July, 2013 Earnings Announcements Mark Clear Turn In Enterprise Computing Preferences to Cloud Options
In July, 2013, several prominent ISVs announced earnings short of analyst estimates. These businesses included Oracle®, IBM®, and Microsoft®. ISVs with key firmware for PC markets, principally Intel® made similar announcements.
In our opinion, each of these misses is a telltale sign of yet another chapter on an ongoing migration, by enterprise businesses and similarly sized organizations in the public sector, from on premises computing to cloud alternatives. Microsoft® seems to be prepared for this change. Windows Azure® and Office 365® are positioned to provide long standing Microsoft customers with a method of safely transitioning from on premises computing solutions to cloud options. But the dollar impact of lost sales of on premises SQL Server, Windows Server, SharePoint and other products cannot be replaced by revenue streams “approaching $1.5 Billion”. As Dan Niles of AlphaOne Capital Partners observed on CNBC on Thursday, July 18, 2013, “You can try and say . . . Office 365 is a $1.5 Billion annual run rate, but the last time I checked the company just did almost $20 Billion in revenue in the quarter. The $1.5 Billion, I don’t really care about that” (quoted from Microsoft ‘on the wrong side’: Dan Niles).
We think this set of earnings misses will be a catalysts of serious efforts at these ISVs (and peers deeply committed to enterprise software products) to re-invent themselves to better address markets looking for something new–cloud solutions.
On these markets: As we have written in several posts to this blog, we think the real driver comes down to budgets. Cost simply trumps security and convenience for these customers. These new priorities are especially true for public sector organizations admonished to choose cloud options, wherever possible.
Expect to see each of these big ISVs announcing more efforts to position themselves as leaders in cloud computing. IBM, from its Q2 2013 Quarterly Earnings Report, is making progress on this route through a series of acquisitions (including Softlayer Technologies), which should benefit them over the last half of this year and going forward.
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