As Hewlett-Packard (NYSE:HPQ) continues to transform its business, its stress on cloud computing is on the rise. Recently, the company has also announced the launch of HP Helion Network, a global open network designed to provide customers with an unparalleled portfolio of services and the ability to create a secure hybrid IT environment that addresses local and global requirements. HP Helion incorporates existing HP cloud offerings, new OpenStack technology–based products, and professional and support services under a unified portfolio. The company also plans to invest more than $1 billion over the next two years on cloud-related product and engineering initiatives, professional services and expanding HP Helion’s global reach.  In this article, we will explore this product and how it can boost HP’s revenues.
HP Helion Extends To OpenStack Cloud
As part of its strategy to focus on cloud services, the company has recently bolstered the HP Helion Network with several new cloud products and services. One of the major updates to the Helion Portfolio of services has been the addition OpenStack, an open source software framework for building and managing cloud computing platforms for public and private clouds. While OpenStack project is currently backed by some of the biggest companies (such as HP, IBM, Cisco, Intel and NetApp, etc. in software development and hosting as well as thousands of individual community members), it began in 2010 as a joint project of Rackspace Hosting and NASA.  HP has been running OpenStack cloud services at scale in enterprise environments for the past three years.  With the addition of OpenStack to Helion network, the platform’s service now includes:
- HP Helion OpenStack: – A commercial product line of OpenStack that is delivered, tested and supported by HP. The community edition is a free version for proofs of concept, pilots and basic production workloads. However, an enhanced commercial edition that addresses the needs of global enterprises and service providers will be released later this year. HP Helion OpenStack commercial will be offered under a straightforward pricing model of $1,400 per server for an annual subscription, with multi-year and volume discounts beginning at 50 nodes.
- HP Helion Development Platform: – A Platform as a Service (PaaS) based on Cloud Foundry. It is designed to enable enterprise developers to rapidly develop, deploy and scale native cloud applications with world-class developer tools and an open, interoperable platform.
- HP’s OpenStack Technology Indemnification Program: – Considering the rise of court cases in the technology domain, the indemnification program will protect qualified customers using HP Helion OpenStack code from third-party patent, copyright and trade-secret infringement claims directed to OpenStack code alone or in combination with Linux code.
- HP Helion OpenStack Professional Services: – A new consulting service that is made up of HP’s experienced team of consultants, engineers and cloud technologists. These professionals would assist customers with cloud planning, implementation and operational needs.
- HP Helion Managed Storage:- A managed cloud storage offering that helps organizations save money and increase operational efficiency by leveraging the on demand storage capability.  HP Helion Managed Storage, powered by HP 3PAR StoreServ Storage and HP StoreOnce Backup systems, offers data management across a hybrid delivery model that spans private, virtual private and public cloud to align to client application workloads.
With these services in place, HP is offering enterprise customers: 
- An open, secure and agile hybrid IT environment with no vendor lock-in, which enables workload portability between on- and off-premises environments.
- Access to an expanded enterprise-grade cloud services portfolio that includes horizontal and vertical applications, as well as network-enhanced services such as secure cloud networking, enabling customers to meet local and multinational hybrid requirements.
- The ability to meet country-specific data regulations regarding data sovereignty, retention and protection.
HP Helion OpenStack–based cloud services will be made available globally via HP’s partner network of more than 110 service providers worldwide and in HP data centers—HP operates more than 80 data centers in 27 countries. HP plans to provide OpenStack-based public cloud services in 20 data centers worldwide over the next 18 months. HP will also enable HP PartnerOne for Cloud partners to deliver and resell OpenStack-based cloud services.
HP’s Revenues To Soar
HP’s product offerings encompass both hardware and services verticals. However, considering the reach of services offered within the gambit of Helion network, we expect revenues across at least two of HP’s division to grow. These divisions are HP services and HP software divisions.
HP Services Division: – This division contributes nearly 31% to its estimated stock value. Within this division, the three verticals i.e. technology services, infrastructure outsourcing and application and business services provide cloud related services. This division and its three sub division are expected to drive revenue growth for HP going forward, primarily due to adoption of cloud services such as as the expanded Helion network by its clients.
According to our estimates, the technology services make up 15.5% of HP’s estimated value. The technology services division focuses on helping organizations improve their IT operations and transition to new technologies, such as virtualization, cloud computing and converged Infrastructure.  We believe that technology services is responsible for delivering Platform-as-a-Service (PaaS) services since it combines all the ingredients such as cloud computing, converged infrastructure and virtualization. Currently, we estimate that revenues from this division to grow from $8 billion in 2013 to $10 billion by 2020. We believe that majority of this growth will come from cloud services especially PaaS. If HP can capture 5% of the expected $44 billion PaaS market, the revenue for this division can be significantly higher.
According to our estimates, the infrastructure outsourcing services (IOS) makes up 10% of HP’s estimated value. It encompasses the management of data centers, IT security, cloud computing, workplace technology, networks, unified communications and enterprise service management.  Since this division extensively deals with the infrastructure needs of a client, we believe that HP’s IaaS solution fall under its umbrella. Currently we estimate IOS revenues to increase from $14.6 billion in 2013 to over $17 billion by 2020. However, if HP were to get a significant chunk of IaaS market due to its dominant presence in the hardware (Server, storage and printing) industry, its revenues can be significantly higher, and our stock price estimate can increase by 10%
According to our estimates, the application and business services (ABS) makes up 6% of HP’s estimated value. This division helps HP’s clients to modernize, develop, manage and integrate applications and information assets.  HP delivers most of its SaaS solution through ABS. Considering, the expected growth of SaaS in the future, this division will be an important driver for HP’s revenue growth. While currently we project revenues from this division to grow from $8.7 billion to $10 billion by 2020, if HP were to capture 5% of the SaaS market, ABS revenues can grow to over $13 billion by 2020.
HP Software division: – HP Software division has a host of software that caters to many categories, including: business service management software, application lifecycle management software, mobile apps, big data and analytics, service and portfolio management software, automation and orchestration software, and enterprise security software. It also provides Software as a service (SaaS), cloud computing solutions, and software services, including consulting, education, professional services, and support. According to our estimates this division makes up 10% of HP’s estimated stock value. Currently, we estimate that revenues from this division to grow from $3.9 billion in 2013 to $4.5 billion by 2020. We believe that majority of this growth will come from cloud services especially SaaS. SaaS is a rapidly growing market as indicated in recent reports that predict ongoing double-digit growth. According to Forrester, a SaaS solution accounted for $36 billion in revenue in 2013, and is expected to increase to $133 billion by 2020.  If HP can capture even 2% of the expected SaaS market, the license revenue for this division can be significantly higher. At present, we estimate license revenue to grow from $1.21 billion to $1.3 billion.
We presently have a $25.04 price estimate for HP, which is 25% below the current market price.
- HP Launches HP Helion Portfolio of Cloud Products and Services, May 06 2014, www.hp.com
- The OpenStack Foundation, www.openstack.org
- HP Launches HP Helion Portfolio of Cloud Products and Services, May 06 2014, www.hp.com
- HP Launches Helion Managed Services for Optimizing Cloud Storage Workloads, June 18 2014, www.hp.com
- HP Unveils Global Open Network for Cloud Services, June 10 2014, www.hp.com
- The Public Cloud Market Is Now In Hypergrowth, April 24 2014, www.forrester.com
Disclosure: No positions