For companies cutting IT costs, the cloud is the place to be

Story first appeared on USA Today -

Data storage shift helps companies' bottom line

Cloud computing is exploding and growing faster than a swirling funnel crossing the Oklahoma plains. The next generation of computing lowers information technology costs while increasing corporate profits at the same time. And what's not to like about that?

That one-two punch was revealed in a study obtained by USA TODAY conducted by England's Manchester Business School. The study, which was commissioned by San Antonio-based hosting company Rackspace, is expected to be released Wednesday.

The Manchester study indicates that cloud computing allows U.S. businesses to slash information technology costs by about 26%. What's more, 62% of those same American companies say that deploying in the cloud improved their bottom lines.

"The results are finally showing what we've known all along," says Rackspace Chief Technology Officer John Engates. "It's not just about moving workloads from your data center to our data center."

The rise of cloud computing has much bigger ramifications. It's a tectonic shift in how we work, live and play. iTunes is in the cloud. Ford's cars are connected to the cloud. Google's Gmail is based in the cloud. But those are largely consumer examples; now corporate computing is also shifting to the cloud.

"The move to the cloud can't happen fast enough for some companies," says Engates, who has been on the ground floor of the cloud computing movement.

Cloud computing has myriad definitions, but in the most general sense it means devices linked to data centers located just about anywhere over a combination of wireless and wired networks. There are "private clouds," where companies own and control the data centers, which are usually centrally located in lower-cost geographies. And then there are "public clouds," in which companies use computing power delivered from servers they don't own, which are usually shared with other corporate customers.

Big companies tend to use a combination of private and public clouds, reserving their high-security functions and digital record keeping for the data centers they control. But the growing acceptance of public clouds foreshadows a trend in which computing power will be delivered similarly to the way electricity is distributed by utility companies. In fact, tech geeks refer to the long-term public cloud concept as "utility computing."

We are a long way from when most companies no longer own servers, or operate so-called on-premise data centers, and rely solely on public clouds. There are a number of reasons, including security concerns, control and reliability. But the Manchester survey suggests that enterprise computer customers are embracing the shift enthusiastically.

In addition to the cost-efficiency of cloud computing, the study found that 68% of U.S. firms are plowing the cash they saved back into their businesses. They are using the cost savings to improve and expand product lines, services and other offerings. More than 60% of the companies surveyed say they are using the money to hire new employees, give raises and offer bonuses. Employment at the American companies surveyed increased 28%.

While existing companies are transitioning to cloud computing at their own pace, start-ups unsurprisingly are totally embracing the change -- especially software and social-media concerns and online retail outfits.

More than half of the start-ups surveyed said they wouldn't have been able to afford on-premise data centers at the time of their launch.

Of course, it is self-serving for a cloud-service provider to hire a study that supports its case, but the numbers are the numbers, and Manchester interviewed some 1,300 companies in both the U.S. and the United Kingdom.

Intel's general manager of cloud computing, Jason Waxman, isn't surprised by the findings. Server, storage and networking sales have been booming at the chip giant in recent years. Intel pegs the compounded growth rate for servers at about 25% to 30% a year based largely on expansion of private and public clouds.

"The more companies can save on computer infrastructure, the more they can spend on infrastructure," Waxman says. "All of these new opportunities represent a huge build-out."

Waxman thinks that public cloud providers, including Rackspace, Seattle-based Amazon.com (yes, that Amazon) and San Francisco-based GoGrid, could grow as much as 70% a year.

Gartner, the industry research consultant, predicts that the total public cloud market could swell to more than $206 billion in 2016, roughly double what it is now.

Says Intel's Waxman, "It's an astronomical opportunity."

Dell Buyout Opposed by Investor

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Dell now faces a shareholder battle in opposition from its largest outside investor over its buyout agreement formed this week.

Michael Dell on Tuesday agreed to a $24.4 billion leveraged buyout of his namesake PC brand, the largest concession to date of a battered personal computer industry. Experts say Dell is in slow retreat from the low-margin PC business and needs to lever up to refocus its business.

Southeastern Asset Management, which holds roughly 8.5% of Dell's outstanding shares, has filed documents with the Securities and Exchange Commission in opposition to the deal. The major outside investor objects to the $13.65 per share offer to shareholders, saying that Dell's value should be set closer to $24 per share.

"This obviously exceeds the $13.65 offer and does not even take into account Dell's strong product distribution capability, especially in the small to medium size business space (SMB)," Southeastern Asset Management said in a statement.

A Dell spokesman declined to comment on the opposition to the deal.

CEO and founder Dell, who holds 14% of the company, has agreed to put in his ownership stake of the company plus cash in the deal that will keep him at the helm.

The deal's figure of $24.4 billion represents a 25% premium over Dell's closing share price January 11, the day before rumors emerged of it going private.

Private equity player Silver Lake Partners and MSD capital agreed to help fund the deal along with a $2 billion loan from Microsoft and debt financing from BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets. The agreement allows for alternative proposals to be offered.

The PC industry is under heavy assault by tablets. Personal computer sales worldwide slipped 6.7% in the fourth quarter compared with a year ago, according to preliminary results from Gartner. That downturn comes as tablet sales worldwide grew 75% in the same period, according to early results from researcher IDC.

Amid Rising Losses, Alcatel-Lucent CEO Leaving

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Alcatel-Lucent CEO Ben Verwaayen is leaving the loss-making French-U.S. telecommunications gear maker after a failed four-year bid to turn the business around.

Verwaayen said in a statement Thursday that it was "clear to me that now is an appropriate moment" for Alcatel-Lucent to seek new leadership. Investors cheered the news, with shares jumping 7.7 percent in early trading to €1.40.

The Dutchman's surprise departure comes as Alcatel-Lucent reported losing €1.37 billion ($1.85 billion) last year, compared with a €1.1 billion gain a year earlier.

No details on Verwaayen's replacement were provided. He has agreed to stay on as caretaker until a successor can be found. Alcatel-Lucent said it will look at candidates both internally and from outside the company.

Verwaayen joined Alcatel-Lucent in 2008 after the ouster of the previous management led by American Patricia Russo. Russo and her French counterpart Serge Tchuruk had masterminded the $11.6 billion merger of Lucent of the U.S. and Alcatel of France. The combined company has racked up many billions of euros in losses since its creation in 2006, something Verwaayen has spent four years trying to reverse.

Alcatel-Lucent supplies telecom operators and corporations the technology for building global communications networks. It has suffered from repeated rounds of costly layoffs and restructuring, as well as intense competition from the likes of Ericsson of Sweden, China's Huawei and Nokia Siemens Networks, a Finnish-German joint venture.

The Franco-American company is in the middle of a €1.25 billion restructuring program aimed at cutting 5,500 jobs, ending unprofitable contracts and leaving or reorganizing operations in poor markets.

Verwaayen said Thursday the company has "seen progress" on the plan announced last July, and pointed to growth in its order book as a sign of customer confidence.

Alcatel-Lucent had aimed to raise its profitability from the 3.9 percent adjusted operating margin achieved in 2011, but abandoned that target halfway through the year. It finished 2012 with an adjusted operating margin of only 2.9 percent.

Last year's earnings were hit by a further €1.4 billion charge as Alcatel-Lucent continued to account for the falling value of past acquisitions and its own fixed assets.

Verwaayen was lauded on arrival in October 2008 after for transforming BT Group from a troubled, loss-making phone operator into a profitable and aggressive leader in broadband Internet access. But Alcatel-Lucent proved to be a tougher challenge than expected. Sales slid 5.7 percent last year to €14.4 billion and the group continued to burn cash, recording a seventh-consecutive year of negative cash flow.

Whoever steps in to replace Verwaayen will have to uncover a fresh path to profitability, after seven years of restructuring failed to achieve goals set out at the company's creation.

The Alcatel-Lucent tie-up was designed to boost margins through cost and research and development savings, while improving the joint company's pricing power with telecom operators, its largest customers.

The combination was seen as creating the critical mass needed to compete with the likes of China's Huawei Technologies Co. and Ericsson AB of Sweden.

But intense competition in the telecoms industry has meant many of the savings have been used on discounts passed to customers, and analysts said Alcatel-Lucent has not coped as well as some of its competitors.

Java on Macs - Blocked by Apple

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Some Mac users were taken by surprise Thursday as their computers stopped running programs written using the Java programming language after Apple blocked Java due to security problems.

Java allows programmers to write a wide variety of Internet applications and other software programs and run them on most computers, including Apple's Mac. However, earlier this month the U.S. Department of Homeland Security recommended disabling Java in Web browsers to avoid potential hacking attacks. Oracle, which owns Java, has issued updates that fix known vulnerabilities, but the DHS expects that there are more flaws in Java's coding.

Apple sends out virtual "blacklists" to Internet-connected Macs, instructing them not to run certain programs. Apple is blocking the latest version of Java from running on the most recent versions of its Mac operating system, and blocking an older version, Java 6, from running on the older version of its Mac system, called Snow Leopard. The blocks affect programs and online games that use Java in Web browsers.

Oracle had no immediate comment on Apple's action.

Among those Java users inconvenienced by the unannounced block was the photo department of The Associated Press, which relies on a Java application to manage and distribute photos.

"The situation caught us by surprise and a number of our machines could not operate for a time, but we had enough capability to work around the problem in the meantime," said AP spokesman Paul Colford. "We expect the affected machines to be operating by day's end."