Tech vendors' business model transition to a cloud-based model has been largely characterized by software players such as SAP, Adobe, Microsoft and Oracle.
We know how that transition has been working out. Adobe made the first licensing to cloud splash, took some revenue lumps and transitioned to a subscription model. The Creative Cloud now trumps the Creative Suite. SAP and Oracle bought their way into the cloud. Microsoft also transitioned on its own.
One question worth pondering is how hardware giants will fare. The cloud move means that hardware vendors will have to sell servers, routers and storage systems to fewer players. Some of these players---Google and Facebook---build their own servers and use white box manufacturers. In addition, the cloud also means more infrastructure---networking and storage---will be software defined. The common theme with all of these developments is that you'll need less hardware.
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That cloud transition question is worth pondering as Intel reports its fourth quarter results, which are expected to be carried by the data center group. Intel launched new server platform, but has said the ramp in sales will take longer due to memory costs. At some point, the cloud will hit server sales harder.
The hardware vendor-cloud connection was highlighted by Barclays Capital analyst Ben Reitzes in a downgrade of F5 Networks.
We believe that 2015 should see a continuation of several trends that were evident throughout the 2H of 2014. The emergence of the cloud and software-defined technologies are playing a larger role in IT decision making, which should only continue. Obviously, we still see the cloud as a disruptive concept that bridges the legacy data center with next generation architectures - with a focus on doing more with less. It is still not clear how much risk the rapid transition poses for companies like IBM, HP, Juniper, EMC, NetApp and Cisco. We envision several restructurings blunting the downside damage of cloud for some, but then still see risks of reacceleration of pressures later.
Bottom line: The cloud hit is coming. Whether that hit is a big punch or a series of body blows remains to be seen.