Buy Up The Companies That ‘Get’ The Cloud
December 21, 2011
Oracle’s (ORCL) earnings bombshell yesterday is the first indication that cloud computing is hitting enterprise IT.
Regardless of what it may say publicly, Oracle is not a cloud company. It sells big iron, Sun servers and Exadata data systems. It sells big software, in the Oracle database and all the applications around it. It needs people to write big checks every year for its licenses, and bigger checks whenever they want to grow.
But something has changed. Cloud has changed.
Cloud is not based on expensive servers, but commodity hardware. Cloud is based on open source, not vendor lock-in. Cloud is based on Software as a Service (SaaS), not enterprise IT as it has existed in the past. With cloud, you pay for what you use, not what you need…
Oracle’s argument is that enterprises are reluctant to move to cloud, and even if they do go to cloud it will be through private clouds, through their own clouds, and those clouds will be filled with Oracle hardware and software. They have played a game of fear, uncertainty and doubt with the cloud, and they are paying a price. Over Thanksgiving, a lot of CIOs went to CEOs for big checks and found them questioning that strategy.
A lot of traders are going to use this as a chance to dump on the entire tech sector. And there are companies in that sector that deserve haircuts, like Hewlett-Packard (HPQ) and Cisco (CSCO). But companies that have moved quickly to cloud, like IBM (IBM) and Microsoft (MSFT), should ride this out. Companies with mobile strategies should as well.
What this really says is that companies that rode the cloud, like Rackspace (RAX), Red Hat (RHT) and VMWare (VMW), had it right. While Red Hat’s own guidance came up slightly short of what analysts were whispering, it was still fairly close.
The best advice is to let enjoy some carnage over the next few days and then go for companies that have real cloud strategies and mobile integration. I’m long IBM, and I’m going to stay in it. If RHT weakens substantially in the next few days, I’d be nibbling on it.
Oracle is not dead, of course. Look for the company to try to buy one of the winners in the cloud race during the next quarter. If it makes a move for Red Hat, for instance, I would expect a quick IBM counter. Investors will be the winners.
This is a buying opportunity for companies that get the cloud. The rest of you were warned.