The loss of 9,000 jobs and a $1 billion charge are being described as the cost of HP's transition to cloud (see all Techmeme coverage). Alas, I fear this is just the downpayment as cloud computing begins an inexorable reshaping of HP into a far more slender behemoth than we know today.
All that HP has really announced is an investment in "fully automated, standardized, state-of-the-art commercial data centers." That is not cloud computing, it's simply the long-overdue application of virtualization and IT automation to the superannuated, legacy data center infrastructure that HP acquired when it bought EDS. As VentureBeat reports, HP previously consolidated 85 separate data centers down to just six. Automation is simply the next step in squeezing out all the inefficiencies and Soviet-era obsolescence that my Enterprise Irregulars colleague Vinnie Mirchandani has often railed against in the big IT outsourcers' infrastructure.
HP claims in its press statement that the move will result in "annualized gross savings of approximately $1 billion and net savings after reinvestment in a range between $500 million and $700 million." The implication is that all those savings will go to HP's bottom line, but the real cost of HP's move to cloud computing will come as it begins to offer its enterprise cloud services under pay-as-you-go, as-a-service contracts. In this hotly competitive market, the commoditization of services running on near identical virtualized software stacks will mean that HP's operational savings won't feed its own cash reserves. Instead, they'll be funneled directly to customers in lower prices.
That's when the cloud will really start to bite into HP's business structure, and if it fails to win enough market share, I fear the job losses and retrenchment it's going to suffer will make a $1bn charge and 9000 jobs look miniscule in comparison.
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