NEW YORK (TheStreet) -- Hewlett-Packard (HPQ) - Get Report has agreed to buy Eucalpytus, a developer of software for cloud computing, for reportedly up to $100 million, but the deal is far more critical than the price implies.
HP's stock was down by a penny late Friday morning, but it rose Thursday after CEO Meg Whitman indicated the company is in a financial position to make acquisitions.
The reported price for privately held Eucalyptus is less than what HP paid in U.S. fines this week to settle charges of bribery in its foreign subsidiaries and less than twice what it paid Russia on similar charges.
The deal for Eucalpytus reveals the problems HP is having selling its version of cloud-computing software, and that should make the acquisition significant to investors.
Eucalyptus offers open-source software that lets companies move workloads back and forth between private clouds and the Amazon (AMZN) - Get Report Web Service public cloud. AWS dominates the public-cloud market thanks to its early start and low prices. HP's cloud strategy is based on a competing open-source cloud infrastructure, OpenStack.
HP launched its own public-cloud product, called Helion, late last year and has since emphasized its ability to build private clouds for businesses and connect them to Helion using OpenStack. The market for such services is expected to grow to $235.1 billion in 2017 from an estimated $174.2 billion this year, according to research frim IHS.
The key may not be the software, but Eucalyptus CEO Marten Mickos, who will be in charge of HP's cloud business. Mickos was formerly CEO of MySQL, an open-source database system that was sold to Sun Microsystems in 2008 for $1 billion, and he spent a year as a senior vice president of that company's database group before Sun was acquired by Oracle (ORCL) - Get Reporta year later.
HP's press release focuses on Mickos, making the deal seem more like an acqui-hire than a software acquisition. Critics are asking whether HP will dump the software; it did drop support for Eucalyptus and AWS, when it launched Helion last December. But given that Mickos will be in charge of HP's cloud strategy and will report directly to CEO Meg Whitman, dropping support for Eucalyptus seems unlikely.
HP has to get cloud right, because the biggest technology trend of this decade has been the move to cloud computing from on-site servers that store companies' data. Critics call HP Cloud "a complete debacle" and question whether Mickos can change that.
So should you.
At the time of publication, the author owned shares of Amazon.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates HEWLETT-PACKARD CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate HEWLETT-PACKARD CO (HPQ) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, attractive valuation levels, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income." You can view the full analysis from the report here: HPQ Ratings Report