It is amazing that at the turn of the century, just a short 17 years ago, if you asked somebody how they felt about the cloud they would have most likely pointed to the sky. Now the cloud is synonymous with new millennium computing, storage and everything that we as technology users and content lovers have embraced. Industry magazine RCR Wireless recently noted that AT&T has seen a 250,000% increase in data traffic since 2007. That coincides with the year the iPhone was first introduced, and things have never been the same.
A new UBS research report points out that three of the largest technology companies are dominating the cloud infrastructure arena, and data from Synergy Research indicates that the cloud infrastructure market for hardware and software exceeded a massive $70 billion in 2016. According to the report:
The client-server disruption of the 1990s taught investors to flee incumbents for new vendors when the winds shift. Cloud is the most important of the social, mobile, analytics and cloud trends as workloads migrate to the public cloud and branded equipment becomes less popular. Although the benefits of cloud computing potentially are available on-premises, consultants see many private cloud efforts failing. The decline should be gradual but inexorable.
Here are the three top companies that are battling for their share of a big pot of money, and the competition should continue to remain intense.
This is a top mega-cap technology stock pick at UBS for 2017. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.
The company remains one of the infrastructure share leaders, and UBS team points out its lead in networking and the public cloud.
Cisco shareholders are paid a 3.4% dividend. UBS has a Buy rating on the shares and a $37 price target. The Wall Street consensus target is $35.19. The stock closed Wednesday at $34.07.
The iconic tech pioneer returned from the land of the private companies last summer and the stock and done very well. Dell Technologies Inc. (NYSE: DVMT) designs, develops, manufactures, markets, sells and supports a range of information technology (IT) products and services worldwide.
The reborn public company is the combination of the old Dell Computer organization, which paid a staggering $67 billion back in 2015 to buy storage company EMC, which owned a controlling stake in software and virtualization company VMware.
EMC gives Dell an avenue into the valuable hybrid cloud computing market. Many on Wall Street and in the tech world believe the $67 billion price was a bargain and Dell and its investors could make a substantial amount of money when all is said and done with the avenue to the cloud business opened up.
UBS and nobody else on Wall Street currently cover the company, which seems somewhat odd. The shares closed most recently at $62.93.
Hewlett Packard Enterprise
This company was part of the big split in operations at the iconic Hewlett-Packard. Hewlett Packard Enterprise Co. (NYSE: HPE) is now an industry leading technology company that enables customers to go further, faster. With the industry’s most comprehensive portfolio, spanning the cloud to the data center to workplace applications, the company’s technology and services help customers around the world make IT more efficient, more productive and more secure.
HPE operates under four segments: Enterprise Group (50% of revenue) has servers, storage, networking hardware and technology services. Enterprise Services (37%) has a broad IT outsourcing focus. Software (7%) and Financial Services (7%) make up the remaining portfolio. The company has leading market share across many of its businesses.
The company also has a partnership with Microsoft to offer new innovation in hybrid cloud computing through Microsoft Azure and HPE infrastructure and services and new program offerings. The extended partnership appoints Microsoft Azure as a preferred public cloud partner.
Shareholders receive a small 1.16% dividend. UBS has the stock rated Buy with a $27 price target. The consensus target is $24.52. The shares closed Wednesday at $22.34.
In the research report, the analysts reported that each of these three companies had about 12% of the market share in the fourth quarter of 2016. They also note that they expect the companies to try to move into each other’s markets to offer more complete solutions to customers.