Salesforce.com (NYSE: CRM ) and Hewlett-Packard (NYSE: HPQ ) recently announced plans to become strategic partners with a new product called the Salesforce Superpod. The deal involves running Salesforce's multi-tenant cloud on HP's converged infrastructure technology. Both companies plan to market the Salesforce Superpod, and HP is planning to be Superpod's first customer. HP's Meg Whitman, president and CEO, said:
Trends like cloud, mobility and big data are creating a 'New Style of IT' and transforming what enterprise customers expect and need from technology. I'm excited to have HP and salesforce.com work together to help customers tackle these exciting challenges.
The Superpod fills a gap in Salesforce's cloud-based product offerings and allows customers to choose an instance of Salesforce software that is powered by dedicated hardware. This product is attractive to companies that require enterprise solutions, yet are uncomfortable using cloud-based services that utilize distributed resources.
Salesforce's strategic move to offer a dedicated option
The creation of the Superpod is a smart and strategic move by Salesforce. The company is leveraging HP's technology to market the Superpod services to the world's largest companies. The Superpod will help boost sales for Salesforce and capitalize on businesses that have been hesitant to use cloud-based products in the past.
Salesforce is showing amazing growth: The company reported earnings of $1.08 billion in the third quarter of 2014, which represents a 36% increase over the same quarter in 2013. The company reported that $1 billion of the revenue generated in the quarter was due to subscriptions and services.
The company is showing a profit: Salesforce reported $0.09 earnings per share in the third quarter of 2014. The company is in a good position to reinvest profits and focus on future growth through new products, including the new Superpod service.
Investors should pay attention to the launch of the Superpod product and watch how well this service is received in the marketplace. Look for large, reputable companies to subscribe and impact the Superpod brand. If the new service is successful in providing enterprise-level solutions using a dedicated infrastructure, large companies are likely to come aboard to use the Salesforce services. A successful launch of the Superpod service will likely translate into expanding revenue for the company.
Great potential for HP
HP's new partnership with Salesforce is a significant shift into the company's new paradigm. Whitman has repeatedly highlighted plans to bring HP into the "New Style of IT." HP is now capable of packaging its high-end hardware with Salesforce's software-as-a-service model. This pairing will help HP put more of its server technology into service and expand revenue.
HP recently reported revenue of $29.1 billion in the fourth quarter of 2013, down 3% from the same quarter last year. The company reported profits of $1.01 per share in the fourth quarter of 2013, down 13% from the same quarter last year. Although the earnings reported for HP are down compared to last year's quarter, the company is currently going through a major shift in focus. Whitman said,:
Through improved execution, strong cost management, and with the support of our customers and partners, HP ended fiscal 2013 on a high note. Our Q4 results demonstrate that HP's turnaround remains on track heading into fiscal 2014. While we still have much more work to do, our business units and their core assets are delivering on HP's strategy to help customers thrive by providing solutions for the New Style of IT.
Investors should carefully watch HP and monitor how the company moves into a "New Style of IT" under Whitman's strong leadership. HP is currently delivering on the company's new focus by making Salesforce a strategic partner with the new Superpod technology. Keep an eye out for other potential partnerships that may be in the works for HP, ones that will help the company expand revenue in new technology.
What about the Oracle partnership?
In June, Oracle (NYSE: ORCL ) and Salesforce announced a nine-year partnership that integrated cloud-based applications, platforms, and infrastructure between the companies. Among the many facets of the partnership, Oracle was tasked with providing the infrastructure used to power the Salesforce platform.
Salesforce's new strategic partnership with HP presents a potential conflict of interest with the Oracle partnership. According to zdnet.com, Salesforce co-founder, Parker Harris, explained that Salesforce wanted to give customers a choice in technologies and that Salesforce is moving some software to Oracle's Exadata databases.
It appears that the partnership with Oracle is still moving forward, and Salesforce plans to offer Superpod as an alternative service. Investors should carefully watch the rollout of Superpod to see how it competes with Salesforce's traditional cloud-based services. Keep tabs on the kind of technology being used on the new HP-powered Superpod. It is possible that the HP hardware could be outfitted with Oracle database technology, which would increase license revenue for Oracle.
The bottom line
The Salesforce and HP partnership allows both companies to expand offerings to a new customer base. By using HP's server technology, Salesforce will be able to market services to customers that require the use of dedicated infrastructure technology. The pairing of HP's technology with the Salesforce software will also help move HP in the company's new direction of a "New Style of IT."
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