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October 7, 2014updated 21 Oct 2016 3:54pm

HP split – will it now buy Rackspace?

Analysis: From EDS to 3Par to Autonomy HP has acquired all sorts of companies but it has never bought a data centre player.

By Sam

What are the chances that Hewlett-Packard Enterprise, the soon to exist mid-to-high-end manufacturer of IT equipment and cloud, services and analytics company that is set to emerge from the husk of HP will buy data centre outfit Rackspace?

With yesterday’s announcement that the company would split into Hewlett-Packard Enterprise and HP Inc over the next 12 months Meg Whitman, HP CEO, had managed to shock the market into rampant inactivity amid a lot of financial market analyst head scratching. They were generally positive about the potential. The 6% share price ‘surge’ – more of a bounce – doesn’t look like it is really heralding an upward trend.

But it was probably as good as could be expected – there was no capital flight.

Cloud capacity

Why a deal for Rackspace would make sense on a number of levels.

Hewlett-Packard Enterprise has no serious global data centre footprint to speak of from which to sell cloud services.

This means its capacity is severely limited when compared with web scale players Amazon, Google and Microsoft.

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HP didn’t buy Softlayer, IBM did for $2.5bn and immediately declared Softlayer as its cloud platform.

Rackspace is in a rapidly commoditising business.

It failed to find a buyer between May and September this year.

Rackspace market cap is $4.8bn.

Where is HP now?

Tech analysts were generally positive also about the financial muscle, the product set and the ability to compete in the enterprise space. Yet there appears to be big questions over its cloud play.

Hewlett-Packard Enterprise will have scale. It has had real innovation in the server market with Moonshot system on chip servers. Its win in the bidding war for 3Par looks like a real storage business success.

The fall-out from its Autonomy acquisition has been mostly ridden through. It has a big data analytics play.

In the cloud, its commitment to Openstack ties it closely to Rackspace. Its Helion public cloud and hybrid offering gives it a market foothold.

But without serious cloud infrastructure on which to build high value services Hewlett-Packard Enterprise could risk becoming a fading equipment shifter pushing kit into on-premise owner managed data centres.

All the indicators are that the enterprise IT budget is going hybrid with an increasing percentage deployed for colocation, hosted or cloud services in 3rd party data centres.

Buy or build

In yesterday’s briefing announcing the split Meg Whitman said that M+A would be returns focused. She refused to be drawn on whether any M+A would be transformative.

Of course the capital deployed in M+A could be targeted towards a pure services expertise or a big merger with a more traditional equipment type player.

Whichever way it goes Hewlett-Packard Enterprise needs a cloud play. And for that it needs global data centre capacity on the right terms.

Whether this capacity is from Rackspace, Hewlett-Packard Enterprise has two choices, it can buy existing capacity or it can build it.

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