60 Business TheEconomistNovember6th 2021
ThenewfaceofoldtechReinvention as a service
“W
e are adifferent company now.
We are no longer focused just on
mobile. And we have the numbers to back
it up.” Cristiano Amon, the boss of Qual
comm, which makes chips mostly for
smartphones, is emphatic when he de
scribes what he will tell Wall Street at the
firm’s investor day on November 16th. He is
in good company. Some of the other fam
ous members of a previous generation of
bigtech firms (Cisco, Dell Technologies,
Hewlett Packard Enterprise and ibm) have
recently met investors to explain how they
intend to stay relevant in the age of cloud
computing and artificial intelligence (ai).
There is action as well as words. On No
vember 1st Dell spun off vmware, a big soft
waremaker; later in the week ibmfloated
much of its professionalservices busi
ness. The tech old guard hope to reinvent
themselves, much as Microsoft has done in
recent years in spectacular fashion.
Although dwarfed by the current big
tech generation (see chart 1), this handful
of it veterans still has clout. There is hard
ly any business that does not use some of
their products and services. In the past 12
months they cranked out a huge $284bn in
revenues collectively and $56bn in gross
operating profits. And they employ
690,000 people worldwide. Each firm has
its own specialisms. Qualcomm designs its
chips, but outsources manufacturing. Both
Cisco and ibm, mainly regarded as hard
waremakers, have become largely soft
ware firms. As for Dell and Hewlett Packard
Enterprise (hpe), their reputation is rooted
in personal computers (pcs), even though
they now sell other hardware, from storage
devices to supercomputers (the pcbusi
ness stayed with hp’s other branch when
the company split in 2015).
Yet all face similar challenges. For a
start, they mostly used to sell wares, be
they hard or soft. In recent years, however,
delivering itin big distinct chunks has
moved to providing it “asaservice”, or
“aas,” in the parlance—a business that is
now dominated by startups and big cloud
computing providers such as Amazon Web
Services (aws) and Google Cloud Platform
(gcp). The internet allowed such things as
numbercrunching and data storage to be
served up online. aiis part of this story,
too: the more data are collected in the
cloud, the more they can be mined and
turned into algorithms, which then be
come the engines of new services, such asdetectinghackingattacks.
Thequesttoescapecommoditisationis
pushingtheindustrytowardsservices.it
hasalwaysbeenalumpybusiness,with
customerspayinglargesumsofmoneyfor
newwares onceeveryfewyears.At the
sametimehardwareandevensomesoft
warehavebecomelowmarginbusinesses.
Subscriptions to services, by contrast,
bringmorepredictablerevenuesandhigh
erprofits.Servicesaregoodforbuyers,too,
argues Pierre Ferraguof New Street, an
equityresearchfirm.Inthepasta custom
ermighthavehadtobuyanoversizednet
workswitchfor$10,000.Nowit canbehad
for$3,000,plus$2,000a yearforservices.
“Everybodyishappier,”heexplains.
Thatmeanstakingoncloudoperators
thatoffersimilar subscriptions,suchas
aws. The pandemic has accelerated the
cloud’srisebutit hasbecomeapparentthatnotallnumbercrunchingcanbedonein
bigdatacentres.Firmshavemanyreasons
tokeepsomecomputinginhouse,includ
ingregulationspreventingothersprocess
ingtheirdataandtheriskofdependingon
a bigcloudprovider.Thenthereare“edge”
devices,fromsmartphonestointelligent
sensors,whichconnecttothecloudand
extendit,generatingevermoredata.Itis
oftenmoreefficienttobringcomputingto
thedatathantheotherwayaround.
The techveteranswanttohelpfirms
managethisworldofmanyclouds(“hy
brid”or“multi”inthelingo).RedHatHy
bridCloudPlatform,nowatthecentreof
ibm’ssoftwareofferings,isanubercloud
ofsortsthatrunsontopofmanysystems,
including ibm’s own machines, public
cloudsandedgeones.Itissupposedtoal
lowcustomerstostayindependentofany
onesystem.hpeofferssomethingsimilar
called GreenLake. Cisco boasts several
morespecialisedplatforms,includingone
tooptimisea firm’smanyapplications.
DellandQualcomm aredifferent. By
floatingvmware,whichsellssoftwaresim
ilartoibm’splatform,Dellappearstobe
movingagainstthestream.Butthespin
offmainlyservestogetridofa conglomer
atediscount.Dellhasnegotiateda detailed
agreement to continue to benefit from
vmware’sproducts.Ithasalsolaunchedan
asaserviceeffortofitsown,calledapex,
whichissupposedtooffercloudcomput
inginDell’strademark“pragmaticandpre
dictableway”,inthewordsofAllisonDew,
thefirm’schiefmarketingofficer,whois
alsoinchargeofapex.
AsforQualcomm,itseesthecloudnot
asa threatbutanopportunity.Asgrowth
slowsinitsmainmarket,smartphones,it
hopesthatthecloudwillcreatenewde
mandforitschipsfrommakersofother
devices,fromconnectedcarstointelligent
sensors.“Ifyoubelieveinthecloud,you
havetobelieveintheedge,”saysMrAmon.
“Youcan’thaveonewithouttheother.”
Aswellasdevelopingnewlinesofbusi
ness,dealslargeandsmallhavebeenpart
ofthemetamorphosis.ibm’shybridcloud
platformowes itsname andunderlying
technology to RedHat, an opensource
softwaremakeritacquiredfor$34bnin
2019.ThecreationofKyndryl,thename
given tothebusinessthatthatibm has
spunoff,allowsittohiveoffitsarmyofit
workersandconsultantsinfavourofsell
ingtoolsanddigitalservicestoautomate
customers’businesses.“Wearea technolo
gyfirmagain,”saysRobThomas,a senior
executiveatthecompany.
Whataretheresultssofarofthetech
incumbents’transformationdreams?Cis
cowasthefirsttoreact,promisingin 2017
thatmorethanhalfofitsrevenuewould
come from software and subscriptions
within three years. hpe announced an
evenmoreambitiousgoalin2019,sayingS AN FRANCISCO
The itestablishment is rewiring itself forthenextageoftechChanging of the guard
Selected tech companiesSource:RefinitivDatastream*DelistedOct2013-Sep 2016 †HewlettPackarduntil Nov 2015
‡FormerlyFacebookCombined market capitalisation, % of total100806040200
2000 05 10 15 21Cisco Qualcomm IBM Dell* HPE†Meta‡
AmazonAlphabetAppleMicrosoftShare prices, January 1st 201=100
4003002001000
2017 18 19 20 21IBMHPECiscoQualcommDell