Hewlett-Packard (NYSE:HPQ) was recently awarded a partial contract by the U.S. Department of Defense to build a private cloud network. HP will enable the army to move from legacy systems to a private cloud network. As part of the contract, HP will work with military defense contractors Northrop Grumann (NYSE:NOC) and General Dynamics. The Army Private Cloud Contract (APC2) is valued at $250 million. HP competes in the cloud computing space with IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO).
Containerized Data Center Format
The rationale behind this contract is quick deployment and scale and to increase cost savings. Cloud services tend to be cheaper to run than legacy systems, but the value-add for the army is the mobile data centers. HP has a line of mobile data centers called the Performance Optimized Datacenter (POD). These are secure mobile data centers which can be quickly deployed and scaled when needed. PODs are used mainly to add quick short-term capacity to existing data centers or to get the cloud services running quickly during operations. This is likely to be used to get the IT operations running on the field or during overseas operations. 
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Northrop Grumann would be brought in to address cybersecurity issues and keep cyber attacks at bay, while General Dynamics will work with HP on integrating the cloud with the army’s current systems. General Dynamics claims to have successfully fielded more than 6,000 tactical shelters and containerized systems for the army, and the know-how of the army systems will be helpful in the migration of the legacy systems.
We currently have a $39 Trefis price estimate for HP. Services consist of almost 40% of this estimate. Army contracts tend to be long-term and repetitive in nature and could result in some upside to the stock price.Notes: