For the longest time I refrained from making much of a comment about the proposed Dell buyout by Michael Dell and Silverlake. After all, it is a sad story whose final chapter is yet to be written. During a lunch break this afternoon, Carl Icahn in an interview on CNBC once again raised a number of non-trivial questions about the transactions and the go forward outlook for Dell.

Listening to Carl Icahn describe his alternative plan for a what amounts to a leveraged recap of Dell, a few key points have come to mind:

It is time for Microsoft End-of-Year Enterprise Agreement (EA) renewal frenzy. With financial results being more than ever important to Microsoft, buyers have opportunities to optimize their negotiation and deal process. Here’s what we are seeing in the market.

As of April 9th 2013 MGI Research added Interxion Holding B.V. - a Dutch-based provider of data center and interconnect services to MGI Cloud 30 Index - an index of 30 cloud equities.

Interxion, which trades on the NYSE under the INXN symbol, replaces Saba Software and holds about a 3% target weight in MGICloud30. Other key components of the MGI Cloud30 Index include companies such as Equinix, Dupont Fabros Technology, Digital Realty Trust, Salesforce.com, Rackspace and ServiceNow, among others. For additional information on the index and its components see a recent research note: MGI Cloud 30 Index - Is the Cloud Trend Intact?

Relevant Research:

Rackspace Revenue Miss: An 800-to-1 Punishment

A very modest miss of analyst revenue estimates has cost Rackspace (NYSE:RAX) dearly. The company quarterly results fell short of analyst estimates by $2.54 million, or less than 1% of its quarterly revenue target. The punishment that RAX endured as a result of this miss could only be described as brutal. From its pre-announcement level of around $75 per share Rackspace stock fell in two days of trading to just below $60 - a loss of over $2Billion in market value. For every dollar that Rackspace revenue missed the Street estimate, it has so far lost over $800 in market cap - an 800-to-1 punishment. As a reminder, Rackspace typically trades in a multiple range of 7X to 9X revenue. So what is behind the sell-off, is it an over-reaction and when will it stop?

RAX was clearly priced for perfection, - a momentum story and a trend stock that could only stay at its hefty levels if it not only met but consistently exceeded analyst estimates and raised guidance if available. At around $59 the shares are trading at an intermediate support level. If the shares make a break below $59, - more downside is possible. At the same time, we continue to see the momentum in cloud computing as strong and accelerating. The long term trend remains in place and is broadening outside the base of early adopters. Rackspace continues to be cited by IT buyers and competitors as one of the Top 3 suppliers of cloud computing infrastructure services. Its service levels are praised and pricing levels are often subjected to criticism - a sign that the company is able to maintain its margins against a perception (misguided in our view)  that there seems to be an onslaught of near infinite capacity of cheap computing power. One of the consistent inputs we hear from the field is that many customers use Amazon Web Services for development, but for production often chose Rackspace regardless of price.

Where we do see a challenge for Rackspace and other providers of cloud services, components and tools is that the very broadening of the appeal of cloud computing may actually create a temporary slow down in the sales momentum. The focus of the market is shifting away from early adopters to a much more mainstream set of buyers who take longer to buy, run longer trials and negotiate much harder on price and service levels. This transition is a process, not an event and will create a temporary damping effect in the cloud space. So far, during the recent earnings announcement season, we have seen a number of pure play and component suppliers in the cloud space stumble and see their stocks punished severely. VMware, Riverbed and CenturyLink are all examples of recently disappointing results.

In the near to mid-term Rackspace may see a moderation of its multiple. We do not see the company going the way of Blackberry but investor caution will be more pronounced as the company and some of its key competitors, suppliers and partners wade through this near term period of buyer transition.

Note: The preceding is not an offering or a recommendation to buy or sell securities of any kind. Rackspace, VMware, Riverbed and Centurylink are components of the MGI Cloud30 Index.

Recent Research:

2013 Cloud Innovators Summit: Core Club, NYC March 5th

Monetization as a Service - 20 Questions with MetraTech CEO Scott Swartz

Secure Cloud Opportunity - 20 Questions with CEO of Firehost - Chris Drake

Video Replay of the "Battle of PaaS Evangelists July 25 2012"

Is Security a Barrier to Cloud Adoption?

On March 5th in New York City we are hosting the 2013 MGI Research Cloud Innovators Summit. This will be a half-day, invitation-only conference focused on business and technology innovation in Cloud Infrastructure and Tools. This is an exclusive opportunity to meet CEOs of up and coming cloud providers, network with cloud industry executives, investors and analysts. MGI will also present our 2013 Cloud Computing Scenario and discuss the MGI Cloud30 Index.