SourceCast: Episode 29: Getting too huuuuuuge
Supplier Report: 6/4/2016
The tables have turned for Oracle. A month ago they were suing Google for $8.8B dollars and now they are being sued by HPE for failure to comply with a contractual support commitment AND for potentially cooking their books in the cloud space.
SalesForce and IBM both announced that they are purchasing companies this week. But are these companies taking on too much debt? SaleForce is already being called out for paying too much for DemandWare ($2.8B), but is cheap credit causing a bigger issue in the tech-world?
IBM
- IBM to Buy EZSource to Help Developers Modernize Mainframe Apps
Big Blue announced on June 1 its intent to acquire EZ Legacy (EZSource), an Israel-based application discovery company, to help developers easily understand and change mainframe code based on data displayed on a dashboard and other visualizations. The acquisition is expected to close in the second quarter of 2016. Financial terms of the deal were not released.
http://www.eweek.com/developer/ibm-to-buy-ezsource-to-help-developers-modernize-mainframe-apps.html
- IBM’s Rometty: Watson financials don’t need to be broken out
“If it’s digital, it will be cognitive,” Rometty said. She said there’s no value in disclosing Watson financials while “I nurture and grow it.”
http://www.cnbc.com/2016/06/01/ibms-rometty-watson-financials-dont-need-to-be-broken-out.html
- IBM Watson invading Cisco routers for IoT takeover at the edge
Another example given was for remote workers to be able to better monitor and manage the health of equipment, like machinery. Even at the edge, the equipment can be monitored in real-time and users will know when maintenance will be needed.
http://www.techrepublic.com/article/ibm-watson-invading-cisco-routers-for-iot-takeover-at-the-edge/
Microsoft
- Microsoft and Facebook to build subsea cable across Atlantic
MAREA will be the highest-capacity subsea cable to ever cross the Atlantic – featuring eight fiber pairs and an initial estimated design capacity of 160Tbps. The new 6,600 km submarine cable system, to be operated and managed by Telxius, will also be the first to connect the United States to southern Europe: from Virginia Beach, Virginia to Bilbao, Spain and then beyond to network hubs in Europe, Africa, the Middle East and Asia. This route is south of existing transatlantic cable systems that primarily land in the New York/New Jersey region. Being physically separate from these other cables helps ensure more resilient and reliable connections for our customers in the United States, Europe, and beyond.
- Microsoft faces blowback in China over unwanted Windows 10 upgrades
Posts critical of Microsoft on microblog site Weibo relating to the Windows 10 upgrade, which Microsoft users must switch to, have grown to over 1.2 million in number, it said. “The company has abused its dominant market position and broken the market order for fair play,” Xinhua quoted Zhao Zhanling, a legal adviser with the Internet Society of China, as saying. He said users or consumer protection organizations had the right to file lawsuits against the company as Microsoft had not respected users’ right to know and choose, and may eventually profit from the unwanted upgrades.
- Microsoft just BANNED all your terrible passwords (there were hundreds of articles about this)
The US technology firm has created a dynamically-updated list of terrible passwords, which it will not let you use when registering for an account online.
Rather than provide some loose guidelines about password length and complexity, the Redmond firm will not let you use any of the commonly used passwords.
The list of offenders will be continually updated based on new leaks, so when people start to shift to other easy-to-guess passwords – these will also be banned.
Hewlett Packard Enterprise | HP Inc
- What Will HPE Sell Next?
I’d say the smart money was on servers. When IBM sold off PCs, it couldn’t sustain its Intel-based server business and had to sell it to Lenovo — the firm that bought the PC business. So I guess HPE could try to sell servers to HP Inc., but HP Inc. is up to its eyeballs in debt already, thanks to being gifted with all of the company debt in the divestiture, so I doubt it has the resources to buy it.
Next in line would be Oracle, because Mark Hurd knows the business and it would strengthen Oracle’s offering. However, Hurd also knows what it is worth, and I’ll bet it is less than Whitman is willing to accept.
This is interesting:
Maybe this should be titled “Death by CEO.” If you don’t buy it, just take a look at HP Inc.’s executive team.
You’ll see two people who likely have the strongest inside knowledge of Meg Whitman’s plan: HP’s old CFO Cathie Lesjak, who is rather famous for either stopping or trying to stop some of HP’s biggest mistakes; and HP’s old head of HR, Tracy Keogh, who is out of Harvard and arguably the most qualified HR director in tech. Both of them left HPE, and probably not because they thought Whitman was a brilliant CEO. Just saying.
- Is There More Upside for Computer Sciences?
HP Enterprise (ticker: HPE) gets to unload its slowly shrinking business of managing computer networks and focus on its growing business of selling networking hardware and software, along with specialized services. Computer Sciences (CSC) gets something big to squeeze costs out of. It has plenty of recent experience. Barron’s recommended shares of Computer Sciences nearly three years ago based on new chief Mike Lawrie’s work letting go of money-losing contracts and consolidating scattered departments to bring down costs (“Jockeying for Position in the Cloud,” Sept. 14, 2013). Shares have more than doubled since then, factoring in the spinoff of a government-services unit last year and dividends, including a $10.50 a share special.
http://www.barrons.com/articles/is-there-more-upside-for-computer-sciences-1464409150
- HP Enterprise takes Oracle to court, demands $3B
In spite of the Itanium’s reputation, a 2010 settlement agreement between HP and Oracle obligated Oracle to offer its products on HP’s Itanium-based server platforms until HP discontinued them. Yet not long after that, Oracle announced it would no longer support the Itanium platform because HP was planning to shut it down eventually.
http://www.zdnet.com/article/hp-enterprise-takes-oracle-to-court-demands-3b/
- HPE hunkers down on data center hardware
What is interesting to us here at The Next Platform is that HPE is focusing down on the most core datacenter products it has, including servers, storage, switches, systems software (including operating systems and a smattering of management tools, databases, and other selected middleware), plus financing for the whole kit and caboodle for those customers who want to use other people’s money to fund their IT infrastructure. The resulting HPE after the spinout of Enterprise Services to CSC is going to be considerably smaller than the HPE that was just separated from the PC and printer business last year – about $33 billion in annual sales – but it is a good guess that this leaner HPE will be a lot more profitable. HPE will also not be going through round after round of restructurings in the services business, which it has endured since buying Compaq in 2001 and which accelerated in the wake of the acquisition of EDS in 2008.
http://www.nextplatform.com/2016/05/27/hpe-hunkers-datacenter-hardware/
Oracle
- Oracle Shares Fall After a Lawsuit Related to Cloud Computing Business
Svetlana Blackburn, in a suit filed Wednesday in federal court in the Northern District of California, alleges her finance job in Oracle’s cloud-computing business “came to an abrupt end because she resisted, refused to engage in and threatened to blow the whistle on accounting practices she reasonably believed to be unlawful.”
Also:
Later on Thursday, Oracle was hit with another suit, this time a class-action case that cites Ms. Blackburn’s litigation and says the stock drop caused “significant losses and damages” to class members.
An Oracle investor, Grover M. Klarfeld, sued on behalf of himself and “all others similarly situated.” His complaint accuses the company of violating federal securities laws by using “improper accounting practices to inflate the company’s cloud-computing revenues by millions of dollars.”
- Oracle Says It Will Sue Former Employee Who Sued It
Because… of course they will!The problem for Oracle, and other large enterprise technology companies, is that no one really believes their cloud sales figures. Reported numbers typically include lots of software and even hardware that most companies would not consider cloud at all, complicating comparisons between growth businesses and legacy businesses.
http://fortune.com/2016/06/02/oracle-employee-lawsuit-cloud-sales/
Other
- Google goes after Microsoft, Tableau, and others with a new free analytics tool
The company has launched Data Studio, a free version of the data visualization tool it introduced as part of an analytics suite it unveiled earlier this year. It includes a wide variety of data connectors to let customers visualize data from Google AdWords, Google Sheets, and other Google products.
It also integrates with BigQuery, and the company plans to launch a connector for SQL databases later this year.
- Apple is working on an AI system that wipes the floor with Google and everyone else
For example, imagine asking a computer to “Find a nearby Chinese restaurant with open parking and Wi-Fi that’s kid-friendly.” That’d trip up most assistants, but VocalIQ could handle it. The result? VocalIQ’s success rate was over 90%, while Google Now, Siri, and Cortana were only successful about 20% of the time, according to one source.
http://www.businessinsider.com/how-apples-vocaliq-ai-works-2016-5?&platform=bi-androidapp
- The Debt Problem Is Bigger Than You Think
There’s two problems here, though. First, debt has been growing faster than cash. For example, over the last year, cash balances rose 1.8% while debt due in the next five years expanded by 17%, according to Bloomberg. S&P pegged those numbers at 1% and 15% for its sample. But the direction is the same, more debt growth than cash growth. This discrepancy can only go on for so long before it becomes a notable problem – if it hasn’t already.
Second, all that new debt isn’t getting put to productive use. Indeed, capital spending has hardly been a bright spot in recent quarters, including the relatively weak first quarter of this year. True, a lot of the cash is being pushed toward stock buybacks, which makes sense in some situations. But certainly not in all situations. Dividend increases are another place some cash has been put to work, which makes a dividend investor like me happy. However for some companies, the cost of a dividend hike might not be worth the risk of the debt.
http://seekingalpha.com/article/3978849-debt-problem-bigger-think
- Salesforce Acquires Demandware for $2.8 Billion
Demandware offers a variety of enterprise services through the cloud, including digital commerce, order management, predictive intelligence and point of sale. Prior to the acquisition, the company had counted several global brands among its clients, including Design Within Reach, Lands’ End, L’Oreal, and Marks & Spencer.
http://www.toptechnews.com/article/index.php?story_id=0010000LHSIA
Also:
Salesforce: Overpaying For DemandwareThe only reason for a firm to pay a premium over the market value for another firm is if the acquiring firm believes there are significant synergies attainable through acquisition. As the deal is constructed, Salesforce is paying a premium of $27.01/share (from 5/31/16 close price), or slightly over $1 billion above market price. Salesforce has yet to make any mention of the dollar value of synergies between the two companies.
http://seekingalpha.com/article/3979432-salesforce-overpaying-demandware
Photo: Tony Webster
Video: Never Split the Difference
SourceCast: Episode 28: Consultation on consulting
Supplier Report: 5/28/2016
Google wins their big fight against all-seeing Sauron…err… Oracle. On the heels of defeat, Oracle vows to appeal. While there is a party among developers, HPE is apparently celebrating yet ANOTHER split of their company…
This week HPE announced they are splitting their consulting services (formerly HP Enterprise Services, formerly Electronic Data Systems) and then merging that portion of the company with rivals CSC to form a new company. That move is called a “spin merger” if you were wondering.
Rumor has it that SaleForce is being woo’ed by Amazon and IBM is still eliminating domestic jobs.
IBM
- ‘No-one is safe’ as fresh round of job cuts hits Big Blue
According to the Wall Street Journal, the latest cuts started as IBM quietly laid off staff from US offices in North Carolina, New York City and Colorado. Meanwhile, in the UK, staff from the firm’s Global Technology Services (GTS) have been informed that the corporate axe is expected to swing throughout the month of June, which will be the second round of redundancies to hit UK shores within three months. Additionally, in Australia, reports indicate nearly a dozen jobs were recently slashed from a Sales and Distribution (S&D) department.
Additionally:
The problem now faced by IBM, our source added, is that potential staff members in the targeted countries likely “don’t have the skills” equivalent to their US-UK counterparts. The source added: “Almost everyone believes they are on the next RA list. People are so busy looking for other jobs I would assume productivity has dropped overall by 10%. Its just crazy right now.”
http://www.ibtimes.co.uk/inside-ibm-no-one-safe-fresh-round-job-cuts-hits-big-blue-1561781
- IBM’s Big Problem: It’s Too Busy To Listen To Its Customers
IBM has lost major contracts due to its inability to deliver what customers want. I’ve previously referenced the embarrassing CIA contract loss to Amazon, and besides the fact that IBM’s technology was woefully inadequate, one of the other factors that caused the company to lose was that it didn’t properly follow the bidding process.
http://seekingalpha.com/article/3977286-ibms-big-problem-busy-listen-customers
Also:
Amazon Again Beats IBM For CIA Cloud ContractDuring the case, IBM lawyers had strongly objected to the representation that it had manipulated the bidding process to create a protest issue. But the court “does not see any other explanation for IBM’s final pricing strategy,” the ruling said.
- What IBM Bought With $155 Billion
Had IBM forgone its buybacks, one thing it might still have would be the aforementioned massive $155 billion pile of cash. If IBM had used its cash to pay down debt rather than repurchase shares, what might the company’s balance sheet look like? IBM’s debt is comprised mainly of Global Financing and Non-Global Financing debt. The Global Financing segment provides funding for IBM’s external customers, and charges customers a higher interest rate than the interest rates on its own borrowings. This borrowing is done knowing that it will be eventually repaid with interest. The non-Global Financing debt, “core debt,” makes up a much smaller portion of IBM’s total debt.
http://seekingalpha.com/article/3977909-ibm-bought-155-billion
- IBM May Never Catch Amazon in the Cloud, and That’s OK
SoftLayer, IBM’s IaaS business, is dwarfed by AWS. The company has a goal of reaching $1 billion in IaaS revenue this year, but that would still make Amazon’s cloud-computing business about 10 times larger. Deutsche Bank analyst Ross Sandler, who rates IBM stock a hold due to growth concerns, believes that IBM will never catch up with Amazon, or even Microsoft, in the cloud. In the public IaaS market, Sandler believes that IBM doesn’t have a chance.
Additionally:
While Amazon focuses on being the low-cost provider of IaaS services, IBM is going after the highest-value portions of the cloud computing market. The company’s cloud strategy is summed up well by what CEO Virginia Rometty said during a conference last year:
“What’s important is that we grow in the right areas. Tech is littered with areas that you can have high growth and make no money. That’s not us.”
Microsoft
- Why Microsoft Corporation Sold Its Feature Phone Business
Microsoft recently announced that it will sell its feature phone business for $350 million to Foxconn subsidiary FIH Mobile and a newly founded company called HMD Global. Microsoft originally obtained the unit through its $9.5 billion acquisition of Nokia’s handset unit in 2014.
Additionally:
Nonetheless, customers in certain markets still buy Nokia’s feature phones, which require monthly data fees and can last for weeks on a single charge. Research firm eMarketer estimates that only about 30% of mobile users in India use smartphones. Pew Research Center estimates that almost two-thirds of people across seven sub-Saharan African nations still use feature phones.
Oracle
- Google and Oracle’s Android copyright fight is up to a jury now
The federal jury in San Francisco is now deciding whether Google’s use of copyrighted Java code constitutes fair use, an exemption that would free the company from having to pay Oracle damages.
At issue is “declaring code” that’s part of 37 Java APIs Google used. Google says it simply used selected parts of Java to create something new in the form of Android.
http://www.cio.com/article/3074413/google-and-oracles-android-copyright-fight-is-up-to-a-jury-now.html
Update: Google Won!“Overall, this is a win for software development,” said Mitch Stoltz, a senior staff attorney at the Electronic Frontier Foundation who focuses on copyright issues. “I think it’ll give software developers a bit more confidence that reimplementing APIs is not something that’s going to get them sued.” However, Stoltz pointed out that the appellate ruling still stands, and small developers could still face copyright lawsuits from tech behemoths.
http://techcrunch.com/2016/05/26/jury-finds-googles-implementation-of-java-in-android-was-fair-use/
Also:
Tech World Hails Google’s Copyright Victory – As It ShouldThe cause for celebration is the fair use finding, which does a lot to undo the damage from an appeals court ruling in 2014. That ruling, which overturned a judge’s finding that APIs cannot be copyrighted in the first place, triggered shock and disbelief among many in the tech community. They feared that giving Oracle rights to control the APIs would create a chilling effect as developers would be unsure about what they could and could not do to write code.
Note: Oracle is expected to appeal this decision (again). So this isn’t over.
Hewlett Packard Enterprise | HP Inc
- HP Enterprise to Spin Off, Merge Services Business (the whole thing is being called a “spin merger”)
The deal is expected to deliver $8.5 billion to HP Enterprise shareholders, which includes a 50% stake in the new company, a dividend of $1.5 billion, and the assumption of $2.5 billion in debt and other liabilities.
Additionally:
HP Enterprise said its enterprise services revenue was $4.7 billion in the quarter ended April 30, down 2% from a year ago. The enterprise services segment represented about 37% of HP Enterprise’s total revenue for the quarter.
Ms. Whitman said on a conference call that the Computer Sciences deal would remove about two-thirds of its workforce, or about 100,000 employees. HP Enterprise’s services businesses include the former Electronic Data Systems businesses that Hewlett-Packard bought in 2008 for $13.9 billion.
http://www.wsj.com/articles/hp-enterprise-to-spin-off-merge-services-business-1464121433
Additionally:Completion of the merger is anticipated by the end of March 2017, subject to shareholder and regulatory reviews and approvals. Following the transaction, CSC and HPE shareholders each will own approximately 50% of the new company’s shares. The transaction between CSC and HPE is anticipated to provide close to $8.5 billion to HPE’s shareholders on an after-tax basis. This includes an equity stake in the newly combined company valued at more than $4.5 billion, a cash dividend of $1.5 billion, and the assumption of $2.5 billion of debt and other liabilities related to the HPE Enterprise Services segment.
http://www.appstechnews.com/news/2016/may/26/hpe-enterprise-services-segment-merge-csc/
- But didn’t CSC just spin off a government IT focused business? (Yes)
What to expect when the CSC-SRA International spinoff debuts on the New York Stock ExchangeA combination of Falls Church-based Computer Sciences Corp.’s (NYSE: CSC) $4.06 billion North American Public Sector business spun off from the parent and the $1.39 billion Fairfax-based SRA International Inc., CSRA will be a next-generation, purely federal IT company devoted to migrating government agencies to cloud-based data center infrastructure and building advanced applications for its federal clients.
http://www.bizjournals.com/washington/blog/fedbiz_daily/2015/11/what-to-expect-when-the-csc-sra-international.html
But doesn’t HPE/EDS do government contracts? (Yes)“HP Enterprise Services has a very strong business in the federal government and what I’d say is post-close all options — and I underscore the word ‘all options’ — would be on the table,” Lawrie told analysts. “But that decision will be approached and looked at after we close the transaction.”
BUT…
Add to that the fact that CSC is legally prohibited from competing against CSRA for federal business over the next two years as a part of the split and it becomes hard to believe that CSC is going to hold on to this public sector asset. Public sector work would only make up about 11 percent of the total $26 billion new combined entity.
- HPE employees were ‘shocked’ but ‘glad to be rid of that boat anchor’
HP ES was formed when HP bought EDS in 2008 for $13.9 billion. Many HP employees we talked to said the two companies, HP and EDS were never a good culture fit.
As the person we talked to described it, “In my own experience, they were difficult to work with and never were fully integrated into HP.”
Other
- Is Amazon buying SalesForce?
Follow-up to last week’s blog and podcast:Now if you put on your investment banker hat and look at strategic M&A options for Amazon to keep its AWS market share, there are not that many. It’s unlikely that Microsoft would slow down its efforts and of course merging with Amazon would be almost impossible. IBM has its own cloud ambitions, as does Google, and neither of them would be viable for M&A. So who is left? Yes, only one cloud play – Salesforce.com, which also happens to have the same deferred revenue model as Amazon.
https://www.linkedin.com/pulse/amazon-buying-salesforce-jiri-kram?trk=hp-feed-article-title
Additionally:
Marc Benioff responds to questions about a Microsoft takeover bidThis is an incredible moment in history and as you can see Salesforce’s growth continues to accelerate and grow. I’ve now been working on this company for almost 18 years and I think that we’ve delivered fantastic results. As part of that, of course, I’m also making personal decisions as that goes and that’s what’s happening there.
Sounds like they are willing to sell to SOMEONE – like a company they just signed an international hosting deal with perhaps?
http://www.businessinsider.com/salesforce-ceo-marc-benioff-responds-to-questions-about-a-microsoft-takeover-bid-2016-5 - No, Apple isn’t the next BlackBerry — it’s the next Microsoft
Last week they called Apple the next IBM, now it is the next MicrosoftThe lesson for Apple, and Apple shareholders, is that it’s not enough to have a ton of money and just throw around cash to solve every problem. It takes real vision, strategy, and execution, and a first-mover advantage is nice, too.
http://www.businessinsider.com/apple-is-the-next-microsoft-2016-5
- Foxconn replaces ‘60,000 factory workers with robots’
One factory has “reduced employee strength from 110,000 to 50,000 thanks to the introduction of robots”, a government official told the South China Morning Post.
Since September 2014, 505 factories across Dongguan, in the Guangdong province, have invested 4.2bn yuan (£430m) in robots, aiming to replace thousands of workers.
- Verizon workers declare end to 44-day strike, claim “big gains”
While there were about 165 Verizon Wireless employees involved in the strike, the vast majority of the union members are in Verizon’s wireline division. Verizon today said that the company “look[s] forward to having all of our employees soon back at work in their regular positions and doing what they do best—serving our customers.” Verizon also said it was able to obtain “meaningful changes and enhancements to the contracts that will better enable our wireline business unit to compete and succeed in the digital world.”
Photo: Jesse Orrico