Friday, January 20th, 2017

Time	Event
4:57p	IBM Margins Narrow While It Struggles to End Sales Slide (Bloomberg) — IBM fourth-quarter sales declined and margins narrowed, indicating that revenue in cloud computing and artificial intelligence hasn’t yet offset acquisition costs and other expenses to move the company into new businesses. Revenue was $21.8 billion, slipping for the 19th consecutive quarter. Operating margins shrank year-over-year for the fifth quarter in a row, to 51 percent, International Business Machines Corp. said Thursday in a statement. Investors and analysts view the margin metric as a key indicator of the company’s health. Chief Financial Officer Martin Schroeter attributed some of the narrower margins to “heavy investment” over the last few years in development, acquisitions and partnerships. IBM paid almost $6 billion to buy 15 companies last year and also boosted its spending on research and development. Currency also had an impact in the fourth quarter, he said on a conference call. “After ramping investment in 2015 through late 2016, we’ve wrapped on that higher level,” Schroeter said. Within the company’s cognitive solutions segment specifically, “those things that have dragged our margins down are starting to go away.” IBM’s shares fell as much as 3.3 percent in extended trading after the earnings were announced. The stock closed little changed at $166.81 in New York. See also: Cloud by the Megawatt — Inside IBM’s Cloud Data Center Strategy Business Transformation Since taking the helm in 2012, Chief Executive Officer Ginni Rometty has focused the company on products and services in newer technologies, including cloud computing, security, data analytics and artificial intelligence. In the meantime, older businesses such as computer operating systems hardware and software have eroded, and investors are waiting for the declines to be offset by growth in the newer operations. IBM is also trying to sell more products as services, where customers pay as they use the tools instead of agreeing to large multiyear contracts. This approach hasn’t gained enough traction to generate the high margins that IBM and analysts hope for over the long-term. Some areas have started to show promise. Sales in cognitive solutions, which houses analytics and AI software, increased for the third quarter in a row, and the technology services and cloud platforms segment also recorded year-over-year growth. Total revenue from strategic imperatives, which includes all of IBM’s newer operations, grew about 12 percent to $9.5 billion in the quarter. For the full year, sales in these areas were $32.8 billion. IBM has set a goal of $40 billion in revenue from these businesses by 2018. The company reported fourth-quarter profit, adjusting for some items, of $5.01 a share, beating the average analyst projection of $4.88. IBM’s effective tax rate in the quarter was 9.5 percent compared with 12.5 percent a year earlier, which bolstered earnings. Earnings ‘Quality’ The negative reaction of the stock “could be, in part, related to the quality of the earnings,” said Greg McDowell, an analyst at JMP Securities. “There’s a tax impact, a lower-than-expected tax rate and higher-than-expected IP income. Those were really the two big drivers of the EPS beat.” IBM projected 2017 operating earnings of at least $13.80 a share, compared with analysts’ average estimate of $13.74. The company has sold some less-profitable businesses to focus on growth areas in recent years. It’s also started to license older intellectual property. The company reported income of more than $500 million in the fourth quarter from IP, which includes licensing deals and royalty collections. That was up from $193 million a year earlier. IP income in 2017 should remain about the same levels as 2016, if not a little less, Schroeter said on the call. IBM expects its pretax profit margin, which deducts all expenses from revenue except for taxes, to increase this year. That doesn’t necessarily mean gross margins will improve, the CFO said. The way to really improve margins is to cut research and development costs or reduce general expenses by eliminating jobs, said Anurag Rana, an analyst at Bloomberg Intelligence. “Given that R&D is a big focus for them, my guess is that they’ll have to do more cutting” in other areas, he said. (Comment on this)
5:45p	Here are the 10 Largest Data Center Providers in the World As the last several years have shown, bigger is better when it comes to running a colocation data center services business. The biggest companies in retail and wholesale data center markets have further secured their dominance by acquiring hefty rivals, and there’s been a wave of consolidation in secondary markets, as smaller players seek to scale in order to compete. Large multinational customers prefer a provider that can give them infrastructure at national or global scale, and if you’re a company with one or two regional locations, you’re mostly stuck competing with public cloud giants like Amazon and Microsoft for the dollars of local small and mid-size businesses. Read more: How Cloud is Changing the Colocation Data Center Market The wholesale colocation data center market share of San Francisco-based Digital Realty Trust, the biggest company in that market, is about equal to the combined market share of the rest of the top-five providers in the category, according to data shared exclusively with Data Center Knowledge by Structure Research. Market share of Redwood City, California-based Equinix, the biggest player in the retail colocation market, is almost double that of the second-largest provider in the space: China Telecom. Here are the five largest wholesale data center providers and their global 2016 market share (market share numbers courtesy of Structure Research). Five Largest Wholesale Data Center Providers 1. Digital Realty Trust: market share 20.5 percent Digital Realty’s 365 Main data center in San Francisco (Photo: Digital Realty) 2. Global Switch: market share 7.7 percent Singapore Tai Seng data center by Global Switch (Photo: Global Switch) 3. DuPont Fabros Technology: market share 6.0 percent ACC7 data center in Ashburn, Virginia, by DuPont Fabros (Photo: DuPont Fabros) 4. CyrusOne: market share 4.3 percent CyrusOne’s Chandler I data center outside of Phoenix (Photo: CyrusOne) 5. China Telecom: market share 4.3 percent China Telecom’s Inner Mongolia data center (Source: China Data Centers: Something Special) Here are the five largest retail colocation providers and their global 2016 market share (market share numbers courtesy of Structure Research): Five Largest Retail Colocation Data Center Providers 1. Equinix: market share 10.5 percent Equinix’s HK1 data center in Hong Kong (Photo: Equinix) 2. China Telecom: market share 5.9 percent China Telecom data center in Shanghai (Photo: China Telecom) 3. China Unicom: market share 4.3 percent A rendering of China Unicom’s Global Center data center in Hong Kong (Image: China Unicom) 4. Telehouse (KDDI): market share 3.3 percent Telehouse Teleport data center in New York (Photo: Telehouse) 5. NTT Communications: market share 2.1 percent Inside the CA3 data center in Sacramento, California, by NTT subsidiary RagingWire (Photo: RagingWire) (Comment on this)
6:14p	Stolen USB Drive Leads to $2.2 Million HIPAA Breach Penalty Brought to you by MSPmentor An insurance underwriter paid a $2.2 million HIPAA breach settlement after a USB drive containing the electronic protected health information (ePHI) of more than 2,200 people was stolen from its IT department, federal authorities announced today. As part of the Jan. 11 agreement, MAPFRE Life Insurance Company of Puerto Rico (MAPFRE) also entered into a corrective action plan with the U.S. Department of Health and Human Services’ Office of Civil Rights (OCR). Investigators described a lack of urgency on the part of MAPFRE in safeguarding ePHI as required by HIPAA’s security and privacy rules, resulting in theft of the portable storage device containing names, dates of birth and Social Security numbers. “OCR’s investigation revealed MAPFRE’s noncompliance with the HIPAA Rules, specifically a failure to conduct its risk analysis and implement risk management plans, contrary to its prior representations, and a failure to deploy encryption or an equivalent alternative measure on its laptops and removable storage media until Sept. 1, 2014,” the OCR statement said. “MAPFRE also failed to implement or delayed implementing other corrective measures it informed OCR it would undertake.” The settlement announcement is the second of 2017, and suggests OCR has no intention of letting up on the torrid enforcement pace of 2016 – a year during which the agency collected a record $23.5 million in HIPAA breach settlements, up from $6.2 million in all of 2015. MAPFRE, the subsidiary of a Spain-based multinational insurance conglomerate, offers life, disability, health, auto and other insurance services in Puerto Rico and the U.S. Virgin Islands. Authorities indicated that the settlement amount might have been higher. “With this resolution amount, OCR balanced potential violations of the HIPAA Rules with evidence provided by MAPFRE with regard to its present financial standing,” the statement said. The breach involving 2,209 individuals occurred on Aug. 5, 2011, and was reported to OCR 55 days later. Federal investigators allege they found evidence that the insurer: failed to conduct required risk and vulnerabilities assessments to test the “confidentiality, integrity, and availability” of the ePHI under their control, didn’t implement appropriate security measures, neglected to implement required security awareness and training programs for workers. As with similar settlements, MAPFRE wasn’t required to admit guilt. “Covered entities must not only make assessments to safeguard ePHI, they must act on those assessments as well,” OCR director Jocelyn Samuels said in a statement. “OCR works tirelessly and collaboratively with covered entities to set clear expectations and consequences.” This article originally appeared here, on MSPmentor. (Comment on this)
6:27p	Avaya Folds Under $6B Debt Burden, Cloud Competition By The VAR Guy Telecommunications company Avaya, which has been fighting to keep its head above water under the weight of a $6 billion debt load, on Thursday gave up the battle and filed for Chapter 11 as part of its attempt to “restructure its balance sheet. Last year, the company tried to alleviate some of that debt by selling its call center business to buyout firm Clayton, Dubilier & Rice, but couldn’t reach a deal. It said it would not be selling the group as part of the bankruptcy filing, though it’s negotiating deals to sell other business units. Avaya is choosing instead to focus on restructuring the company’s debt, and has obtained a $725 million debtor-in-possession financing facility underwritten by Citibank. It expects this DIP, along with the cash from its operations, to provide enough liquidity to float existing operations. “We have conducted an extensive review of alternatives to address Avaya’s capital structure, and we believe pursuing a restructuring through chapter 11 is the best path forward at this time,” said Kevin Kennedy, Chief Executive Officer of Avaya, in a statement. “Reducing the Company’s current debt through the chapter 11 process will best position all of Avaya’s businesses for future success.” Like many telcos, Avaya was hit hard by the advent of cloud technology and the industry’s transition from hardware to software and services. Kennedy stressed the move is critical toward the company successfully navigating that pivot, pointing out that Avaya’s current capital structure was put in place over 10 years ago to support a hardware-centric business model. “Avaya’s bankruptcy news is a cautionary tale that reflects a bigger theme in the enterprise solutions space – mobility is dramatically impacting business models. Legacy on-premises players in every industry are feeling pressure from the rapid growth and adoption of cloud solutions, and the enterprise communications market is no exception,” said Vlad Shmunis, founder and CEO of cloud solutions provider RingCentral, in an email. “Because of today’s mobile and distributed workforce requirements, the move to the cloud is continuing to accelerate while on-premises systems vendors struggle to survive. It’s because of this shift that we will continue to see disruption in the business communications space.” Last May, Kennedy confirmed rumors that Avaya was working with Goldman Sachs regarding possible sale opportunities, saying that Goldman was “helping Avaya evaluate expressions of interest that have been received relative to specific assets, as well as explore other potential strategic opportunities.” In August, the company’s creditors began discussions on how best to restructure its $6 billion debt load. The bankruptcy could go a long way to helping Avaya out of the sinkhole of debt it’s currently in, though without the sale of its call center (rumored to have been in the $4 billion range), it will need to think creatively about the strategic offloading of other business units to come out the other side as a company able to compete in a cloud-centric ecosystem. The company posts high earnings; its last quarterly report posted $958 million in revenue, exceeding preliminary forecasts. However, it’s carrying about $400 million in yearly interest expense, resulting largely from a $8.2 billion leveraged buyout by private equity firms Silver Lake Partners LP and TPG Capital LP in 2007—right before the financial crisis hit the markets. Avaya hasn’t posted an annual profit since. Are you an Avaya partner with a comment on this story? Email kris.blackmon@penton.com or leave your comment below. This article originally appeared here, on The VAR Guy. (Comment on this)

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