Computers

HP, Microsoft Team Up to Tackle the Cloud


Some of the biggest companies in computing are forging new alliances in hopes that together they'll benefit from a rebound in technology spending. A big area of demand is the emerging field of cloud computing, the delivery of software and other computing tasks via the Internet rather than on in-house machines.

The latest pairing came Jan. 13 when Hewlett-Packard (HPQ) and Microsoft (MSFT) said they will spend $250 million over three years to combine some research and development efforts and deliver prepackaged servers, storage, software, and networking gear. "These are two great companies that are lined up to make great things happen," HP CEO Mark V. Hurd told reporters on a conference call.

By 2011, businesses may spend $95 billion on cloud computing, or about 60% of the total, according to Merrill Lynch estimates. "The cloud is the driving force behind this deal," Microsoft CEO Steve Ballmer said on the conference call with Hurd. The rest of the $160 billion is expected to come from consumer-focused applications, including e-mail and entertainment services offered by companies including Google (GOOG), Yahoo (YHOO), and Apple (AAPL).

HP, Dell (DELL), IBM (IBM), and other computer companies are turning to advanced services to make up for falling margins and slowing rates of growth in PCs. Worldwide IT spending is expected to expand by 3.2%, to $1.5 trillion, in 2010, after declining in 2009, according to market researcher IDC.

Cloud Competition

Microsoft's Windows operating system is on more than 90% of the computers sold. Now it wants to provide software for the data centers that house much of the gear that delivers cloud services. But it's facing competition from challengers including Oracle (ORCL), VMware (VMW), and companies that use versions of the Linux open-source operating system.

By strengthening their technical and sales relationship, Microsoft and HP hope to develop products that can compete more effectively with any Oracle-Sun offerings as well as those from IBM and Cisco Systems. Oracle is expected to get a leg up in its cloud offensive through the $7.4 billion acquisition of server maker Sun Microsystems (JAVA).Cisco on Nov.3 announced a partnership with storage vendor EMC (EMC) and software vendor VMware to create packages of servers, networking equipment, storage, and virtualization software.

Dell has been the laggard in trying to bolster its data center credentials. The Round Rock (Tex.) company has struck partnerships with several services companies, software makers, and storage giants such as EMC, but it has moved more gingerly than rivals in creating a tightly woven suite of cloud computing offerings. A Dell spokesman declined to comment.

"Smart Bundles"

HP says its partnership with Microsoft is more than just an effort to bundle services the companies already offer. Hurd said the companies will dedicate 11,000 service reps who will be responsible for testing, loading, and providing services for products sold under the partnership, which will also have its own dedicated sales force.

HP says the resulting "smart bundles" of products will be configured to help lower energy consumption and be designed so they can be managed remotely.

Even so, Microsoft and HP suggested that while they may be giving their collaboration preferred treatment, they're not willing to close the door on other partnerships. With such a fat purse at stake, after two years of lean business spending on computing technology, they can't afford to.

Aaron_ricadela_75x75
Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in Frankfurt.
Cliff_edwards
Edwards is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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