Happy New Year in advance! Its time for our 2022 cloud technology review. The best way to describe the past year might be chaos — a mixture of big deals, geopolitical struggles, war, collapsing momentum tech stocks, and a return to normalcy — all at the same time.
On the economic front, the dominant theme for 2023 was the rapid hike in interest rates, which reset growth expectations and the valuations of tech stocks. To which I say: another bubble goes to bed! We’re returning to normal. Long-term treasury rates are now 4%, a number that was quite common for decades prior to 2008. Let’s not panic. Four percent! It’s not a big deal, folks.
Amazon Plummets, Broadcom Buys VMware
Some examples of chaos and normalcy in the land of cloud tech stocks: Amazon shares were down 50% and Zoom Communications fell 70%. But IBM was up 5% and HPE was flat. Meta had a metaverse meltdown. Broadcom announced its buying VMware for $61 billion. Chinese supply-chain woes hit large OEMs. Cisco was boring: It was rumored to be making a big deal, and then didn’t. Closely watched cloud data company Cohesity never made it public.
As a naturally optimistic person, I can only look at the opportunity going forward. For example, Zoom now trades at pre-pandemic prices despite how having more than five times as a much revenue and 10 million more subscribers. The corporate world at large is still in the early days of digital transformation, as exciting technologies such as Artificial Intelligence (AI) and cloud automation fuel new applications.
2023 has got to be a brighter year than 2022 — that’s my take. We are already tracking some upcoming cloud tech trends to watch in 2023, which we’ll be busy telling you about in the next month.
Top Cloud Deals
Surprisingly, 2022 was filled with a bunch of deals — despite the gloomy tone. Let’s take a look at what got done:
Broadcom bid $61 billion VMware. The biggest cloud deal of 2022 came to light in May, when Broadcom (Nasdaq: AVGO) called dibs on buying VMware (NYSE: VMW) in a cash/stock deal second only to Microsoft’s Activision bid. Once the merger closes in 2023, VMware will take over Broadcom’s software unit, serving large enterprises, particularly in the area of private clouds. Protests against the deal continue, and the ultimate outcome seems, well, cloudy.
Citrix was sold for $16.5 billion. In January 2022, collaborative software and SaaS provider Citrix was taken private by investment firms Vista Equity Partners and Evergreen Coast Capital Corp. in an all-cash deal that will combine Citrix with data management and analytics firm TIBCO Software, which is owned by Vista. Citrix continues to operate and sell its products under its own name and branding, albeit in partnership with TIBCO.
Google bought Mandiant for $5.4 billion. Alphabet’s (Nasdaq: GOOGL) Google LLC reportedly beat out Microsoft in its bid for security services provider Mandiant in a cash deal that closed in September. Google is now in position to shore up its already-sizeable warchest of cybersecurity products and services for the Google Cloud Platform. Meanwhile, Mandiant’s founder and CEO Kevin Mandia is lending a hand to Cohesity.
DriveNets scored $262 million. Despite rising macroeconomic challenges, DriveNets in August secured one of the biggest funding rounds of the year, bringing its total raised to $587 million and pushing its valuation north of $1 billion. DriveNets offers a Network Cloud software stack that runs on white-box hardware and is controlled with Network Orchestrator software based on microservices. The goal is to let telcos cloudify their network functions and hyperscalers add multicloud capabilities.
The U.S. National Security Agency (NSA) re-awarded AWS a $10 billion contract. In line with the U.S. government’s tendency to waffle on big cloud contracts, the NSA in April re-awarded a cloud computing contract dubbed Wild and Stormy to AWS after yet another dramatic tug-of-war. AWS and Microsoft went head to head in the original bidding in 2020, with AWS winning. Microsoft protested; the Government Accountability Office (GAO) supported Microsoft’s claims and recommended a new evaluation. The NSA re-evaluated and picked AWS again. Despite voices raised against the single-vendor selection, it appears to be a done deal.
AMD acquires Pensando for $1.9 billion. When chipmaker Advanced Micro Devices (Nasdaq: AMD) bought Pensando this year, it signaled the growing importance of data processing units (DPUs), which add more sophisticated packet processing to network interface cards (NICs), offloading power from server central processing units (CPUs) for functions such as encryption and networking. As cloud hyperscalers expand, DPUs from the likes of Pensando are seen as a means of streamlining infrastructure and improving performance.
Where was Cisco?
With all these deals, there was one big surprise: perennial acquirer Cisco pretty much did nothing. Cisco was heavily rumored to be making a deal all year long — two names that frequently came up included publicly traded Splunk as well as recent IPO Hashicorp. But nothing happened.
In the past decade, Cisco has typically bought dozens of companies every year. But in recent years it’s taken its foot off the gas, and this year it slowed to a crawl. Take a look at Cisco’s acquisition pattern:
2019: Six deals
2020: Nine deals
2021: Six deals
2022: One deal
This is a remarkable slowdown in M&A for a company that used to make 10+ acquisitions per year.
Cisco did in fact buy privately held Opsani in January of 2022 and listed it on its website as the only deal of the year. But has anybody even heard of Opsani? It was not listed as a material acquisition in Cisco’s public filings, meaning it had little to no financial impact.
What will 2023 have in store? Will Cisco finally make the big one happen? It may soon have to do something because M&A is the engine of growth for Cisco. Without deals, Cisco’s growth and development has typically stalled.
Deals and IPOs Ahead in 2023
What will 2023 have in store? Lower valuations, a return to sanity, and the need for cloud technology growth strategies will have the M&A and strategy officers on the prowl.
If central banks, including the U.S. Federal Reserve, take their foot off the interest rate pedal, that will also invite more players such as private equity to make deals. Look for a lot of deal-making in 2023. It could also fire up the IPO market again, with many companies waiting for that opportunity.
We’ll have a full preview of that — including our list of top private companies — coming in 2023. It should be a very interesting year. Hopefully more on the bullish side than 2022!
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