Hewlett-Packard Company (NYSE:HPQ) recently announced that it had won a major contract from health care IT giant Cerner Corporation (NASDAQ:CERN) to upgrade two of its data analytics services. This deal is a positive catalyst for both companies — increasing Hewlett-Packard Company (NYSE:HPQ)’s footprint in the growing health care IT industry while upgrading the performance of Cerner Corporation (NASDAQ:CERN)’s products to remain competitive in an increasingly crowded industry.
What the deal means for HP
Like other major IT companies such as International Business Machines Corp. (NYSE:IBM) and Accenture Plc (NYSE:ACN), HP has recognized the rising demand for more connected, “smarter” hospitals. The North American health care IT market is expected to grow at a compound annual growth rate of 7.4% by 2017, according to a recent survey. Market research firm Gartner also estimates that the global analytics and business intelligence market will grow 7% year-on-year in 2013.
Hewlett-Packard Company (NYSE:HPQ)’s Vertica Analytics Platform is a core part of the company’s HAVEn initiative, its big data analytics platform. HAVEn is a combination of technologies from HP Autonomy, HP Vertica, HP ArcSight, and other services designed to deliver higher data analytics speeds to clients.
The Cerner Corporation (NASDAQ:CERN) contract will help stabilize Hewlett-Packard Company (NYSE:HPQ)’s Enterprise Services (HP ES) business, which reported a 9% year-on-year decline last quarter despite securing a critical $3.4 billion five-year contract with the U.S. Navy. HP ES was created in 2008 from its $13.9 billion acquisition of EDS. The segment continued growing through acquisitions, including the disastrous $10.3 billion acquisition of Autonomy that caused an $8.8 billion writedown last year.
What the deal means for Cerner
For Cerner Corporation (NASDAQ:CERN), upgrading its data analytics system will ensure that its dependent services — such as EHR (electronic health record) software — remain competitive in an increasingly crowded market. Cerner Corporation (NASDAQ:CERN) is using Hewlett-Packard Company (NYSE:HPQ)’s Vertica Analytics Platform to upgrade the performance of two major services: the Cerner Millennium Architecture and the Cerner Health Facts service.
Millennium is used for delivering patient information to clinicians upon request. Health Facts collects and analyzes patient data to generate information that improves the quality of care at practices. HP Vertica will improve the performance monitoring capabilities of Millennium while boosting the data-handling capacity of Health Facts. Most importantly, HP Vertica will replace Cerner Corporation (NASDAQ:CERN)’s legacy data warehousing solution, which will result in a 100-fold increase in data analytics speed.
Along with voice-recognition technologies from Nuance Technologies which I discussed in a previous article, Cerner’s Millennium and Health Facts solutions will form the backbone for its EHR software. The software unifies patient records on a single platform to improve the efficiency of practices.
Keep an eye on IBM and Accenture
Although Hewlett-Packard Company (NYSE:HPQ) and Cerner’s partnership should prove fruitful for both companies, two other competitors to keep an eye on are International Business Machines Corp. (NYSE:IBM) and Accenture as they are both major players in the data analytics business.
IBM’s most impressive achievement in health care is Watson, the first artificial intelligence medical assistant. Watson received the training of a second-year medical student and “digested” patient records, histories, and research at the renowned Memorial Sloan-Kettering Cancer Center. Through that training, Watson became a medical assistant that could provide treatment options with varying degrees of confidence to clinicians. In other words, while companies like Cerner are accelerating data analytics to enhance EHR software, IBM is using data analytics to fuel the growth of artificial intelligence.
IBM does not report health care revenue separately from services and software, but its 3.3% decline in revenue shows that it is facing similar headwinds as HP in the global enterprise business.
Accenture Plc (NYSE:ACN), a diversified management consulting, technology, and outsourcing company, also recently expanded its footprint in health care IT by acquiring ASM Research, a provider of IT services to U.S. defense and federal health clients. The acquisition is aimed at strengthening U.S. federal health capabilities for military personnel and veterans.
Although the ASM purchase should boost Accenture’s top line in the long run, the company suffered last quarter from its broad diversification. Accenture’s revenue only edged up 0.7% from the prior-year quarter to $7.2 billion, missing the consensus estimate of $7.47 billion. Certain businesses including health care and financial services grew, but others declined and offset those gains.
A Foolish final thought
Although the world of health care IT is growing, it’s not a 100-meter dash to the finish line. The effort to modernize hospitals through faster data analytics, streamlined EHRs, ICD-10 updates, and better wireless networks will be a long, grueling marathon. Investors should expect sluggish, single-digit sales growth from most of these companies over the next few years. Long-term growth should remain positive as they secure more contracts, however.
As seen with HP and Accenture, exposure to other businesses can be a drag on stabilizing or growing their data analytics businesses. Therefore, investors who want better exposure to the growing health care IT market without the unwanted weight of slow-growth businesses should stick with dedicated health care IT companies like Cerner instead.
The article Analyzing HP’s Data Analytics Deal With Cerner originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool owns shares of International Business Machines (NYSE:IBM).
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