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Why HP Emerged As a Leader in the Cloud Infrastructure Space

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Sep. 28 2015, Updated 1:05 p.m. ET

Factors that led to HP’s leadership position in cloud infrastructure space

In the prior part of this series, we looked at Hewlett-Packard’s (HPQ) emergence as a leader with a 13% market share in the cloud infrastructure space. Synergy Research stated that across diverse cloud deployments, Cisco Systems (CSCO) continues to exert a commanding position in the public cloud infrastructure space, whereas HP has a clear leadership in the private cloud space.

Hewlett-Packard managed to gain the leadership position due to its strong position in computer servers as well as its expansion and growth in the storage space. Cisco, on the other hand, dominates networking space and is aggressive on growing its position in the server space.

Servers, operating systems (or OS), storage, and networking together accounted for approximately 89% of the cloud infrastructure market. The remaining 11% is made up of cloud management, cloud security, and virtualization applications.

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As the chart above shows, both Cisco and HP were in a tied position in 1Q15 in overall cloud infrastructure space. Then HP managed to beat Cisco in 2Q15. Other leading players like Microsoft (MSFT) and VMware (VMW) enjoy a prominent place in this space due to their positions in server operating systems and virtualization applications. Dell and IBM (IBM) have a strong foothold over a plethora of cloud technology markets.

Why HP has plenty of scope to grow in the cloud infrastructure space

According to Jeremy Duke, Synergy Research Group’s founder and chief analyst, “The public cloud services market is clearly booming and driving heavy investment in cloud infrastructure, while a rapid transition to cloud is also in full swing in the enterprise IT market.”

Duke stated further, “Cisco continues to ride these waves very successfully, but what has enabled HP to grab the lead is the fact that servers and storage account for almost two thirds of the market and HP is now rapidly evolving its huge business in these segments. By contrast Cisco dominates the relatively much smaller networking segment, while its burgeoning cloud server business still lags far behind HP in scale.”

If we combine the market share of the top two players—HP and Cisco—it’s approximately 26% or roughly a quarter of the market. This is also a rapidly growing market. So a huge growth in this space coupled with the leadership position presents potential for HP to grow and expand in the near future.

If you’re bullish about HP, you might consider investing in the Technology Select Sector SPDR ETF (XLK), which invests about 1.25% of its holdings in HP.

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