Why Splunk Should Consider Buying A Hardware Vendor

If Splunk Inc (NASDAQ: SPLK) were to acquire a hardware vendor, the initial reaction from the Street may be negative, but in time, the stock would likely “rebound nicely,” Summit Redstone’s Srini Nandury said in a report. He maintained a Buy rating on the company, with a price target of $72.

“We continue to believe Splunk is the best infrastructure play in our coverage universe,” analyst Nandury wrote.

Acquiring A HW Vendor

Although owning hardware may be considered as “unfashionable,” while cloud is considered as the future, there is rationale behind Splunk acquiring a hardware vendor, Nandury commented.

Recent conversations with certain enterprise customers revealed that the company is getting merely $1 for every $4-$5 spent on the hardware and services to enable the application.

Many customers indicated that the need to deploy the solution within their own environment and would not even consider deploying the solution in the public cloud. “Having the solution deployed as an appliance has some benefits which would be helpful in large enterprise settings,” the analyst mentioned.

Commenting on the implementation of Splunk in their IT environments, several enterprise customers noted that they ran Splunk on a server, since hypervisors lowered the efficiency of the solution and added complexity. “In addition, hypervisors add latency to the system preventing rapid ingestion of the data to perform the analytics on the data stream. Hence a solution in the appliance form would make sense,” Nandury stated.

Splunk should consider shipping an appliance, since it would allow the company to gain additional share of the wallet, thereby accelerating growth in the near term, the analyst added.

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