Overview

Setting the stage for what ended up being the primary theme at Informatica World 2022 — Data is your platform — Informatica CEO Amit Walia walked attendees through two emerging trends: the importance of scalable infrastructure through cloud computing, and how AI and machine learning (ML) are no longer just about automating processes but also about enabling predictive intelligence. These trends, while well recognized in theory, are more challenging for businesses to put into practice, particularly due to the proliferation of data and the number of users looking to access said data, including both technical and nontechnical personas.

Informatica’s solution to data complexity is rooted in one of the company’s core values — platform centricity — but the move to essentially replace Intelligent Data Platform with IDMC, after years of innovation and a slight disruption from COVID-19, is now taking Informatica’s approach to data management and integration to new heights. With IDMC in the cloud, Informatica is better positioning itself to help clients translate data into valuable insights at a level that cannot be realized on premises.

In addition to being cloud-native, IDMC is infused with AI, addressing the other emerging trend called out by Walia — the need for AI-powered intelligence. All Informatica capabilities are built on CLAIRE, an automated metadata engine that processes 32 trillion transactions per month, and tie back into IDMC. While the ROI for AI technology is still hard to justify for many businesses, another key factor in the low adoption of the technology is that many businesses are working with complex, siloed data, which means AI models could fall short and lead to inaccuracies.

CLAIRE is designed to address a range of operational, runtime and automation use cases — from auto-scaling to anomaly detection — and acts as a wrapper around IDMC to enable fully automated data management and governance processes. By bringing the power of cloud and AI into one integrated platform, Informatica uses IDMC to help customers focus on the only thing they truly own in the cloud: their data. The result of a $1 billion, six-year investment, IDMC consists of seven core modules, with its value proposition largely stemming from its modularity and the ability to allow customers to pick and choose capabilities and services based on their industry, business and use case.

Informatica expands platform capabilities, driving additional value for its comprehensive, cloud-native solution

New innovations emphasize uniting IT and business functions to improve efficiency

With IDMC, Informatica has solidified its platform approach, but as cited by various customers, the company’s ability to continually offer new capabilities is what drives additional value, by addressing more horizontal and vertical use cases in the data life cycle. Perhaps the most notable announcement at Informatica World 2022, which seemed to garner particular excitement from product leaders and customers, was the general availability of Informatica Data Loader. Jitesh Ghai, Informatica’s chief product officer, led a demo of Data Loader, which is a free, self-service tool that ingests data from over 30 out-of-the-box systems into Google Cloud’s popular data warehouse solution, BigQuery.

As part of the demo, we saw a scenario play out where a marketing analyst needs access to more data to effectively run a campaign. The hypothetical marketing analyst then accesses the Integration module within IDMC to pull data from Marketo using a drop-down tool to access BigQuery through which data can be loaded in only a few steps. This integration could end up acting as a time-saver for large organizations and speaks to the innovative ways Informatica is getting data into the hands of line-of-business teams.

At the event, Informatica also announced INFACore, which targets more technical users, such as data scientists and engineers, allowing them to clean and manage data in a single function. As a low-code plug-in for popular frameworks, such as Jupyter notebooks, INFACore is designed to improve the productivity of the technical user, but naturally this productivity trickles up to business functions. For instance, after using INFACore to cleanse data through a single function, the data scientist can publish a clean data set to the Informatica Marketplace, where other teams within an organization can access it.

Another key innovation called out in opening talks with Ghai was ModelServe, which allows users to upload, monitor and manage ML models within their Informatica data pipelines. There are many ML models in production, but businesses are still looking for ways to scale them from an operational perspective. In talks with more than one customer at the event, the common interface within IDMC came up as a value-add when attempting to scale a data team, suggesting customers are awaiting ModelServe’s general availability as it will allow users to register and manage ML models directly within IDMC.

Informatica strengthens SaaS portfolio, building in intelligence from the data model up

While Informatica’s platform capabilities get much of the market’s attention, the company also has a broad portfolio of IDMC-enabled SaaS offerings, which play a key role in the data management journey, complementing warehousing, integration and automation. As a native service within Informatica’s Master Data Management (MDM) solution, 360 applications act as a gateway for transforming customer experience in the cloud, something we saw in action through the product demo of Supplier 360 SaaS.

Through IDMC, CLAIRE recognized a defective part from a supplier of a hypothetical company, and teams were able to use Supplier 360 SaaS to identify which customers were impacted by the faulty part and automatically notify customer service so they can launch a refund program to keep customers satisfied. Informatica also released various industry and domain extensions for its 360 applications and will continue to offer new packaged offerings available in a SaaS model, providing customers more ways to onboard and manage data.

Joining the industry cloud bandwagon, Informatica verticalizes IDMC

It is no secret that industry specialization is re-emerging as a leading trend in the cloud space, as a maturing enterprise customer base demands solutions that suit their unique IT and business processes. During the event, Informatica unveiled new IDMC customizations for financial services, healthcare and life sciences. These three offerings join IDMC for Retail in Informatica’s industry cloud portfolio to further address demand for purpose-built solutions that will limit the need for customization.

Findings from TBR’s Cloud Infrastructure & Platforms Customer Research continue to indicate that some enterprises are wary of industry cloud solutions, dismissing them as marketing ploys. Other enterprises, however, find them worth evaluating. For instance, in talks with a representative from a hedge fund, we found that the company initially chose a competing MDM solution because it specialized in asset management with its own specific data dictionary but was torn as it viewed Informatica’s MDM as ahead of the competition in terms of capabilities. We can expect Informatica to expand in other industries, including specific subverticals, with additional data models, custom user interfaces and data quality rules to appeal to these customers.

Continued integrations and go-to-market synergies with hyperscalers help Informatica maintain data neutrality

For a company that markets itself as the “Switzerland of data,” Informatica’s ability to make its offerings accessible across leading cloud platforms is critical. Partnering across the cloud landscape is no longer a differentiator, it is a necessity and something customers clearly find value in as they gravitate toward multicloud environments. During the event, Walia welcomed several partner executives both in-person and virtually to discuss new joint offerings and go-to-market synergies the company is forming with cloud service providers to deliver more choice and flexibility and for joint clients.

• • • The ubiquity of Microsoft’s cloud portfolio allows Informatica to provide clients a unified data architecture. Informatica and Microsoft (Nasdaq: MSFT) have a well-established relationship, which at its core is focused on migrating data warehouses to the cloud but is evolving and making Informatica relevant across the Microsoft Cloud stack, including Azure, Power Platform and 365 applications. For example, Informatica is typically well known for its integration with Azure Synapse, but the company also integrates with the Dynamics 365 SaaS data model to enable Customer 360 analytics. Expanding its presence throughout the Microsoft Cloud stack, Informatica announced MDM on Azure. With this announcement, customers can deploy MDM as a SaaS offering on Azure via the Azure Marketplace, which could appeal to the large number of Microsoft shops looking to enhance their Azure Data Lakes with a feature-rich MDM solution. Both companies also launched Informatica Data Governance with Power BI, which, as highlighted by Scott Guthrie, EVP of Cloud and AI at Microsoft, brings Informatica’s data catalog scanners to Power BI, allowing customers to have a single view of their data processes from ingestion to consumption. This offering could serve as a more strategic way for customers to modernize their analytics workloads through Azure.
    • Given their respective strengths in data analytics and data management, Google Cloud and Informatica are complementary partners. The Google Cloud-Informatica relationship took a major step forward with the launch of Informatica Data Loader, which could expand client usage of BigQuery and help Google Cloud (Nasdaq: GOOGL) address a wider set of customer needs, including those outside the IT department. In TBR’s own discussions with enterprise buyers, BigQuery is often cited as a leading solution due to its ability to handle petabytes of data at a favorable price point. Walia reaffirmed this notion in discussions with two customers, ADT and Telus, both of which are migrating legacy data warehouses and/or front-end ETL (extract, transform, load) capabilities into their BigQuery instances and using IDMC for cloud-based data management.
    • Oracle awards Informatica preferred partner status for data integration. Informatica and Oracle (NYSE: ORCL) struck a new partnership agreement that offers IDMC on Oracle Cloud Infrastructure (OCI). Addressing the large number of customers running legacy Oracle databases and potentially those that are also deploying on-premises Informatica products, IDMC on OCI provides customers an integrated gateway to the cloud by enabling back-end connections with Oracle Autonomous Database and Exadata Database Service and OCI Object Storage. For example, with IDMC on OCI, customers can import data from legacy Oracle E-Business Suite applications into Autonomous Database and connect to other data sources, such as Azure SQL or Amazon RedShift, through IDMC. As a preferred Oracle partner, Informatica will recommend customers use IDMC with Oracle’s cloud services. Oracle’s EVP of database server technologies, Andy Mendelsohn, walked through numerous incentives to assist customers’ cloud migrations, such as Bring Your Own License, Informatica Migration Factory and Oracle Cloud Lift Services.

Informatica also has close relationships with Amazon Web Services (AWS) (Nasdaq: AMZN), Snowflake (NYSE: SNOW) and Databricks, all of which are expanding their commitments to Informatica to help customers look beyond ETL and handle data in an end-to-end fashion. Given Informatica offers analytics, integration, automation, governance and management capabilities across leading clouds, naturally the company runs up against a high degree of competitive overlap with its partners, which offer similar native tooling as part of a customer’s environment.

However, in talks with customers, the general perception seems to be that the hyperscalers’ capabilities are still relatively immature and that there is also significant value in deploying a vendor-neutral platform like IDMC to avoid vendor lock-in and address the training and skill challenges typically associated with a multicloud environment. While we can expect the hyperscalers to enhance their capabilities, at the end of the day, the primary goal for AWS, Microsoft and Google Cloud is to win compute, so the benefits of partnering with Informatica to capture legacy platform-layer workloads outweigh the downsides of coopetition.

Conclusion

With IDMC, Informatica has fostered a value proposition catered to three core areas: platform-centricity, connecting IT and business ecosystems, and infrastructure agnosticism. The numerous announcements made at Informatica World 2022 show the data management company is building on these strategic pillars by better aligning with cutting-edge trends in the cloud industry, such as industry customization, out-of-the-box integrations and data democratization. With these enhancements in place, along with close partnerships across the IaaS ecosystem, Informatica is positioning itself favorably to assist clients with the large number of on-premises workloads ready to be migrated and modernized in the cloud while enabling the cloud-native enterprise to transition from digital to data-driven.

Broadcom will position VMware at forefront of its software strategy

On May 26, Broadcom (Nasdaq: AVGO) agreed to purchase VMware (NYSE: VMW) at an enterprise value of $69 billion, making it one of the largest tech acquisitions in history. While Broadcom is no stranger to software acquisitions, this transaction will be its most transformative as VMware becomes both the brand and growth driver behind Broadcom Software. If the transaction closes, the new Broadcom will find itself evenly balanced between its semiconductor and infrastructure software businesses. After market close on the day of the announcement, investors on each side of the transaction viewed the proposed deal favorably, signaling shareholders’ confidence in management’s ability to use past experiences to generate free cash flow through the integration of the two companies, bolstered by VMware’s cost structure and pervasive role in enterprise IT.

Should the deal close, VMware will be led by Broadcom Software Group’s current president, Tom Krause, who has a financial background and will report to Broadcom CEO Hock Tan. As with past acquisitions, Broadcom’s primary goal will be to improve profitability through cost synergies, mostly related to redundant headcount. While margins will certainly benefit, VMware’s innovative agenda, spearheaded by Pat Gelsinger and since adopted by current CEO Raghu Raghuram, hangs in the balance, with the outcome dependent upon Broadcom’s desire to drive synergies with VMware in both R&D and go to market. If Broadcom’s acquisitions of CA Technologies and Symantec are any indication, VMware’s future in the cloud and at the edge may be muted. But it is still early days, and commentary from Broadcom management suggests a different course of action relative to past acquisitions with a strong intent to invest in VMware’s core software-defined data center (SDDC) stack.

A deal could bring VMware back to its data center roots

Since the 2016 launch of VMware Cloud Foundation (VCF), VMware has insisted on making its trusted virtualization software relevant beyond data center walls by delivering native, turnkey solutions with all major cloud service providers (CSPs). The rise of cloud-native development through containers and Kubernetes has presented VMware customers with an alternate route to the public cloud, but the 2019 acquisition of Pivotal and resulting Tanzu portfolio — while still built and delivered via ESXi — allowed VMware to position as a complement to containers, rather than a competitive threat.

Often still defined as the company that pioneered enterprise virtualization, VMware has proven its ability to adapt over the past two decades alongside market trends, including cloud computing and containerization, both of which have accelerated VMware’s transition to a Subscription & SaaS company, with related revenue comprising 29% of total business in 1Q22. Broadcom plans to upsell Subscription & SaaS alternatives to legacy customers, including those demanding “as a Service” software inside the data center.

However, given the growth in Broadcom’s software business stems from mainframe customers, we cannot help but wonder if VMware’s push to the cloud will be stalled should the deal close. From a cost perspective, customers may be less incentivized to move their VMware workloads to the cloud, and instead could containerize applications to avoid incurring the cost of VMware or could simply keep their VMware applications on premises, which would erode some cross-selling opportunities for Broadcom. Further, given Broadcom’s focus on revenue-rich products, we can expect detracted focus from the Tanzu initiative, which could bring VMware further back to its data center roots and, in a worst-case scenario, put it back at war with the hyperscalers, as was similarly seen in the early days of EMC.

With VMware’s success hinging on partners, Broadcom cannot afford to decelerate partner investment

Historically, Broadcom’s corporate sales model has been largely direct, but considering the scale of VMware’s partner network, the pivot toward indirect sales motions is inevitable, especially as Broadcom looks to build out a $20 billion software enterprise. Management indicated it will sell directly into 1,500 core accounts while likely providing hands-on professional and support services to these customers, which Broadcom chalks up to a simplification of its overall business model. This suggests, however, that there will be over 300,000 vSphere adopters still left in the hands of partners — and given Broadcom’s lack of comparative experience navigating channel relationships, the company will be most successful if it lets VMware go to market independently while preserving its relationships with strategic resellers, especially Dell Technologies, which is responsible for roughly one-third of VMware’s revenue.

Further, despite a thin R&D budget, Broadcom will still deliver new product integrations with VMware, which could present opportunities for distributors, VARs and potentially ISVs looking to integrate and package their solutions with VMware and Broadcom. However, management has been unclear regarding acquisition synergies, suggesting opportunities could be minimal, and except for some OEMs potentially hoping Broadcom will help level the playing field, partners are likely concerned.

This is particularly true as prior to the announcement VMware was in the middle of overhauling its partner program, announcing promises to improve coselling motions between direct sales teams and VARs, in addition to investments in digital and automation technologies designed to lower implementation costs and improve partner profitability. With Broadcom’s cost structure in place, investments in VMware resources and training programs for partners could decrease, which, when combined with the already higher prices we can expect for VMware products, will present a challenge for partners across the spectrum.

For Broadcom, it is all about profitability

The proposed acquisition can be viewed as another one of Broadcom’s attempts to diversify its hardware portfolio through high-margin software, and with VMware, Broadcom will use redundant costs and license prices as levers for margin expansion. Profit growth will have to come in the form of cost consolidation as VMware’s top line will decelerate, especially as profitable software maintenance revenue streams erode as customers transition from licenses to subscriptions. For context, in 2021 VMware’s SG&A costs accounted for 40% of revenue, a high percentage relative to peers, leaving room for Broadcom to offload redundant resources, particularly in back-office positions.

Meanwhile, as Broadcom prioritizes margins at the expense of top-line growth, at least in the near term, we can expect the sales and marketing line to be impacted, with Broadcom making use of its existing sales teams and channel distribution partners to sell into existing strategic accounts. R&D is perhaps the biggest question mark weighing on the pro forma company, which we expect will require a minimum 15% reduction in spend to meet EBITDA targets, when applying the S&M and G&A estimates shown in Figure 1. The R&D budget will undoubtedly be cut, but the degree depends on the level of “central engineering” synergies Broadcom is willing to form with VMware to deliver new products, with at least basic CI/CD (continuous integration/continuous delivery) procedures in place.

Leveraging VMware’s relationships with the cloud providers, specifically Amazon Web Services (AWS) (Nasdaq: AMZN), it is possible new product synergies could be formed without driving significant R&D investment. However, it will still require a level of commitment from Broadcom to invest in the VMware portfolio beyond SDDC, which does not appear on the company’s radar. This structure could also impact existing offerings like SASE and Project Monterey, which happens to align with Broadcom’s gradual shift away from x86 architectures. This is especially true as Broadcom figures out where there is overlap between its existing software portfolio, which already has plays in security, infrastructure management and FC SAN (fiber channel storage area network) and VMware.

At the end of the day, cost actions will run through the income statement over the next three years in a way that gets Broadcom to $8.5 billion in pro forma adjusted EBITDA. Currently estimated at $4.7 billion for FY22, Broadcom would need to grow adjusted EBITDA by a 22% CAGR to achieve this goal, resulting in a drastic operational change for VMware and potentially a loss of momentum outside vSphere, vSAN, NSX and the vRealize suite, which may not have an impact on near-term results but certainly risks VMware’s long-term attractiveness.

Rival bid seems unlikely despite go-shop provision

While the premium pledged by Broadcom in its bid for VMware is likely to ward off most, if not all, potential rival bids, the current agreement contains a 40-day go-shop provision that allows VMware to explore other buyers. Ultimately, any potential bidder would need to have a significant amount of capital ready to be utilized and be willing to push VMware’s valuation further. Given their respective sizes, a hyperscaler is the most likely candidate, with AWS top of mind considering its strategic reseller and product alliance with VMware.

However, TBR believes this is still unlikely, and if any of the cloud providers were to buy VMware, it would be widely perceived as an attempt to buy IaaS revenue. Further, we believe that the cloud providers, while some are more prone to locking in customers than others, generally respect VMware’s neutral position in the market and are cognizant of the fact that owning VMware could create a host of challenges for customers. It is also plausible some of the hardware vendors would like to get in on the deal, but OEMs could be skeptical following last year’s spinoff by Dell Technologies.

TBR takeaway

Considering Broadcom’s aggressive profit targets and previous history running software businesses, customers, partners and employees appear to share mutual concern regarding what will become of Broadcom Software should the deal close. With cost reductions bound to occur across business functions, including R&D, lack of investment raises questions as to how VMware will remain competitive in markets beyond traditional virtualization.

However, Broadcom management has also indicated that VMware will not operate like Symantec and CA Technologies, given its unique market position — and if VMware can materialize R&D to drive new product synergies, the company could at a minimum maintain its trajectory of midsingle-digit growth. VMware’s well-established relationships with channel partners will also help Broadcom establish a large software empire, but this would be contingent on the company’s willingness to invest in less profitable, yet emerging business units, with the final decision coming down to whether management believes the initiative will be accretive to free cash flow.

What is Joint All-Domain Command and Control?

Joint All-Domain Command and Control (JADC2) is an evolving Department of Defense (DOD) vision to revamp the Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) programs currently in use across all U.S. military branches. The infrastructures in place at, for example, the U.S. Army, are largely unable to function at a seamless level with the networks of other branches, such as the U.S. Space Force. Additionally, these infrastructures do not meet the DOD’s requirements to handle rapidly evolving and highly complex new-age battlefield situations that require urgent, coordinated responses from U.S. armed forces.

JADC2 is an effort to rectify these dilemmas by creating a cloudlike environment that enables the rapid receipt and transmission of intelligence, surveillance and reconnaissance (ISR) data to interconnected networks. By developing a unified network that enables sensors on Internet of Military Things (IoMT) devices to instantly pass on mission-critical information to leaders, more informed and coordinated decision making is possible across the U.S. military’s branches. Decision makers can act faster and establish more cohesive battlefield tactics, factoring in land, sea and air threats with additional support from each other’s assets due to this common operating picture (COP) being immediately relayed to the relevant parties via machine learning (ML) and AI support.

Vendors covered in TBR’s series of Public Sector and Mission Systems reports have been increasingly involved in JADC2. It provides a sizable opportunity for vendors with these areas of expertise.

What will be needed to enable JADC2?

In March, the Pentagon published its official JADC2 strategy, which included five “lines of effort” that the JADC2 Cross-Functional Team (CFT) will work on to bring the DOD’s vision closer to reality. The first goal is to set up a uniform “data enterprise,” which includes creating guidelines for baseline metadata tagging. Next, the JADC2 CFT will leverage digital tools like AI to support decision makers and engage in efforts to advance integral technology. The Space Development Agency (SDA) will then establish a network that enables communication across branches and weave nuclear command, control and communication (N3) systems into the overarching JADC2 program. Lastly, the DOD will strive to better connect mission partners by streamlining the exchange of data.

This lofty goal of rapidly parsing relevant data from battlefield situations and enabling decision makers to be more agile will require a lot of support. For example, DevSecOps will build out customizable capabilities for JADC2 based on a department’s needs. The electromagnetic battle management system (EMBM), a core piece of the DOD’s vision, will be underpinned by DevSecOps using electromagnetics that will aid branches of the U.S. military, such as the U.S. Air Force, with tasks like identifying and connecting data. Advancing AI technology will also be critical to JADC2’s success and require contractors to increasingly expand their capabilities.

For example, Booz Allen Hamilton (NYSE: BAH) has been positioning itself to capitalize on AI and analytics demand since 2018 with a series of inorganic and organic investments. TBR anticipates Booz Allen Hamilton will play a key role in helping to produce new tactical support systems leveraging AI and familiarize warfighters with newer technologies like directed energy weapons. Additionally, Peraton Labs has been building out its Operational Spectrum Comprehension, Analytics and Response (OSCAR) solution, which will bolster the DOD’s efforts to bring interoperability across the nation’s military branches by leveraging AI as well as 5G technologies.

JADC2 will also require an anti-fragile cloud environment underpinned by 5G technology, which is where military contractors like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) have been looking to capitalize. In November 2021 Lockheed Martin formed an alliance with Verizon (NYSE: VZ) to enable interoperability among legacy networks and devices already in use as part of the contractor’s efforts to provide 5G connectivity through its 5G.MIL unified infrastructure. Lockheed Martin has since expanded its partner network to include Keysight Technologies (Nasdaq: KEYS), Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC) and Omnispace to assist with 5G.MIL, streamlining network communications for both IP and non-IP users.

Meanwhile Northrop Grumman formed an alliance with AT&T (NYSE: T) in April to analyze digital battle networks and integrate Northrop Grumman’s systems with 5G commercial capabilities and AT&T’s 5G private networks to establish a scalable open architecture for the DOD. To do this at the scale the DOD wants, Lockheed Martin and Northrop Grumman will need to build out their partner networks among startups and fringe players while continuing to build out relationships with major names like Verizon and Microsoft.

The military/DOD will increasingly require IT assistance to underpin the JADC2 initiative. While the military’s outsourcing efforts will certainly play a part in bringing JADC2 closer to fruition, the branches are expected to bring on more IT workers of their own and invest in systems integration as well as methods to educate these employees and retain them to help build, maintain and troubleshoot applications.

Currently, the military branches are working on their own programs compatible with the DOD’s JADC2 vision. For example, the U.S. Air Force is developing its Advanced Battle Management System (ABMS), which has undergone periodic testing in public since December 2019. Recent efforts indicate the U.S. Air Force is trying to fit KC-46 Pegasus tanker aircraft with pods linking F-22 aircraft and other solutions on the ABMS network, which would allow more information to be exchanged. Meanwhile, the U.S. Navy has been working on Project Overwatch while the U.S. Army has been expanding Project Convergence to include additional features that will contribute to its success. For example, the Army’s FIRESTORM system leverages AI that scans relevant points with sensors, maps out a digital battleground, tags hostiles and selects the optimal weapon for the circumstances.

What are the fears surrounding JADC2?

While JADC2 has a lot of potential, there are several concerns with the DOD’s vision, beyond just getting these systems to communicate through one language.

Security

Fears about JADC2’s adaptability and resiliency are prevalent, particularly because China and other countries have invested in disruptive technologies like an anti-access/area denial (A2/AD) conflict deterrence system that could impede JADC2 and other communication networks’ functions. There has been very little discussion about how JADC2 would combat these disruptions or function in these contested environments outside of test settings when facing the brunt of foreign adversaries’ disruptive technologies. The DOD will need to ensure it can generate as much relevant information as possible from a limited number of sensors while maintaining undetectable networks capable of surviving enemies’ efforts to degrade or disrupt the relaying of information.

Design

Accenture (NYSE: ACN) Federal Services Managing Director Bill Marion also emphasized that human-centered design will be necessary throughout JADC2’s framework to ensure that warfighters and decision makers can easily navigate these interconnected networks and learn about all of their capabilities to maximize their use.

Affordability

Targeted internal investments are necessary to implement JADC2. Companies like Raytheon Intelligence & Space of Raytheon Technologies (NYSE: RTX) will need to develop and connect new IT infrastructure and update legacy systems to ensure they are compatible with JADC2 utilizing a cost-effective approach. Simultaneously, affordable and functioning multilevel cybersecurity solutions that can support the DOD’s desired instantaneous relaying of data and commands will be needed. Currently, there are concerns about enemies being able to hack into the MIL-STD-1553 serial data busses found in IoMT weapon systems. External parties might be able to breach the 1553 data bus and either shut down or actively use these connected armaments on U.S. personnel.

Contractors will need to find ways to protect the 1553 data bus from these threats, and Peraton Labs is already collaborating with military branches to establish Bus Defender capabilities. With the DOD looking to interconnect IT systems across all military branches, TBR anticipates that General Dynamics (NASDAQ: GD) Technologies is aiming to be the DOD’s preferred IT vendor by utilizing Agile methods to expedite the construction of tailored prototypes after first consulting with clients and showcasing the contractor’s base zero-trust solutions.

Ultimately, the journey to JADC2’s implementation will be long and complex. The DOD’s ambitious project will certainly face an ever-shifting road to implementation as there is no true endpoint for the project. Key components like hardware will need to be updated, policies will be amended, and the scope of JADC2 will grow, especially as the U.S. eyes getting allies involved with JADC2 in the future to establish a more unified cloudlike environment capable of streamlining the transference of data to all nations. If all goes well, the U.S. will be able to truly integrate its military branches, allowing them to overwhelm adversaries by using mission-critical data to make better, more informed and coordinated tactical decisions. The U.S. will aim to control the next-generation battlefield by gaining the upper hand on intelligence and rapid communication.

ManTech will be taken private through a $4.2B all-cash buyout

On Monday, ManTech (Nasdaq: MANT) agreed to be acquired by private equity specialist The Carlyle Group Inc. (Nasdaq: CG) — the same investment firm that purchased Booz Allen Hamilton (BAH) after BAH split from Booz & Co. in 2008, took BAH public in a 2011 IPO and remained a stockholder until 2016. ManTech has been a publicly traded company since its IPO in 2002. Carlyle agreed to pay $96 per share for ManTech (on Friday, May 13, ManTech’s stock closed at $81.97 per share); taking into account ManTech’s $240 million in net debt, the total transaction value will be $4.2 billion, or roughly 1.6 times ManTech’s trailing 12-month (TTM) revenue of $2.596 billion as of 1Q22.

The sale to Carlyle ends 3 months of speculation about ManTech’s future

ManTech co-founder and longtime CEO (40 years) and Chairman (42 years) George Pedersen stepped down as chairman of the board in 2020 and officially retired from the company’s board in February 2022. His retirement from the board sparked rumors that the company was for sale, and industry observers wondered what would become of Pedersen’s controlling block of voting shares. According to ManTech’s 2021 10-K report, Pedersen held 32% of the common stock as well as nearly 83% of the combined voting power vis-à-vis Class B stock ownership. A Reuters report on Feb. 2 suggested that Pedersen’s family wanted to resolve his estate plan following his retirement, including exploring options for his controlling stake. Carlyle’s per-share purchase price represents a 32% premium on the price of ManTech’s stock as of market close on Feb. 2.

Private equity steps up to buy ManTech, perhaps in lieu of peer interest

When rumors surfaced that ManTech was for sale, it was initially thought that ManTech’s acquirer would be a federal IT peer. Leidos, federal IT’s largest traditional systems integrator, was on the short list of potential buyers. Even after spending over $2.5 billion during 2020 and 2021 on acquisitions, Leidos (NYSE: LDOS) entered 2022 flush with liquidity after back-to-back years of record sales and backlog, sustained profitability, and stronger-than-expected cash from operations in 2021. Leidos certainly had the fiscal war chest to support another strategic purchase, even as it retires debt from its recent acquisition spree.

General Dynamics Technologies (GDT), specifically GDT’s Information Technology (GDIT) segment, was considered a potential buyer, having fiscal resources on par with Leidos, thanks to a corporate parent with a $60-plus billion market capitalization. GDIT has completed its acquisition of CSRA, purchased in 2018 for $9 billion, but the integration process was protracted, reviving speculation that originally surfaced around GDIT’s troubled purchase of Vangent in 2011 that the company struggles to assimilate acquired peers.

Parsons (NYSE: PSN), a longtime construction contractor for the Department of Defense (DOD) and a more recent entrant into the federal IT fray, was also thought to have an interest in ManTech as a way to continue diversifying its portfolio by building out its federal IT capabilities. Buying ManTech would have immediately garnered Parsons the scale to support large federal IT modernization programs, as well as a sizable presence in the Intelligence Community (IC). (ManTech is estimated to generate $1 billion annually from the IC.) However, Parsons would have been forced to rely more heavily on stock to facilitate the transaction, and it was thought the Pedersen family would be less amenable to such an arrangement.

Buying ManTech would have imparted similar benefits upon KBR Inc. (NYSE: KBR) (about $5 billion in federal IT revenue), also believed to be a potential buyer looking to diversify its solutions focus into federal enterprise technology but facing the same potential challenges structuring the transaction in a way that would be favorable to the Pedersen family’s preferences.

Serial federal IT acquirer CACI International (NYSE: CACI) was also rumored to be in the mix to purchase ManTech, which would have expanded CACI’s annual federal IT revenue base ($5.8 billion as of 4Q21 on a TTM basis) past $8 billion in total value, surpassing BAH ($7.9 billion as of 4Q21 on a TTM basis) and SAIC ($7.3 billion as of 4Q21 on a TTM basis), and significantly narrowing the gap with Leidos ($11.8 billion as of 4Q21 on a TTM basis) and GDT (also $11.8 billion as of 4Q21 on a TTM basis, though this includes roughly $4 billion from GDT’s Mission Systems group).

With its recent purchases of Bluestone Analytics (3Q21), an unidentified space-focused company (also in 3Q21), SA Photonics (4Q21) and ID Technologies (1Q22), it appears that the focus of CACI’s M&A strategy is on expanding the company’s high-end, high-margin technology capabilities, particularly in areas that enable wallet-share gains with existing clients in the DOD and IC. CACI’s acquisitions of SA Photonics and ID Technologies also showcase CACI’s preference for leveraging M&A to capture first-mover advantage in solution areas or markets in which the company expects to experience accelerating demand from its core DOD and IC customers.

In addition to its large IC footprint, ManTech is a long-standing IT contractor to the DOD, particularly with its suite of cybersecurity solutions. ManTech’s legacy with the DOD and IC, along with its highly regarded security offerings, would have added value to any of the federal IT peers rumored to be interested acquirers, or other well-funded federal IT competitors (e.g., Accenture Federal Services [AFS], CGI Federal or SAIC). However, ManTech has been a margin laggard in TBR’s Public Sector IT Services Benchmark report in terms of relative operating margin performance. ManTech has been ranked ninth or lower (out of 13 benchmarked companies) in the benchmark report since 2013.

We believe that despite the lucrative nature of its cybersecurity offerings and its operations in the IC, ManTech has largely retained a high emphasis on labor-based services, keeping its margin performance below that of peers. Also impeding relative profitability is ManTech’s focus on being a low-cost but technically acceptable contractor, while peers like CACI, Leidos, BAH and GDT have increasingly recruited superior talent to support a more aggressive pivot up the value chain with their offerings (AI, analytics, cloud, high-end defense platforms, C5ISR [command, control, computers, communications, cyber, intelligence, surveillance and reconnaissance]). In short, ManTech’s federal IT peers might have viewed acquiring ManTech as too margin-dilutive, particularly as a strategic acquisition. TBR also notes that ManTech’s top-line performance has been impeded by the drawdown of military operations in Iraq and Afghanistan over the last decade, while its efforts to expand its footprint in the federal civilian market seemed to stall during late 2021.

Ultimately, it was The Carlyle Group, with over $325 billion in assets under management as of March 31, 2022, that made the purchase. We are not aware of the terms of any competing offers, though we believe ManTech did garner some interest from fellow investment group Veritas Capital — the private equity backer of the three-way merger between Peraton, Perspecta and Northrop Grumman’s IT services unit in early 2021. We expect Carlyle will implement across-the-board cost rationalizations following the acquisition (likely accelerating workforce attrition in an already fiercely competitive federal IT labor market). Carlyle’s deep fiscal pockets will provide ample funding for additional acquisitions to expand ManTech’s suite of offerings in AI, analytics, automation, advanced cybersecurity (e.g., cognitive security), systems engineering and solutions at the tactical edge.

In the end, ManTech may return to publicly traded status as a larger and more profitable federal IT peer with a broader and more lucrative suite of solutions better aligned with the federal embrace of digital technologies, in a scenario more reminiscent of BAH’s IPO in 2011 after three years of Carlyle’s restructuring. Conversely, Carlyle’s ultimate goal may be to sell ManTech to a larger federal IT peer with the fiscal wherewithal for a strategic purchase that will either further cement its leadership position (e.g., Leidos, GDT, BAH or SAIC) or catapult its scale (e.g., CACI, AFS, CGI Federal or even IBM Consulting) into direct contention with established federal IT leaders.

Dell Technologies (NYSE: DELL) will undoubtedly face stiff competition on its journey to multicloud leadership. Building a simplified and unified multicloud environment remains an elusive concept for customers operating on a diverse set of platforms serving unique stakeholders. While by TBR’s own analysis, building a fully unified cloud experience for customers remains a distant goal for many vendors, Dell Technologies is taking steps in this direction by giving customers the tools to manage workloads running on Dell Technologies platforms more seamlessly and enabling customers to utilize Dell Technologies’ stack in tandem with public cloud. Success will hinge on Dell Technologies’ ability to scale partnerships, the speed at which Project Alpine initiatives ae rolled out to the market, and the company’s ability to win customers’ favor in leveraging Dell Technologies’ SaaS platforms for multicloud management.

Dell Technologies unveiled a series of multicloud initiatives, with software taking center stage

Jeff Clarke, vice chairman and co-chief operating officer for Dell Technologies, opened Tuesday’s keynote by pointing out that software innovation across the industry is consistently outpacing hardware innovation. This theme resonated throughout the event, which focused on Dell Technologies and partner capabilities that can marry on-premises and public cloud data, automate IT management tasks and enhance security. Dell Technologies is building an ecosystem around its ISG portfolio that can increase the value of its own software and tools, particularly in the storage space.

ISG has performed competitively versus market peers over the past year, growing 4% year-to-year in 2021 to $34 billion in annual revenue. Although much of the product emphasis during Dell Technologies World focused on storage innovations, recent ISG growth has predominantly been driven by the server and networking business, which was up 4% in 2021, while storage has remained flat, partially due to marketwide challenges around securing components. Dell Technologies’ leadership position in the storage market is a key advantage for the company and is important to protect, particularly as competitors such as Pure Storage (NYSE: PSTG) and NetApp (Nasdaq: NTAP) have intensified their focus on hybrid cloud storage solutions via partnerships with major hyperscalers.

APEX and Project Alpine announcements focus on data protection and multicloud capabilities

The primary service expansion announced for Dell Technologies APEX, Dell Technologies’ portfolio of cloud and IaaS offerings, was Dell Technologies APEX Cyber Recovery Services. This managed service provides day-to-day management of cyber recovery vault operations and assistance with data recovery should a cyberattack occur — valuable capabilities that help customers not only deal with ever-increasing ransomware threats but also fill in gaps for customers whose IT teams lack the capacity and expertise to address security issues.

Dell Technologies also expanded its partnership with Amazon Web Services (AWS)(Nasdaq: AMZN), announcing CyberSense for Dell Technologies PowerProtect Cyber Recovery for AWS, which adds AI and machine learning-based monitoring of files to determine if a cyberattack has occurred as well as applies post-attack forensics to identify the customer’s last good backup copy.

While Product Group VP Caitlin Gordon noted that Dell Technologies is not new to hyperscale partnerships, with 1,500 companies already using Dell Technologies Data Protection on AWS, expanding the breadth of the company’s partnerships to include more services and a larger number of cloud providers is essential to address a more robust number of customer use cases. Gordon stated that the Dell Technologies PowerProtect Cyber Recovery Service, which was launched with AWS in 4Q21, will be available on Microsoft Azure in the second half of 2022.

Dell Technologies’ Project Alpine, introduced in January, encapsulates the company’s efforts to make more of its software available on public clouds. Project Alpine will make Dell Technologies’ block and file storage software available on public clouds to give customers a unified experience managing and moving workloads between their on-premises Dell Technologies infrastructure and public clouds. Gordon provided an update on the progress of Project Alpine, noting that customers will be able to access the same Dell Technologies management tools they are already familiar with via a SaaS interface to move data between environments. Project Alpine is a key step in not only increasing the appeal of Dell Technologies’ storage portfolio but also remaining competitive against storage peers that are taking a similar approach to cloud alliances, such as Pure Storage Cloud Block Store, Azure NetApp Files and Amazon FSx for NetApp ONTAP.

Dell Technologies lands the first on-premises partnership with Snowflake

Dell Technologies is the first hardware vendor to announce a partnership with Snowflake (NYSE: SNOW), a data warehouse company popular among public cloud users for analyzing and managing their company data. With this new partnership, Dell Technologies customers will be able to bring their on-premises data sets into the Snowflake cloud alongside public cloud data sets, a capability that is currently not available for other vendors’ on-premises systems. This type of partnership is an example of how Dell Technologies is expanding customer choice and the capabilities of its platforms, a trend that is likely to continue as Dell Technologies grows its partner roster and perhaps begins to ramp up acquisitions following the spinoff of VMware (NYSE: VMW) in late 2021.

Storage updates focus on software innovation
Dell Technologies focused on the software innovation theme as it highlighted improvements to its storage portfolio, which includes PowerMax, PowerStore and PowerFlex. For the enterprise PowerMax storage product line, Dell Technologies emphasized the zero-trust architecture and increased intelligence and automation, which reduces NVMe-over-TCP setup time by 44% and guarantees a 4:1 data reduction ratio. Dell Technologies highlighted a more SaaS-based approach for its midrange PowerStore operating system software, rolling out version 3.0 to customers free of charge with 120 new features.

Dell Technologies commits to making its products developer-friendly

Perhaps one of the most critical aspects of gaining share in multicloud environments for Dell Technologies will be winning over developers, an audience that has been more of a tangential focus for Dell Technologies in the past as its historical customer base has been rooted in infrastructure managers. In his keynote address, CEO Michael Dell noted the company is focused on making its solutions API-driven, increasing levels of automation and supporting Kubernetes platforms like VMware’s Tanzu and Red Hat’s OpenShift in addition to AWS EKS, which is available on Dell EMC VxRail and PowerStore.

Dell Technologies CIO and chief digital officer Jen Felch went on to discuss how the company has applied these principles to its own IT department. Dell Technologies focused on its own developer experience by creating self-service infrastructure through automation of virtual machine provisioning, networking and container deployment, in addition to providing developers with increased cost transparency to help them make more informed decisions. This was orchestrated through the Dell Technologies Developer Cloud, a user interface utilized by Dell Technologies’ developer and infrastructure teams. Per Dell Technologies’ own internal audit, enabling a self-service infrastructure helped the company’s developers increase their time spent on software development (versus administrative tasks) from 20% to 75%, a success point that Dell Technologies believes it can help its customer base achieve. Dell and Felch did not comment on what the company is doing to cultivate a Dell developer community, which will be another critical element to driving participation in the Dell ecosystem.

While multicloud took center stage, PC innovations highlighted collaboration and security

Dell Technologies’ PC business has been fueling the company’s revenue growth, with the Client Solutions Group (CSG) growing 27% year-to-year in 2021 to $61 billion in revenue, while also supporting strong margins. Highlighted PC innovations focused on the top end of Dell Technologies’ portfolio, for both business laptops and the Alienware gaming line, with a theme of collaboration, connectivity and security. Dell Technologies showcased a prototype of its Latitude 9330 laptop featuring buttons built into the trackpad to manage virtual conferencing functions such as turning the camera and microphone on and off, chatting, and sharing content. The PC also leverages AI-based features such as fixing videoconferencing performance issues by connecting to multiple networks simultaneously to increase bandwidth. From a privacy and security standpoint, the PC can detect whether onlookers are viewing the user’s screen and obscures the content from view.

Aside from innovations centered on user experience, Dell Technologies showcased the company’s focus on sustainability in PC design via Concept Luna, a three-pronged approach to reducing the carbon footprint of PCs by decreasing the size of components such as motherboards, intentionally choosing eco-friendly materials, and designing PCs to be more serviceable, which facilitates repairs and refurbishment.

Conclusion

Dell Technologies World 2022 illustrated Dell Technologies’ intentions to enable a multicloud ecosystem for its customers. The company is taking a broader approach, rather than relying solely on its APEX “as a Service” portfolio to drive growth, by embracing partnership opportunities with public cloud vendors and turning its attention toward meeting the needs of developers who are consuming vast amounts of infrastructure services. Partnerships are also a focal point for building a broader ecosystem. While Dell Technologies’ relationship with VMware remains close, the company’s first major event since the VMware spinoff gave Dell Technologies greater opportunity to highlight a broader range of partnerships, including its new alliance with Snowflake and in support of customers using OpenShift. The multicloud messaging throughout the event demonstrated that Dell Technologies understands its customers’ most essential market needs, and now the company must focus on executing to meet those demands, particularly through Project Alpine and by expanding its strategies to better cater to developers.