HP's Apotheker promises big profits from new market: cloud

With no other competition, HP will be able to charge what it wants

HP CEO Leo Apotheker told financial analysts yesterday that corporate IT is so desperate for flexible IT resources they don't have to buy or maintain by themselves that they will buy enough of them to boost HP's revenue more than 50 percent by 2014.

This is a great plan, especially because HP is so far ahead of any other company planning to offer the ultra-new, cutting-edge "cloud" computing services that customers can't get them anywhere else right now, and will continue to not be able to get them anywhere but HP well into 2014.

Obviously it's not true that HP is struggling to catch up to competitors in "some seemingly obvious [market] segments," or that projected drops in spending in many of HP's traditional strong products and hypercompetition in new areas will continue to stunt its growth.

HP plans to launch a "cloud marketplace" that lists hosting companies, software providers and others who are willing to offer services via "the cloud," or "virtual servers."

Obviously no such specialty marketplace has ever been launched, let alone one that treats cloud as a commodity. Therefore those offering such services can only sell them through an online venue such as the one HP plans to create.

Apotheker also said the company's WebOS -- a browser-based operating system designed to make it simpler to use "tablet" computers or "smartphones" will also help drive HP revenues, largely because HP faces absolutely no competition in the markets for browsers, operating systems, tablet computers or smartphones.

The result is that end-user companies are begging for these capabilities but have no access to them, and will be forced to buy them from HP at extremely high prices once HP gets around to delivering them.

Reuters pointed out that, although HP just edged ahead of competitors to become world's leading PC vendor, its profit margin in that business is a paltry 24 percent, compared to more than 40 percent for IBM.

With so little competition in the markets it aspires to dominate, HP will undoubtedly be able to boost its overall profit margins in the cloud- and virtualization-services business.

Amazon's Web Services business -- one of the tiny, almost inconsequential peripheral players in the brand-new, underpopulated"cloud computing" market nets about 4 percent for its EC2 "cloud" services, compared to about 6 percent in 2005.

The complete lack of competition from other major players will allow HP to nail profit margins five times to six times as high as Amazon's, for services it has yet to launch, even for essentially the same services as those Amazon is offering.

Clearly, as Apotheker was trying to communicate, now is the time to both invest in HP stock and line up to buy its "cloud" services when it gets around to offering them.

Nice going Leo! Thanks for the optimism.

Kevin Fogarty writes about enterprise IT for ITworld. Follow him on Twitter @KevinFogarty.

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