Harris Exits Cloud Hosting, Will Sell Data Center

"Despite the publicity around the U.S. Government's 'Cloud First' approach to IT, many agencies are reluctant to shift mission critical assets to third-party facilities. That's the analysis from Harris Corp., which has decided to get out of the cloud hosting business and sell a data center in Virginia, just two years after it spent $200 million to build and equip it. 'It's becoming clear that customers, both government and commercial, currently have a preference for on-premise versus off-premise solutions,' said Harris' CEO."

A systems integrator with lengthy experience in the government IT market is rethinking its cloud strategy, saying its security-conscious customers want to build solutions in their own data centers rather than host them in third-party facilities.

Harris Corporation said Monday that it will discontinue its Cyber Integrated Solutions operation and sell a data center facility in Harrisonburg, Virginia. The company expects to incur a loss of $70 million to $80 million on the operation, which will be recognized in an after-tax charge during fiscal 2012.

Harris had invested $200 million in the 140,000 square foot facility in Harrisonburg, which it bought in 2010. Harris hired Lee Technologies to overhaul the facility, and entered a strategic alliance with VCE,which markets solutions from Cisco, EMC and VMware.

Harris said that although it sees demand for cyber security and cloud-enabled solutions, its government and commercial customers currently prefer hosting mission-critical information on their own premises.

No Additional Value on Trust?

“We know there’s a large growing market for cloud computing, and we have the technology and expertise to be an important player in it,” Harris president and CEO William Brown said in the company’s earnings call on Jan. 31. “But it’s becoming clear that customers, both government and commercial, currently have a preference for on-premise versus off-premise solutions.

“As this market evolves, it’s also becoming clearer that customers don’t place additional value on trust and are unwilling to move the most mission-critical applications to the cloud before less-sensitive applications are thoroughly tested and vetted in a cloud environment,” Brown added.

Harris will instead focus on providing secure networks and cloud solutions for customers on their own premises. “These actions allow us to refocus our capital and efforts on the secure, cost-effective communications and IT solutions that our customers are demanding,” said Brown.

In January, Brown said the Harrisonburg facility “remains highly underutilized and a significant financial drag,” and lost $10 million in the most recent quarter.

A Changing Market, or Execution Problems?

Does Harris’ pullback signal a material slowdown in government agencies’ appetite for cloud solutions, or is it tied to strategic challenges with Harris’ approach to the market? Harris cited recent budget cutbacks in the defense department as an issue.

But the performance of other providers in the government cloud market suggest that some agencies are willing to use third-party facilities. Terremark has done strong business at its NAP of the Capital Region, located just 30 miles east of the Harris Cyber data center. Terremark successfully filled three 50,000 square foot data centers with government and commercial customers before being sold to Verizon last year.

The Harris Cyber Integration center earned Tier III certification from the Uptime Institute, which put together this 5-minute video providing a look inside the Harris facility.
Harris Exits Cloud Hosting, Will Sell Data Center