HP Could Gain as Government Shifts to Cloud

May 5th, 2011 by Trefis Team
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The federal government could save a potential $18.8 billion per year on IT costs by consolidating several hundred data centers, according to a new survey conducted by MeriTalk and commissioned by storage vendor NetApp (NASDAQ:NTAP). [1] We believe tech giant HP (NYSE:HPQ) is best positioned to take advantage of this opportunity by helping the government shift more data centers and storage to cloud services. Other firms likely to benefit include IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).

We currently have a $55.49 Trefis price estimate for HP’s stock with infrastructure outsourcing making nearly 17% of the estimated firm value. Our price estimate is around 35% ahead of the current market price. You can see leading drivers for our estimates by scrolling through the slideshow below.

HP: Cloud Provider to Department of Defense

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The federal government plans to close 800 data centers by 2015, 137 of them in 2011. The Department of Defense (DOD) operates nearly 40% (52 in number) of the federal government’s data centers that will be closed before the end of the year, and HP operates at least 400 of the total 800 the government plans to close by 2015.

As HP has already designed and built the cloud computing platform RACE (Rapid Access Computing Environment) for the DOD, the company’s role in closing down these servers could leave it well positioned to transition these data to cloud environment using HP services. In addition to RACE, HP’s EDS unit has been a leading integrator for other federal agencies, and HP recently announced its Cloud Design Service that will help large organization build integrated, hybrid cloud environments. [2] ((Who Are the Contenders for the Federal Cloud?, datacentreknowledge.com))

So while the closed data servers represent lost revenues on one hand, HP stands to gain from new cloud services on the other. We currently forecast HP’s infrastructure outsourcing revenues to grow at a low single digit growth rate to $20 billion by the end of our forecast period. However, a higher growth related to the government’s shift and other large contracts could raise this growth rate going forward. For example if this increased to $30 billion by the end of our forecast period, this would imply 10% higher price estimate.

See our full analysis of HP.

Notes:
  1. Survey: Government Data Center Consolidation Could Save Billions, crn.com [↩]
  2. DOD To Close 52 Data Centers, informationweek.com [↩]