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 Channel Futures

Best Practices


HP: Time to Buy Red Hat for Cloud Computing Land Grab?

  • Written by The VAR Guy 1
  • March 16, 2011
What a difference a year makes. At the 2010 HP Americas Partner Conference (APC), then-CEO Mark Hurd spoke mostly about product sales: More server, PC and printer shipments every second through the channel.

What a difference a year makes. At the 2010 HP Americas Partner Conference (APC), then-CEO Mark Hurd spoke mostly about product sales: More server, PC and printer shipments every second through the channel. Fast forward to this year’s HP APC (March 28-30, Las Vegas), and current CEO Leo Apotheker (pictured) will surely deliver a strong cloud computing message to channel partners. But that’s not all. Apotheker is sizing up potential software acquisitions. If HP is serious about succeeding in the cloud, then Apotheker should take a close look at Red Hat for possible acquisition, The VAR Guy believes. Here’s why.

Apotheker is seeking to revive innovation at HP. In a recent interview with BusinessWeek, he said HP had “lost its soul.” That’s quite a dramatic statement — and generally speaking, The VAR Guy agrees with it.

Under former CEO Mark Hurd (now at Oracle), HP underwent multiple rounds of cost cutting. Hurd brought much-needed financial discipline to HP. But HP also took some lumps for cutting its R&D under Hurd’s watch.

Potential Software Targets

These days, Apotheker seems set to accelerate HP’s software acquisition strategy. Informatica Corp., BMC Software Inc., SAS Institute Inc., Symantec Corp. and CommVault Systems Inc. are among potential targets, according to Robert W. Baird, a financial analyst firm quoted by BusinessWeek.

Hmmm… Those are all interesting. But if HP really wants to dominate the cloud the company needs to own software that serves as the foundation for the cloud — operating systems and virtualization software, The VAR Guy believes.

But virtualization companies carry big price premiums. Alas, VMware‘s market capitalization — $32 billion on March 16, 2011 — is likely too lofty for HP’s wallet. Plus, EMC owns a stake in VMware. In stark contrast, Citrix Systems — another virtualization specialist — has a $12.71 billion market cap and would be easier to swallow.

A Logical Target

But wait, what’s this?: Red Hat‘s market cap is a reasonable $7.64 billion. Build in a healthy premium — say, a $10 billion total price tag — and HP could acquire a highly strategic operating system (Red Hat Enterprise Linux) and an emerging virtualization platform (Red Hat Enterprise Virtualization). Surely, owning WebOS on the front end and Red Hat’s software on the back-end would give HP and its channel partners a powerful one-two punch in the cloud.

Of course, the HP-Red Hat chatter is pure speculation on The VAR Guy’s part. But in terms of takeover targets, Red Hat aught to be on HP’s shortlist of candidates. An HP-Red Hat deal would also upset the apple cart across the hardware industry, forcing Dell, IBM and others to rethink their various Linux relationships.

Disclosure: As of this article’s publication date, The VAR Guy owns a couple hundred Red Hat shares, and no HP shares.

Sign up for The VAR Guy’s Weekly Newsletter, Webcasts and Resource Center. Follow The VAR Guy via RSS, Facebook and Twitter. Follow experts at VARtweet. Read The VAR Guy’s editorial disclosures here.

Tags: Cloud Service Providers Digital Service Providers MSPs VARs/SIs Best Practices Cloud

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10 comments

  1. Avatar Martin Owens March 17, 2011 @ 12:11 pm
    Reply

    It would be interesting to think what this would do to Red Hat’s Ramp;D, they do a lot for Freedesktop and I’d rather not have their investment evaporate at HP.

  2. Avatar The VAR Guy March 17, 2011 @ 12:43 pm
    Reply

    Martin: The VAR Guy welcomes your skeptical eye. HP will surely be making acquisitions. And The VAR Guy truly wonders if Red Hat is on the short list of considerations. Pure speculation but interesting nonetheless…
    -TVG

  3. Avatar Hilander March 17, 2011 @ 1:21 pm
    Reply

    HP should have bought Novell few months ago, it is (was) twice cheaper than RH but has interesting portfolio of copyrights and patents, in addition to strong GNU/Linux Suse distro and ecosystem.

  4. Avatar Kenny Strawn March 17, 2011 @ 1:22 pm
    Reply

    Well at least if Red Hat is bought out by HP we know it is going into good hands, especially since webOS is also Linux and also 100% open source. In this case, HP is also increasingly becoming an FOSS-friendly company (at least to what’s open source already).

  5. Avatar Rabid Howler Monkey March 17, 2011 @ 4:32 pm
    Reply

    +1 for SAS Institute, Inc. They are a 1st class and top-notch company.

    Let AMD have Symantec (they can fight it out with Intel and McAfee).

    Red Hat? Just imagine the bidding war! What with Novell nearly in the clutches of Attachmate. Personally, I hope Red Hat can remain independent.

    How about Zoho for countering Google Apps? This would really complement WebOS. And, it’s not just Oracle and IBM that HP is competing with.

  6. Avatar jake March 17, 2011 @ 5:21 pm
    Reply

    Better if they had bought Novell….

  7. Avatar AC March 17, 2011 @ 6:25 pm
    Reply

    I’d rather see IBM acquire Red Hat. HP will only destroy them.

  8. Avatar The VAR Guy March 17, 2011 @ 6:49 pm
    Reply

    [email protected] and [email protected]: Yup, NOVL would have been an intriguing play for HP. The Attachmate-Novell deal has been delayed a bit while regulators review Novell’s patent portfolio sale to certain companies. The VAR Guy continues to monitor that story closely…

    [email protected]: SAS Institute is a well-run company, indeed. Somewhat quiet in the IT channel, but SAS does have a rapidly growing SMB market focus that involves partners. Your mention of Zoho also is quite interesting. But remember Zoho is part of a larger company that includes managed services software as well…

    [email protected]: Not sure IBM wants to get back in the x86 operating system business. Generally speaking, IBM has backed Novell, Red Hat and Canonical (in some markets) in order to ensure competition among the Linux distributions rather than another OS monopoly…

    -TVG

  9. Avatar DSP March 18, 2011 @ 4:59 am
    Reply

    Me thinks the Var Guy is nuts.

  10. Avatar The VAR Guy March 18, 2011 @ 1:04 pm
    Reply

    DSP: The VAR Guy appreciates the constructive criticism. And he welcomes and recommendations to help hasten his recovery.
    -TVG

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