packard Enterprise's HPE Flexible Capacity product portfolio, which enables its customers to manage IT infrastructure in their own data center but pay for it as a service. Cloud Cruiser is a leading provider of cloud consumption analytics software that helps its customers to manage and optimize public, private and hybrid cloud usage and spend.

On the other hand, SimpliVity is well known for making hyper-converged infrastructure such as servers, storage, and data center solutions. The acquisition of SimpliVity will strengthen Hewlett Packard Enterprise's capabilities in the hybrid cloud infrastructure

It should be noted that although the company has a couple of offerings in this space - Hyper Converged 380 and HPE Hyper Converged 250 - it has only a fraction of the market share.

The segment is dominated by smaller players like Nutanix NTNX and SimpliVity that pioneered the concept, as well as others like NimBoxx, Scale Computing and Pivot3. The only major player here is VMware VMW . The majority of VMware shares are owned by EMC, which has been acquired by Dell. Since most of the players are lesser-known with limited resources, enterprise adoption is probably slower than it could be.

Hence, by acquiring the second biggest player in the space, Hewlett Packard Enterprise intends to capture market share in this segment, which according to it was worth $2.4 billion in 2016. It expects it to grow at a CAGR of 25% and reach $6 billion in 2020. Furthermore, the acquisition will also help it to compete against growing threat from the combined Dell-EMC juggernaut, following the close of their merger.

The importance of these buyouts will be clearer when we understand what hybrid cloud is and what its benefits are.

Defining Hybrid Cloud Infrastructure

The evolution of the cloud has been rapidly transforming the entire tech world. Over the last few years, we saw mainstream adoption of cloud computing by enterprises. The exponential growth in the amount of data, complexity of data formats and the need to scale up resources at regular intervals compelled several companies to turn to public cloud vendors.

This new IT-as-a-service model allows customers to pay only for the technology resources they use. The main benefit of this is that an organization does not have to make huge capital investments in IT. Apart from this, it frees up valuable IT resources for new value-adding projects as well as eliminates unused capacity.

However, workloads, which require higher security, compliance and service levels cannot be kept on public cloud. So there is a need for hybrid cloud infrastructure which offers customers on-premise cloud infrastructure.

Hybrid cloud is a combination of public and private clouds that function independently but are connected together so that enterprises can get dual benefits. The adoption of hybrid clouds allows enterprises to have both on-premise computational infrastructure and cloud storage for core data.

The hybrid cloud solution allows enterprises to integrate their server, storage and virtualization platforms, which are handled primarily by software and not by hardware. The offering thus saves companies from purchasing different hardware components and integrating them manually, thereby providing a cost-efficient means to handle server storage workloads. As a result, the firms are opting for hybrid cloud instead of conventional clouds.

Bottom Line

Improving prospects and lack of big players makes it an ideal space to invest in for Hewlett Packard Enterprise.

Since its split from HP Inc. HPQ in Nov 2015, the company is pushing itself into this space. The company's efforts toward expanding its footprint in the hybrid IT models were first seen last year when it acquired Silicon Graphics, which provides high-performance computing (HPC) services such as servers, storage, and data center solutions to clients in the cloud computing, oil & gas, e-commerce, social networking, and other industries.

The recent acquisition deals will further strengthen its capabilities. We believe that the company's focus on hybrid IT model will drive growth in the long run.

Investors are also encouraged by the initiatives undertaken by the company, as reflected from the share price appreciation in the last one year period. In the said period, shares of Hewlett Packard Enterprise gained 68.3%, outperforming the Zacks categorized Computer-Integrated Systems industry's gain of 47.6%

Currently, the stock carries a Zacks Rank #2 (Buy). You can see .

Currently, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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