IT customers win big in the cloud pricing wars

Customers win in the cloud pricing wars. Scary for incumbents... just look at IBMs results. Aivars Lode avantce

IT customers win big in the cloud pricing wars

Competition to offer cloud services is heating up. Here's how to take advantage of the cloud pricing battles -- even if you have no interest in adopting these technologies.

By Patrick Gray

October 16, 2014

A strange thing is happening in cloud computing: pricing continues to drop even as more competitors enter the fray, and the functionality available increases. For smaller companies or limited-use cloud applications, pricing may be the ultimate in affordability: free. An interesting confluence of factors has created this unique period in cloud computing.

Cloud gets nasty

From a vendor perspective, the cloud is a tough place in which to operate right now. Cloud services generally favor startups that have designed their offerings from the ground up to perform successfully in this environment. Where it might take tens of millions of dollars for an entrenched ERP software vendor to make their offering available on the cloud, it might take a few months and a hundredth of the cost for a startup to offer a compelling subset of the functionality in a cloud format. Furthermore, the wide availability of basic infrastructure ranging from hardware to databases lets new entrants stand on the shoulders of other cloud providers.

The big vendors simply can't ignore cloud computing and are tripping over themselves to offer cloud-based products. However, they're forced to compete on pricing with these new entrants, essentially bringing high-powered enterprise functionality down to a commodity-pricing model. It's as if every retailer in the world suddenly decided it had to compete on price with Walmart, but couldn't dramatically change its product mix.

The customer wins big

This competition on functionality and pricing has resulted in real bargains for enterprise technology consumers. Even if your company is not ready to make the leap into cloud, offerings from competitors, or interestingly cloud-based offerings from your traditional software vendors, can provide a leverage point when renegotiating pricing. Some of the major vendors are even beginning to price their traditional software offerings similarly to cloud providers, using a usage-based metric that allows companies to buy software on an as-needed basis rather than monolithic blocks of licenses.

Price shopping is critical

Even if you have no interest in adopting cloud technologies, now is a great time to shop around and investigate pricing, especially with your current vendor's cloud offerings. If you find yourself negotiating the same style of contract, with the same terms you were offered five or seven years ago, you may be leaving money on the table. Even without price shopping, vendors may be willing to offer different terms, perhaps going so far as to bundle licensing, maintenance, and bundling costs into a per-user, per-month model similar to most cloud providers. Increasingly flexible financing and competition from cloud providers have made these arrangements far more possible.

You can't ignore cloud

Cloud computing is not without challenges, but the speed of implementation and flexible pricing can no longer be ignored. Even if you are adamantly against using cloud for compelling and rational reasons, it's worth investigating the various offerings, prices, and delivery models, which represent the future of software delivery. While many traditional vendors will struggle to adapt to this new reality, enterprise software consumers will strongly benefit.

Juniper Networks Profit Meets Views But Offers Bleak Guidance

Yet another legacy company hitting the skids. Aivars Lode avantce

Juniper Networks Profit Meets Views But Offers Bleak Guidance

Networking Equipment Company Saw Weak Demand

By Tess Stynes

October 23, 2014

The networking equipment company also announced initiatives to reduce costs by an additional $100 million. The company didn’t provide specific details but said the cost-savings effort would focus on “careful management” of headcount, improved efficiencies and prioritization of revenue-generating projects.
The Sunnyvale, Calif.-based company already has been focused on reducing costs. In April, Juniper said it reduced its global workforce by 6% and consolidated facilities in response to calls by two activist shareholders, Jana Partners LLC and Elliott Management Corp., that had pushed for Juniper to make large cuts to costs and enact programs to return capital to shareholders.

Juniper Networks Inc. provided fourth-quarter guidance that missed analysts’ expectations though the networking equipment company posted a 4.5% increase in third-quarter earnings.

For the current quarter, Juniper forecast per-share earnings of 28 cents to 32 cents and revenue of $1.025 billion to $1.075 bllion. Analysts polled by Thomson Reuters expect per-share profit of 41 cents and revenue of $1.18 billion.

Earlier this month, the maker of infrastructure for telecommunications networks lowered its already downbeat third-quarter forecast, citing lower-than-expected demand from service providers--particularly in the U.S.

The company on Thursday reported that by market, service provider net revenue fell 5.9% to $741.5 million, while enterprise net revenue declined 3.2% to $384.4 million.

“We are disappointed in our third quarter revenue results” said Juniper Chief Executive Shaygan Kheradpir. “However, the underlying long-term demand trends in networking remain intact.”

Overall, Juniper Networks reported a profit of $103.6 million, or 23 cents a share, up from $99.1 million, or 19 cents a share, a year earlier. Excluding share-based compensation, restructuring-related charges and other items, earnings rose to 36 cents from 33 cents. Revenue decreased 5% to $1.13 billion.

Juniper expected per-share earnings of 34 cents to 36 cents and revenue of $1.11 billion to $1.12 billion.

David Einhorn’s Greenlight Says EMC Trades at ‘Sizeable Discount'

More pressure on the legacy providers. Aivars Lode avantce

David Einhorn’s Greenlight Says EMC Trades at ‘Sizeable Discount'

By David Benoit and Rob Copeland
Nov. 5, 2014 12:19 p.m. ET

Hedge Fund Calls Into Question Data-Storage Giant’s Corporate Structure

David Einhorn ’s hedge fund Greenlight Capital Inc. became the latest big investor to call into question the corporate structure of data-storage giant EMC Corp.

In Greenlight’s quarterly letter to its investors Wednesday, Mr. Einhorn wrote that EMC trades at a “sizable discount” because of its conglomerate-like structure of several businesses that “essentially operate as independent companies.”

EMC runs three businesses under what it calls a “federation strategy.” There is its traditional data-storage business, its 80% stake in VMware Inc., a pioneer in computer-server software, and software-development company Pivotal.

Greenlight made a new “medium-sized” investment in EMC, according to the letter, which doesn’t disclose the specific size of the stake. As of the end of June, Greenlight owned 5.9 million EMC shares worth about $171 million, according to an earlier filing.

The Hopkinton, Mass., company was already under pressure from activist investor Elliott Management Corp., which had taken a more-than 2% stake and called for it to split up. EMC’s market value currently stands at nearly $60 billion.

Separately, Mr. Einhorn has previously warned of a market bubble, particularly in technology stocks, and wrote Wednesday that he was increasing his short positions in what he termed “bubble basket stocks.”

He also teased a potential short position in Amazon.com Inc., though he stopped short of explicitly saying he was betting against the shares.

“One of the principal bullish assumptions supporting many bubble stocks is, ‘the company is growing too fast to be very profitable,’” he wrote. Amazon “is just one of many stocks for which this narrative will ultimately prove false.”

Mr. Einhorn also disclosed a stake in coal mining company Consol Energy Inc.

Vista to plow big equity check into Tibco Software

Let's see what Tibco is worth in 4 years time? Aivars Lode avantce

Vista to plow big equity check into Tibco Software

By Luisa Beltran November 7, 2014 Vista Equity Partners isn’t skimping on its buy of Tibco Software. The technology-focused PE firm is investing $1.6 billion equity into its takeover of Tibco, according to a report from Moody’s Investors Service. The $1.6 billion equity comes to about 38 percent of the transaction’s $4.2 billion value. This is higher than the typical PE equity investment, which ranges from 28 to 30 percent. Tibco, however, will be highly leveraged. The company’s initial debt is “very high” at about 11x total debt to EBITDA, Moody’s said. That will likely drop about 7x once cost savings, which are expected to be “meaningful,” are included, said Raj Joshi, a Moody’s analyst. Moody’s also gave Tibco a ‘B3’ corporate family rating because of its “weak financial profile and significant execution risk in achieving planned cost savings over the next 12 to 18 months,” the report said. “B” ratings are considered speculative and are subject to high credit risk, Moody’s said. B2 is more speculative than B1, while B3 is the most speculative, Moody’s has said. Regulatory pressure likely spurred Vista to invest 38 percent equity, one private equity executive said. Tibco’s 11x is higher than the 6x leverage ceiling called for in guidelines issued by regulators last year. “Regulators are scolding banks for high leverage multiples, so I’m sure Vista wanted to put in more equity to make it less of an issue,” the source said. Joshi said Tibco’s 38 percent equity may be a response to the deal’s high purchase price multiples, which are about 17x EBITDA before cost savings. But once cost savings are added, the purchase multiples decline significantly, Joshi said. Vista Equity announced its buy of Tibco Software in September. The Palo Alto, Calif.-based company provides infrastructure and business intelligence software. Tibco reported $1.08 billion in revenues for the 12 months ended Aug. 31, 2015, Moody’s said. Vista’s investment is coming from its fifth fund, according to an FTC regulatory filing. However, the private equity firm will likely use another fund in addition to Fund V to back its investment in Tibco, a different source said. Vista Equity Partners Fund V closed last month on about $5.8 billion and is Vista’s largest PE fund to date. Fund V is bigger than its fourth flagship fund, which collected $3.5 billon in 2012. The firm’s third pool raised $1.3 billion in 2008. Performance data for Fund IV, a young pool, was not available. Vista’s third fund was producing a 31.6 percent IRR and 2.46x total value multiple as of June 30, according to the Oregon Public Employees Retirement Fund. Tibco declined comment. Vista could not be reached comment.

Horton Hears a Hadoop: Tech IPO Shows the Future of Databases

Open systems companies, IPOing here we come. Aivars Lode avantce

Horton Hears a Hadoop: Tech IPO Shows the Future of Databases

Hortonworks, a Data-Platform Maker Founded Three Years Ago, Files to Go Public

By Elizabeth Dwoskin and Deborah Gage

Updated Nov. 10, 2014 7:27 p.m. ET

If Big Data becomes a mainstream for business any time soon, it may be due in part to free software with an unusual name.

The software known as Hadoop took a step toward that future Monday with a filing for an initial public offering by Hortonworks Inc., a company valued at $1.8 billion and founded a little more than three years ago by Yahoo Inc. engineers and backed investors Benchmark, Index Ventures, Teradata Corp. andHewlett-Packard Co.

Yahoo is the top outside investor, holding 19.6% of company shares, and it is also a significant customer, according to the filing. Hortonworks’ filing laid out its goal to transform the way companies store and process data, a market expected to be worth $32 billion dollars in three years, according to IDC.

Hortonworks declined to comment on its IPO.

Both Hortonworks and its better capitalized, venture-backed rival, Cloudera, are riding the exponentially growing wave of data. Both companies have staked their business on Hadoop, an especially efficient open-source approach to storing and searching through large amounts of information.

Hadoop isn’t an acronym, but the name of a toy elephant of the child of the Yahoo engineer who founded Cloudera.

Hortonworks’ business model is more dependent than others’ on open-source software—meaning the software itself is free, but the company charges for regular updates and other services. Rival companies maintain some open-source software but sell proprietary add-ons as well as services.

Today, many large U.S. enterprises are producing more data than they can manage and keeping more than they used to discard. Thanks to a large marketing push by Hortonworks and its rivals, Hadoop is catching on as a relatively inexpensive way to house the information for future uses. The technology ultimately could be used for large-scale data mining, such as optimizing supply chains or targeting advertisements.

However, many companies lured by that promise have found the technology difficult to use. David Gleason, an executive of Bank of New York Mellon who has tested Hadoop, said in a recent interview the technology wasn’t “ready for prime-time.”

Hortonworks and Cloudera are trying to overcome that challenge by integrating Hadoop with more familiar technologies, including those from Microsoft Corp. and Teradata, a traditional data warehouse.

The biggest challenge to Hortonworks may be Cloudera’s partnership with Intel Corp. In May, Intel invested $740 million in Cloudera, which has raised more than $1 billion at a valuation of about $4.1 billion. Intel is integrating Hadoop into its chip sets. Similar to Intel’s previous investments in open-source software vendors VMware Inc. and Red Hat Inc., the bet is that in a few years, this will be a commonplace technology.

Hortonworks’ IPO filing shows both the opportunity and the challenges. The company’s revenue has more than doubled in the past year, while operating expenses and losses also have roughly doubled.

For the nine months ended Sept. 30, revenue was nearly $33.4 million, compared with nearly $16 million for that same period in 2013. But losses were also substantial and growing—$86.7 million in the first nine months compared with $48.4 million in 2013.

Eric Baldeschwieler, a Hortonworks co-founder who was the company’s CTO until he departed last year, acknowledged it was still early days. However, signs in the market were positive, he said. “We’ve seen companies move from pedestrian use cases at small scale to exciting use cases at a large scale,” he said.

Cloudera CEO Tom Reilly said in an interview that his company wasn’t yet ready for an IPO, although its revenues and customer numbers were double those of Hortonworks, which said it had just under 300 customers, including partners. Cloudera was also losing money, but at a lower rate, he said. “We would like to be a public company, and we will do it on our time,” he said.

Unlike Hortonworks, which received a sizable portion of its revenue from its partnership with Microsoft, Cloudera’s revenue came entirely from paying clients, Riley said.

Another Hortonworks rival, MapR, has said it would go public next year.

Vista Equity takes unusual risks with private equity fund

As we discussed, this deal is difficult to see how it works, but we will know in 5 years time. Aivars Lode avantce

Vista Equity takes unusual risks with private equity fund By Greg Roumeliotis Tue Nov 11, 2014 1:00am EST Vista Equity Partners has worked in an unusual clause in its contracts with private equity fund investors that gives it more financing flexibility and a leg up in leveraged buyouts, but also carries more risks for it and its investors, according to people familiar with the matter. The agreement allows Vista to temporarily finance large corporate buyouts just with the cash from its $5.8 billion fund, as against using both debt and equity to buy companies. Under the right circumstances, this flexibility allows Vista to be nimble in auctions and secure the best possible debt financing after it has clinched a deal. Two months ago, Vista used the clause in one of the largest private equity deals of the year, committing to fund the $4.2 billion takeover of TIBCO Software Inc with equity. One day later, it secured debt commitments from JPMorgan Chase & Co and Jefferies LLC for the deal, reducing its equity exposure to $1.6 billion. The maneuver helped it not only outbid rival Thoma Bravo LLC in the TIBCO auction, but also use JPMorgan and Jefferies, which where were originally backing Thoma Bravo during the auction and were offering better financing terms, the sources said. Investors in the Vista fund, known as limited partners, include some of the largest U.S. public pension funds, including the New Jersey State Investment Council and the Oregon Public Employees Retirement Fund. These funds do not disclose to their members and retirees all the risks they undertake, because the agreements with Vista and other private equity firms are confidential. The revelations highlight how important aspects of the investment of public money in private equity are shrouded in secrecy. Representatives for these pension funds declined to comment. Public pension funds have invested more money in buyout funds in recent years in a search for yield amid persistently low interest rates. Private equity accounts for 9.4 percent of total public pension fund investments and has delivered a 12.3 percent annualized return to the median public pension over the last 10 years, more than any other asset class, according to the Private Equity Growth Capital Council, the industry’s lobby group. Several pension fund investors, private equity placement agents and lawyers interviewed by Reuters said Vista’s terms are highly atypical and not widely known even within the private equity industry. Most firms have caps – usually around 15 to 20 percent of the fund – on how much equity they can commit to a particular deal. Private equity funds also rarely make all-equity commitments for such deals, preferring to tie up debt financing ahead of time. When they do make such all-equity commitments, the equity checks tend to be much smaller. The reason is that doing so poses the risk that investors see their entire capital tied up in one investment, potentially hurting returns and denying them the benefits of diversification, these industry sources said. Such a situation can arise, for example, if the debt market conditions were to suddenly sour, as it happened in the summer of 2007 before the financial crisis. In the TIBCO deal, Vista’s financial liabilities are capped at $275.8 million. But if the banks walk away before the deal closes, TIBCO can try to force Vista to close on the deal with its fund. “It’s a bit like walking on a wire without a net,” said Alan Klein, a partner at law firm Simpson Thacher & Bartlett LLP.

U.S. to Spend $425 Million on Supercomputers

China is now providing competition to the USA. Aivars Lode avantce

U.S. to Spend $425 Million on Supercomputers

By Don Clark
Updated Nov. 14, 2014 1:07 p.m. ET
Energy Department to Install Two IBM Systems, Invest in ‘Extreme Scale’ Technologies

The federal government said Friday it will spend $425 million to advance supercomputer technology, the latest sign of its determination to leap frog China in a field often linked to national security and economic competitiveness.

The U.S. Department of Energy plans to install two International Business Machines Corp. systems valued at $325 million at Lawrence Livermore National Laboratory in California and Oak Ridge National Laboratory in Tennessee The project, called Coral, also includes Argonne National Laboratory. The machines, which will incorporate technology from chip maker Nvidia Corp. , will carry out calculations five to seven times faster than the most advanced U.S. systems now in use, the department said.

Another $100 million will go toward developing “extreme scale” supercomputing technologies as part of a program titled FastForward 2. Illinois-based Argonne would pick a supercomputer under the Coral program later, the agency said.

Supercomputers, room-size systems that comprise thousands of microprocessor chips, perform tasks that include simulating nuclear explosions, cracking encryption codes, projecting climate trends and locating oil deposits. China’s 2013 success in building a system that topped a closely watched ranking of computer performance—interrupting years of U.S. dominance—prompted calls by U.S. scientists for greater government support.

Energy Secretary Ernest Moniz, who announced the projects Friday at an event in Washington, D.C., said in prepared remarks that they would foster “transformational advancements in basic science, national defense, environmental and energy research.”