CSP Optimism is Boon to Cloud Players

Zacks Equity Research

In the latest survey conducted by CA Technologies (CA), the North American cloud service providers (CSPs) surveyed revealed that around half of their customers were opting for private cloud services, while around 32.0% have chosen public cloud services. The latest survey also reveals that CSPs expect to grow their businesses by 30.0% in 2012.

As defined by searchcloudcomputing.techtarget.com, a dedicated cloud computing website, a private cloud or internal cloud or corporate cloud is a marketing term for a proprietary computing architecture that provides hosted services to a limited number of people behind a particular firewall.

With innovation in virtualization and distributed computing, corporate network and datacenter administrators have effectively become service providers that meet the needs of their "customers" within the corporation.

We believe that the popularity of the “private cloud" has increased as organizations want to have more control over their data than they can get by using third-party-hosted services such as Amazon's (AMZN) Elastic Compute Cloud (EC2) or Simple Storage Service (S3).

This market may be in the nascent stage, going by the fact that most surveyed CSPs have been offering services since 2009 (just 22% started earlier). Therefore there is room for substantial growth.

This apart, more than 25.0% indicated that they considered themselves “extremely successful,”, while around 35.0% thought they had achieved moderate success.

Moreover, in 2012, the CSPs adopted strategies to further increase revenue, out of which 55% included respondents who would increase their marketing activities, while 46.0% planned to create new cloud services to expand their existing offerings. Furthermore, 31.0% will make investments to specialize in vertical markets. The differing strategies indicate that the market is proving lucrative to a large number of players that are therefore trying to differentiate their offerings to focus on customer acquisition.

The optimism at CSPs bodes well for cloud infrastructure players. Moreover, the increasing competition between them and their desire to differentiate their offerings will also work in favor of these IT companies, as they will push up demand for software and storage offerings. As things stand now, companies like IBM (IBM), EMC Corp. (EMC), Salesforce.com (CRM), VMWare (VMW), and now Hewlett-Packard Company (HPQ) and Dell Inc. (DELL) will be prime beneficiaries.

CA Technologies has a Zacks #3 Rank, implying a short-term Hold recommendation.

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