Hewlett Packard's Possible Cray Buyout To Boost HPC Footing

Per a Bloomberg report, Hewlett Packard Enterprise Co. (NYSE:HPE) is in talks to acquire Cray Inc. (NASDAQ:CRAY) to bolster its position in the market for high performance computing (HPC).

Per sources, the deal might be announced as soon as this week. However, as the final agreement has not been reached, the announcement can be delayed.

Cray currently has a valuation of about $1.23 billion. Therefore, assuming Hewlett Packard goes ahead with the transaction, this acquisition is potentially its biggest since 2015, outpacing the $1 billion buyout of Nimble Storage Inc., as inferred by Bloomberg.

How Hewlett Packard Stands to Benefit

With this buyout, Hewlett Packard aims to take advantage of the significant opportunities in the HPC market. Per Grand View Research, the HPC market is expected to witness a CAGR of 7.2% (2018-2015) and reach $59.65 billion by 2025.

Moreover, by strengthening its HPC presence, the company’s competitive position against dominating companies like International Business Machines (NYSE:IBM) and Dell (NYSE:DELL) is also likely to improve.

Furthermore, Cray's Storage and Data Management segment, in which it has partners like Microsoft (NASDAQ:MSFT), is a profitable business. This indicates that with the buyout, Hewlett Packard will also boost its presence in enterprise class server and storage markets, which are high-margin areas.

Acquisitions Bode Well

After splitting from its parent company, Hewlett Packard Enterprise made it clear that it will focus on restructuring and realigning its businesses to drive long-term sustainable growth and improvise margins. It achieves this through spin-offs of unprofitable businesses and acquisition of profitable assets.

Notably, the company has been pursuing acquisitions to focus more on its growth strategy.

The buyout of SimpliVity in 2017 strengthened its capabilities in the hyper-converged enterprise storage and server equipment. Moreover, the Cloud Cruiser acquisition in the same year enhanced capabilities of its HPE Flexible Capacity product portfolio. The buyout of Cloud Technology Partners, also in 2017, is helping the company foray into consulting business.

The company’s efforts toward expanding its footprint in the hybrid IT models were first seen in 2018 when it acquired Silicon Graphics, which provides HPC services.

We believe that the company’s focus on strategic acquisitions will further boost its growth.

Hewlett Packard currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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