Cloud Forecasts Darken a Bit After Q2
July 21, 2011
With so much hype about cloud computing, it’s not hard to bring the sector down to earth.
The mention of cloud computing in earnings calls has become routine by companies such as virtualization software maker VMware (NYSE:VMW – News). But like many emerging tech trends, expectations can jump ahead of reality…
"Companies are being cautious about deploying cloud computing," said Sean Hackett, research director for cloud computing at research firm TheInfoPro.
Informatica (NASDAQ:INFA – News) offered some hope after Thursday’s market close. The data integration software maker said it earned 33 cents a share, up 32% vs. a year earlier and 2 cents above analyst forecasts. Shares rose in late trading.
But that followed disappointing results from Riverbed Technology (NASDAQ:RVBD – News) and F5 Networks (NASDAQ:FFIV – News) that triggered a wave of selling throughout the sector.
Cloud computing has emerged as one of the hottest trends in information technology. Rather than buying and maintaining their own systems, companies essentially rent their computing needs.
The boom is creating a wide range of opportunities, from hosting servers (Amazon (NASDAQ:AMZN), to software-on-demand (Salesforce.com (NYSE:CRM), to massive infrastructure upgrades for hardware and software makers such as Riverbed, F5 and Informatica.
Concerns about the pace of cloud spending emerged July 19, when Riverbed failed to beat earnings estimates, missed on sales and guided EPS targets lower. Riverbed dived 23% on Wednesday, losing 2.5% Thursday.
F5 kept the pressure on late Wednesday, reporting lower-than-expected sales. F5 tumbled 11% Thursday after falling 6% on Wednesday.
Salesforce lost 8% over the last two days, while Aruba Networks plummeted nearly 17%.
Acme Packet (NASDAQ:APKT – News), which some analysts deem a cloud play, lost 13% those two days. The voice-over-Internet infrastructure firm late Thursday topped Q2 profit and sales estimates. It also raised full-year guidance — but not enough to satisfy investors. Shares kept falling after the close.
"The cloud is pitched as the end all and be all, but we are overreaching," Hackett said. "It sounds a lot like 1999," when any firm with a dot.com name was hyped to the heavens.
Riverbed, Acme and F5 are seen by some as being peripheral cloud players for now. Riverbed, for example, provides products that boost data center performance. F5 and Acme help Internet performance.
Cloud computing is for real. Telecoms spent almost $8 billion on cloud-related pursuits in the first half of 2011, according to Informa Telecoms & Media.
But some companies are trying to downplay expectations.
"The cloud-storage market remains in the very early stages of deployments," said Jerry Kennelly, chairman, president and CEO of Riverbed, in Tuesday’s post-earnings call. He said Riverbed is well positioned, but only "when cloud storage becomes more widely adopted."
Virtualization software may be where cloud’s reality best lives up to the hype. It creates multiple "virtual" computers from one, vastly expanding clients’ capabilities.
As Riverbed was disappointing investors late Tuesday, virtual leader VMware was blowing out Q2 EPS and sales forecasts and giving strong Q3 outlook.
But investors chose to focus on cloud’s storms. Even VMware, which hit a new high Wednesday, reversed to end a bit lower.
Wednesday morning, data storage firm EMC, the majority owner of VMware, also topped forecasts — and reversed lower.
EMC CFO David Goulden reminded analysts that "we’re still closer to the beginning than at the end of this fundamental shift to cloud computing."