Graham's Technology blog

HP gets out of the PC business

2011-08-21T19:04:00.001+01:00

The announcement from CEO Leo Apotheker that HP were spending 20% of HP’s value on a relatively small, niche market, software company and at the same time announcing their departure from a 40 billion dollar revenue part of their company can only be viewed as bold and visionary or a complete disaster.
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The view from the financial markets was clearly the latter as 20% of the company’s share value was lost within 24 x hours of the announcement.

The following is an email from Todd Bradley, the head of HPs PC division....

To: All PSG Employees
From: Todd Bradley
Subject: PSG Q311 Results and Our Path Forward
Date: 18 August, 2011

When I joined HP six years ago, I came with an appreciation for HP and PSG’s many strengths—its people, its technology, its enviable global business—and a belief that we could become a leader in the PC market. Together, we’ve worked hard to earn that distinction. Today, I look ahead with an even deeper appreciation for this team’s strengths and with a vision for how we in PSG can and will continue to control our destiny.

HP is making big news across many fronts as the company reports its third quarter results. I want to take this opportunity to share my views on Q3 and our path forward in PSG.

First, let’s review the quarter. PSG delivered revenue of $9.6 billion in Q3, down 3% year-over-year. We posted operating profits of $567 million or 5.9% of revenue.

As has been the case in the past few quarters, demand from business and public sector customers was stronger than consumer demand, and our segment performance reflected this. Workstations set the pace for our commercial portfolio and posted another strong quarter, growing shipments at three times faster than the market overall. From a geographic point of view, we had strong results in EMEA, particularly in Russia.

We continued to work through formidable challenges during the quarter as well. Across the industry, soft consumer demand has led to high inventories in the retail channel, which results in highly competitive pricing. Operationally, execution issues at our ODMs limited our overall ability to meet demand. The strategy we introduced to focus our core PC business around distinct customer segments and to centralize our ODM oversight within the Supply Chain and Operations team are intended to capitalize customer segment specific opportunities and improve our execution with partners.

The Future of webOS

This past quarter, we also shipped HP TouchPad. I want to recognize the entire webOS team for the commitment and perseverance they displayed over the past 12 months. While the webOS software experience was widely praised by reviewers and analysts, the response to our hardware was disappointing. And the response to our total product offering in terms of sales has been below our expectations.

After careful analysis of the webOS operation and market opportunity, HP has decided that continuing to execute a device strategy in this market space is no longer in the best interest of HP and HP’s shareholders. We will discontinue the operations for webOS devices, specifically the Touchpad and webOS smartphones by the end of Q4 2011.

Moving forward, we will aggressively explore means to realize the broad potential for webOS software in the market. We are still evaluating next steps and we will share more as we determine the path forward.

The Future of PSG

You have built a PC business that is second to none among Wintel competitors. PSG ships more units, delivers more revenues and earns higher profits than anyone in our category. PSG has grown operating profit in the double-digits in all quarters in 2011, due to lower component costs and favorable customer mix. I hope you are as proud as I am of these facts.

From this position of strength—and motivated by our desire to stay No. 1—we have a unique opportunity to shape our future. The decisions made by HP’s Board of Directors mean that HP will evaluate a range of options designed to maintain our leadership position. These options include a separation of PSG from HP by spinning off the business to shareholders, selling the business, or keeping the business. Ultimately, the decision we make will help deliver the most value we can to customers, shareholders, and you, the employees, in terms of opportunity for challenging assignments and professional growth.

We anticipate that it may take 12 months or more to complete this process, and I am committed to keeping you informed of our progress and next steps. I can’t tell you more specifics right now, and I know that uncertainty can be discomforting. Let me tell you what I do know:

· Our customers need you to meet the commitments we have made to them.

· The obligations we make with our suppliers and partners must be respected.
· Our roadmaps and delivery schedules have not changed.
· The PC GBU organization we announced remains the way we operate.
· We win when we act as one team and support each other.

The key points from this email are:

He distanced himself from the decision to get out of the PC business in his statement... “The decisions made by HP’s board of directors...”

At no point did he say he agreed with their decision or supported it in any way?

Mr Bradley clearly feels he has lead a division that has done well and he must be hoping that HP will allow him to lead a management buyout of the division?

So from a business point of view, does Apotheker’s decisions make sense?

Most PC manufactures have struggled to make double digit profit nett profit margins from the PC business and if the largest player in this market can’t do it, then maybe it is impossible?

Recently Mark Dean, a member of the original IBM PC design team stated “The PC era is basically over.”

Mr Bradley’s boast of his unit achieving a 5.9% nett margin looks weak in comparison to Autonomy’s nett margin of 42%.

On the other hand, one of HP’s main competitors, Cisco, is moving in the opposite direction and has launched their own client device in the Cius, their Android based tablet.

HP had just launched their own tablet, based on their own operating system, WebOS and was potentially poised to take a large slice of the growing tablet market created by the Apple iPad.

Apple however have no interest in the business / enterprise market, so the way was, and still is, open for another vendor to supply tablet PCs to this market. HP was well positioned to achieve this, but not anymore.

The one certainty out of this announcement is that any large PC deals HP has on the table are crippled by the lack of future certainty over the product road map.

In his email Mr Bradley says “Our road maps and delivery schedules have not changed”, but this is clearly nonsense as it entirely depends on what HP’s board of directors decide to do next, i.e. if they sell it to another PC vendor such as DELL or Acer, their product road maps will obviously overlap with the existing HP road map. Based on past takeovers, it tends to be the company doing the acquiring who decides whether or not to keep or abandon existing product road maps. Typically senior management of the company being acquired leave or are given golden handshakes, so Mr Bradley’s viewpoint is of little worth at the moment.

When IBM got out of the PC business, they simultaneously announced it was being sold off to Lenovo, thereby at least creating a certain future for the PC division.

At a very simple level, maybe the decision is based on Leo Apotheker’s personal experience?

He spent twenty years at SAP, a vendor of high margin, low volume software products. Maybe he just didn’t understand the low margin, high volume PC business and so is trying to create a new HP that is more similar to the type of company he is personally familiar with.

Either way, Leo can’t lose. Like one of his predecessors, Carly Fiorina who was sacked by the board of HP and given a $20m severance package, no matter how his decisions pan out, he is sure to leave the company several millions of dollars richer, i.e. he can do no wrong.

UK Companies signing up for Office 365 could find themselves breaking the law

2011-07-14T22:43:00.002+01:00

In London, at the Office 365 launch, Gordon Frazer, managing director of Microsoft UK, admitted that data residing in Microsoft’s European Data Centres is not protected against the US’s Patriot Act.

The question put to Mr Frazer:

“Can Microsoft guarantee that EU-stored data, held in EU based data centres, will not leave the European Economic Area under any circumstances — even under a request by the Patriot Act?”

Frazer explained that, as Microsoft is a U.S.-headquartered company, it has to comply with the United States law.

Though he said that “customers would be informed wherever possible”, he could not provide a guarantee that they would be informed.

He said: “Microsoft cannot provide those guarantees.”

The UK Data Protection act forbids an organisation acting as a “Data Controller” to pass user data outside the European Union unless the recipient country provides guarantees as to how the data will be used.

Due to compliance with the US Patriot Act, if Microsoft is not obliged to inform UK organisations that they have transferred the user data outside the EU, then they obviously will not be providing any guarantees as to what that data is to be used for. Microsoft could inadvertently put their UK customers in potential breach of UK law.

So how would anyone know?

If a UK user submits a Freedom Of Information Act request asking the UK organisation to divulge whether or not their data has been transferred out of the EU, that organisation in turn may feel obliged to submit their own FOI act request to Microsoft UK who would be obliged under UK law to investigate and reveal if this has in fact occurred.

If it had, then the UK “Data Controller” organisation will be in breach of the Data Protection Act and could be subject to heavy fines or could lose its Data Protect registration preventing it from holding any user data in future.

UK organisations may find it less risky to procure cloud based services from an EU company and not a US based vendor to avoid potentially high fines, legal fees to defend claims of breaching the Data Protection Act and a potential loss of their Data Protect Act registration.

HP CloudSystem

2011-06-29T00:00:00.002+01:00

I attended a seminar today given by HP on their latest proposition for the cloud market.

They suggested the cloud market is divided into three sectors; software as a service (SAAS), Private Cloud and infrastructure as a service (IAAS).

Examples included salesforce.com (SAAS), and amazon web services (IAAS).

My overall impression of their presentation seemed to be “Private Cloud” is the way to go and HP have this lovely BladeSystem (renamed CloudSystem) which will be perfect for an in house virtualisation environment and comes bundled with software provisioning tools (Matrix), all available to purchase with a single part number.

With regard to SAAS, they didn’t seem to have much to offer.

As for IAAS, they seem to be pushing their very high end blade servers the VS1 (750 x virtual machines) to the VS3 (6,000 x virtual machines). These products are clearly not aimed for the small and medium sized enterprise and are only suitable for large service providers who want to use HP technology to offer a cloud based service to their customer base.

The newest development was a “burst” capability whereby if you’re in house BladeSystem, sorry, CloudSystem, runs out of resources, you can automatically call on external cloud based resources from savvis.com ,the cloud service provider. Only thing is, that’s not actually available until November. Also, it begs the question if you need an overflow or “burst” capability, cloud based service from Savvis why wouldn’t you go directly to them rather than access them via a contract with HP? I wonder if Savvis use HP blade servers and provisioning toolsJ

I can see their blade servers and provisioning tools being attractive to large service providers wanting to wrap it up with a service level agreement and maybe an on line application, but they really are pushing it a bit to portray their entry level BladeServers / Matrix tools as some kind of cloud based offering.

Why did Microsoft spend billions on Skype?

2011-05-16T15:48:00.004+01:00

The main assets would be :

extra $800m+ on line revenue

27 million active Skype users

Microsoft can “bundle” their existing on line products such as Bing and Hotmail to the millions of Skype users.

Skype has readymade relationships with Telco’s that terminate their internet based calls onto their fixed line networks. This will be useful in their corporate market where they are pushing Lync hard as a PBX replacement.

No doubt the first development will be a Skype button appearing on your MS Hotmail tool bar.

Also there is an overlap with their Lync unified communications / presence client and the Skype client.

On the financial side, Skype will add $860m revenues to Microsoft’s on line services division. This is the lowest revenue earner within the Microsoft group with existing revenues of $2.2 billion and is also the only division to have made a loss of $2.4 billion.

Microsoft’s previous attempts to enter the on line consumer market have failed, Yahoo and Facebook’s management turned down Microsoft’s takeover attempts.

Tony Bates, Skype’s CEO stated cinema trailers being swapped over Skype as a growth revenue stream. This will add to Microsoft’s advertising revenue it currently gets from its Bing search engine.

During their joint press conference, I thought it was interesting that Steve Ballmer refused to mention Android when asked about continuing Skype support for non Windows platforms?

All he did say was we will support the Apple Mac platform?

Overall it seems a wise move for Microsoft, so long as it can realise a $8.5 billion increase in on line services (adverting revenue, group video conferencing, calls to non Skype users etc.) over the next two or three years?

Which tablet client device will the corporate market adopt?

2011-05-09T22:49:00.000+01:00

Today I attended a meeting where we were planning on rolling out a new product offering based on a tablet device, i.e. Apple iPad or one of the newer rivals such as the Blackberry Playbook or the Cisco Cius.

The initial suggestion was, “everyone wants an iPad lets offer that”.

Our company sells IT and data comms products from several vendors, but not Apple.

Apparently Apple was insisting on a very large commitment to sell a minimum number of products before agreeing to allow us to become an authorised reseller. So that effectively ruled them out of consideration.

Another contributor suggested the new Blackberry Playbook, but apparently they have exclusive deals with the larger mobile vendors who will have access to the product for a period of time before anyone else is allowed to sell it.

A third possibility mentioned was the new Cisco Cius. As a Gold Partner we have good contacts with them and therefore will be able to sell and support the product as soon as it’s released. I’ve had a brief hands-on experience with this new device, but there was a lack of apps on it so I couldn’t really comment on its usability.

For this and almost no other reason, it seems we will adopt the Cius and offer it to our SME and corporate customers.

The various technical / commercial aspects of the three different devices are known and it’s up for debate as to which is better?

Apple

· excellent user interface, my three year old can use it

· huge range of consumer based applications

Blackberry Playbook

· huge installed base of Blackberry users who want a familiar interface

· back catalogue of business applications

Cisco

· Existing popular instant messaging, / presence client, video conferencing technology using the Cius’ has front / back cameras

· Security technology equivalent or better than Blackberry’s

I don’t believe the corporate market will adopt the Cisco tablet based on our decision, but it is interesting that it seemed to be the easiest device for our company to offer?

Sony’s million dollar mistake

2011-05-03T22:46:00.004+01:00

Are the bloggers being too hard on Sony over their security breach?

Probably not.

Imagine if a major bank had been breached and had to admit that 70m+ user’s personal details had been hacked?

However I suspect that a major bank has been hacked to a greater or lesser extent to Sony. The difference is that they have kept their online service up and running and made sure their customers money has been protected and or refunded if necessary.

If Sony had kept their online portal up and running would anyone have realised they had been hacked?

If they had kept their Playstation Network up and running and someone had been compromised due to the hack would the situation have been any worse for them than it is at the moment?

At the time of writing their network has been down for thirteen days. Every day it is down users are getting more and more frustrated and I’ve no doubt a minority are giving up and moving to Microsoft’s XBOX network and possibly may never return?

update 22nd May

After their network was re opened, I downloaded and installed the latest software update. Now my "fat" PS3 has just shut down and will not re-boot. I checked the Sony support web site and it seems this has happened to a lot of other users after they installed the latest software update. It doesn't look like this can be resolved without a hands on hardware repair?

Following on from the three week network outage, Sony have just handed another large number of their customers to Microsoft.

Update 28^th May

Got a call from Sony, they want to charge me £134 to replace the PS3 which was damaged by their software update.

A lesson in how to lose your customers.

Interesting article on Research In Motion from the Wall Street Journal

2011-05-03T22:23:00.001+01:00

http://online.wsj.com/article/SB10001424052748703655404576292983239364862.html#articleTabs%3Darticle

Comment on Cisco’s Security Solutions Webinar

2011-03-16T14:38:00.001+00:00

I attended a web based event today on Cisco Security “Vision” which was hosted by Fred Kost, Director of Security Marketing.

First impressions were, nothing new, pushing the any client to any application security model.

Several mentions of “comsumerised end points” i.e. employees using Apple iphones etc. To access their company network.

Their “SecureX” architecture was discussed which seems to be a vision statement based on how to link all their recently acquired security products together, rather than what will this do for my company’s security posture?

There was a “real world” scenario given by Tom Gillis, VP of Security whereby a hapless American corporate executive, “Kevin”, loses his ipad in a bar after a few beers and thereby risks a major security incident because his password was “1234” and therefore easily guessed by a thief.

The saviour in this scenario was the Cisco Security Intelligence Operation which correlated a duplicate logon and killed the stolen ipad after wiping its contents.

Apart from the fact that no corporate application would allow such a password to be setup and used in the first place, I do wonder what real damage such an opportunistic thief could have done with “Kevin’s” login details.

I imagine the unauthorised user could have sent malicious emails to Kevin’s contact list, but apart from that, probably not very much?

Another analogy that was used was Kevin using his company pc to login to a twitter site on a TV program which contained malware, which was automatically prevented by Cisco’s “context aware” technology. Well, again, is that anything new? What would have happened if he had downloaded that malware onto his PC? Any antivirus package / firewall setup could / should have prevented any serious damage?

The only interesting item came from Gordon Thompson their Director of Security for Europe. He announced their plans to launch a security user license which will cover all of Cisco’s security products, thus avoiding the need for organisations to manage multiple Cisco Licenses for their different security products. This is due out in August.

I did think this would genuinely save time and hassle for IT/Security managers keeping track of different Cisco license which run out at different times of the year. It is obviously similar to Microsoft’s Enterprise or Campus license. I asked Gordon if the Cisco equivalent will include non Cisco products such as WebEx. The answers was, no. They have enough on their plate introducing a security only user license and there seems to be no plans to have a single “Cisco Client User license”, at least not yet?

No more phone bills, the promise of SIP circuits

2011-03-06T22:41:00.001+00:00

Over the next few months all major Telco’s are set to launch SIP Circuits (Session Initiation Protocol).

If adopted by the SME market it is aimed at, these circuits will make the phone bill a thing of the past for many businesses.

At the moment, a business may have an ISDN30e circuit with 10, 20 or 30 x channels (telephone lines).

They will be billed around $24 per month per channel for rental, and then on top of that they’ll be charged for the phone calls they make over those lines.

As well as phone lines, most SME size organisations will have a separate dedicated circuit for connection to the internet, and will pay around $15,000 per year for a 10M dedicated internet circuit.

By contrast with a SIP circuit Telco’s will offer, for example, a 10M circuit that will combine internet connectivity with connectivity to the PSTN network on the same circuit. They’ll allow for say 10 or 20 “SIP Channels” costing $24 per channel per month, but will include 5,000 minutes of calls per channel per month included in this rental. The result is the customer will effectively get free calls on their Internet circuit and will no longer require a separate ISDN30e circuit.

If your organisation has a modern IP Telephony system, then the SIP circuit will connect directly to it. If you’ve got an older, TDM based telephony system, they’ll put a black box on site to convert the E1 signal from your PBX into IP for use on the SIP circuits.

The reduction in line rental and call costs may save a company tens of thousands of dollars per year, depending on their call pattern.

Voice quality is protected by setting quality of service at the end point and the destination point can be any SIPS or non SIP client.

The only loser in this move will be the Telco’s who will lose out in revenue terms, although by switching to the IP based circuits, their internal management costs should be much less than supporting the platform which the old ISDN30 circuits.

The Virtualisation war - Microsoft versus EMC

2011-02-27T12:27:00.011+00:00

What is virtualisation?

In the past organisations ran a specific software application on a physical server. They sized the server (how much memory, disk space, CPU capacity etc.) based on recommendations from the software vendor. That server typically would only be used to run that single application.

This was fine except that in practice very few applications need all the server capacity all of the time. A typical scenario would show that the servers were running at 5%-20% of their capacity, but occasionally the application would spike to 80% utilisation.

Therefore in an organisation with 100 x servers, 80% of their capacity was sitting unused most of the time. However the companies involved had invested an upfront cost in the server hardware and also had to pay for operational costs such as hardware support, operating system upgrades and the personnel to manage and upgrade these 100 x servers. Other costs include the electrical power to feed these servers and, in some cases, the cost of hosting these servers with a third party.

Then along came virtualisation and it’s most prominent exponent, VMware, now part of EMC. More than any other vendor, VMware popularised the concept and use of virtualisation. Their software allows users to run multiple “Virtual Machines” on a single physical server.

Advantages of Virtualisation

Using the example above, an organisation can reduce the number of physical servers dramatically, but maintain the same number of applications. Thereby reducing the initial cost of purchasing server hardware and reducing the operational costs, less physical servers means lower hardware support costs, lower management costs, lower power and hosting costs.

VMware offer customers a free to use application which sits on their servers and over a period of time calculates the actual usage of the various applications being monitored. In a recent example where I was involved it showed that an organisation using 90 x physical servers could reduce this down to 10 and still have the processing capacity to allow their applications to run effectively.

Other advantages include the time in providing new “virtual servers” is much less than the time it takes to deploy a new physical server. Also it provides an ideal way to test a new application and then effectively delete that virtual server and free up its resources when the test period is complete.

The clash begins

Everything was going fine for VMware whose main competitor was Citrix, and then along came the mighty Microsoft who decided they would like a slice of the lucrative virtualisation market.

Microsoft launched “Hyper-V” which provides the same functionality as VMware when it comes to server virtualisation. However, when you speak to technical personnel trained and experienced in both technologies, they will without exception tell you VMware has superior functionality and additional management features over and above those found in Hyper-V.

So, EMC, who own the VMware technology have nothing to fear then?

They have a huge installed base and a technically superior product?

Well no, because people buy technology products not simply based on technical features and benefits, commercial reasons always come into play and this is where Microsoft is winning ground against EMC.

In a recent project I was involved in the customer already had a small deployment of VMware and where perfectly happy with it. However when they decided to virtualise the majority of their 90 x servers, Microsoft came calling and offered them a deal they couldn’t refuse. They offered the Hype-V licenses free of charge and also offered them $32,000 towards the cost of implementing their software via their chosen Microsoft reseller / partner. This saved them the equivalent of over $60,000 compared to purchasing VMware licenses and paying the VMware reseller / partner to install and configure the software. In return the company involved agreed to be a site reference for Microsoft and allow them to write and publish a case study detailing their deployment of Hyper-V.

Using sales tactics like these will ensure Microsoft seed the market with Hyper-V installations and raise awareness of this product within the general IT marketplace.

So who will win the virtualisation war?

I believe in a few years time VMware, and Citrix will inevitably lose some of their customers to Microsoft, but there are a growing number of large commercial organisations who are resisting the all pervasive Microsoft licensing push where Microsoft try to persuade companies to deploy Microsoft everywhere from the desktop to the applications, data bases and server operating systems. These companies will continue to use and deploy VMware and will resist the temptation to go for “free with strings attached” offers from Microsoft.

The other marketing advantage EMC has to fend off the Microsoft attack is their alliance with Cisco.

Ciscos’ highly motivated and highly paid sales personnel (I know because I was one) are out there now pushing their vision of virtualisation which includes their server hardware, the chassis based UCS, and they include bundles of VMware software which are supported directly by Cisco’s technical support department, SMARTNET.

As Microsoft is simultaneously trying to eat into the Cisco IP Telephony market with their latest release of “OCS”, there seems little common ground between these two powerful vendors.

The ultimate threat to Microsoft would be if Cisco were to purchase EMC allowing them to provide a complete hardware and software solution to customers looking for virtualisation solutions.

In that event, Microsoft’s Hyper-V may remain a bit player up against the combined strengths of Cisco/ EMC technology and their considerable marketing efforts.

Why isn’t everyone using video conferencing?

2011-02-23T21:25:00.001+00:00

For years vendors such as Tandberg, Cisco and Polycom have been saying the use of video will become pervasive in the workplace. The reasons sound sensible and convincing; reduced travel and accommodation costs, better use of employee’s time, better work / life balance.

So why isn’t everyone using video conferencing?

When speaking to organisations that have video conferencing I seem to get two reactions, yes we do use it, its fine and no we bought some kit years ago, but never get it working properly and its collecting dust in a corner office.

Complexity

There’s no doubt in the past the configuration and use of video conferencing systems has not been user friendly. Recently an IT manager said to me, “We have Tandberg video conferencing kit, but it’s not used much.” The reason being in their case that the people it was intended to be used by were the senior management of the company who were technophobes. Although to be fair he did mention network issues and having to type in IP addresses prior to being able to use the system, not something many senior managers would be comfortable doing?

Cost

In the past when I’ve spoken to people considering investing in video conferencing, the main objection is not the cost of the equipment; instead it’s the cost of the network connectivity. Just a few years ago high definition video required greater than 10M bandwidth. Two things have made the pill easier to swallow; the cost of bandwidth has halved and the codec’s have been able to compress the huge amount of data required for HD video down to a more manageable size.

Facilities

Another reason for the lack of uptake of high end systems is the cost of the room facilities. Not the cost of the active kit, but the associated video screens and audio equipment. In a recent proposal I saw these peripheral items amounted to $20K before taking into account the network and video kit costs.

Tradition

Perhaps the most difficult reason to overcome when considering implementation of a high end video conferencing system is the idea that “we have always had face to face meetings”, so we’ll just carry on in the same vein. This is an attitude issue and will never be addressed by improvements in the technology or reductions in implementation costs.

HR guidelines

As in the recent George Clooney film “Up In The Air”, Human Resources management may dislike the idea of certain formal meetings being done via video conferencing. Although a friend of mine did actually get the sack via video recently, but then he did work for a video conferencing vendor?

Desk Top Video Conferencing

One thing is undisputed; the use of personal, low cost video conferencing is certainly taking off. In 2009/10 BT’s conferencing revenues increased by 400%, due in part to the volcanic ash cloud restricting flights and the recession forcing companies to cut back on travel costs.

Low cost video conferencing as offered by Cisco’s Webex and Microsoft’s Live Meeting is easy to use, relatively inexpensive and in terms of equipment is very easy to setup. On my PC, it passed the “no user guide” test in that I had connected the small Microsoft web cam and installed Cisco Webex without reading the installation instructions or doing and formal training. In use I found it simple and genuinely useful with the one click button to share my desktop. It worked fine over my 2M broadband circuit.

Maybe Video Conferencing’s time has finally come?

Is Cloud Computing all hype and no substance

2011-02-22T14:14:00.001+00:00

Cloud Computing is the bandwagon to jump on for all the major IT vendors, but is it real or just so much "talk".

It certainly is real in terms of the money invested in cloud technology by companies like IBM, HP and DELL. However, are real world IT users making the move toward using cloud based services from these vendors or not?

The problem is what the definition is of "cloud computing".

Microsoft could, with some justification, call Hotmail a cloud based service as could Google with their "docs", but these seem pale pictures in comparison to Amazon's web services offering with the colour it provides the user in terms of virtual machine build options and self service capability.

So, why are IT users still buying physical servers by the truck load from HP and DELL?

In discussions with potential cloud based users there are several reasons given for their reluctance to make the leap.

security
face to face contract negotiation
job protection
network resilience

Security

Is our data safe?
Which country is the data centre located in and therefore which legal jurisdiction applies?

face to face contract negotiation

Amazon have built their cloud based offering behind a self service web based portal. Contract terms and conditions appear rigid as you would expect from a "one size fits all" business model.
Unfortunately a lot of medium and large enterprise organisations rely on face to face negotiations with IT vendors not only to agree bespoke terms and conditions but to get re assurance that they are dealing with someone they have confidence in.

job protection

The larger IT departments view cloud computing as a variation on the outsourcing theme with the associated concerns over job security. "If we put our applications in the "cloud" and allow the vendor to manage them, what will we have left to do"?

network resilience

This is perhaps the least understood area of cloud computing and the easiest hurdle to overcome. Major cloud vendors have a neutral approach when it comes to connectivity into their data centre. Even the major telco / cloud vendors will allow a customer to connect to their cloud based services using a network vendor of their choice and multiple network technologies are supported such as MPLS, Internet and point to point data circuits.