News that EMC (EMC) and its VMWare (NYSE:VMW) subsidiary have launched a cloud start-up called Canopy in conjunction with Atos, a European services firm (think HP's EDS unit) illustrates that the race to globalize cloud is in full swing.
Major computer vendors, like IBM (NYSE:IBM), HP (NYSE:HPQ) and Dell (NASDAQ:DELL), announced networks of cloud data centers last year. Bit telecom vendors like ATT (NYSE:T) and Verizon (NYSE:VZ) are staking their future to public clouds, and so this effort may be seen as something of a catch-up.
One important idea here is legal. There is great resistance in Europe to doing business with U.S. cloud vendors, due to a fear that U.S. authorities could snag Europeans' data or close down European services. (It actually goes both ways.) By having Atos own the resulting European cloud, VMWare and EMC gain a strategic advantage over American players.
There is a risk here that some EMC customers may see their vendor competing with them, but that may be minimized, again, by having Atos out-front on the effort.
In the near term, this should be accretive to EMC and VMWare earnings, since they can book equipment and software sales to Canopy. Whether it works in the longer run is up to Atos, which works with lots of big European players, like SAP, Siemens and the UK's National Health Service. The financial risk is further minimized because Atos can simply move some of these customers onto the Canopy cloud when they're ready.
Shares in both VMW and EMC have been fairly flat for the last year, as competition causes the PE ratios of cloud vendors to compress and EMC growth remains solid but not awe-inspiring.
Can Atos change that? Not likely. It's a single with the possibility of good performance legging it out into a double. This deal is not a home run. But it's another indication that investor faith in the cloud was justified.
Had I bought some VMW when the cloud excitement started, in early 2009, I'd have nearly quadrupled my money and be ready to take profits. With EMC I've more than doubled my money since that time.
If you haven't invested in these companies yet, it's not too late, but the glory days are done.
Disclosure: I am long IBM.