Editor’s note: HP Enterprise’s first financial report earlier this month shoes year-to-year margin improvements indicating a positive trajectory in its turnaround, writes Technology Business Research Analyst Kevin Collupy.

HAMPTON, N.H. – Stabilizing revenues and a reduced cost structure enable HPE Services to reinvest savings to win new customers

The transformation for Hewlett Packard Enterprise (HPE) remains on track, shifting resources and investments toward emerging technology areas such as cloud, digital and analytics. However, the transformation process will take time, as it has with industry peer IBM. HPE Services is building its capabilities to deliver business outcomes around emerging technology areas.

We expect initial services growth will be primarily centered on support services due to HPE’s product heritage, initiated through consulting and system integration followed by managed services.

HPE Services, comprising Enterprise Services (ES) and Technology Services (TS), reported combined revenue of $6.5 billion for CY4Q15 (FY1Q16), down 7.1% year-to-year. ES margin improved 210 basis points to 5.1% year-to-year, and continued margin improvements indicate early success in the transformation process.

Enhanced emerging technology capabilities enable geographic expansion

HPE is developing services capabilities around digital, cloud and applications on a global scale to win engagements in emerging geographies, increasingly addressing vertical-led business outcomes. The recently split HPE continues to build its services expertise to help clients meet desired business outcomes. With the increasing shift to cloud-enabled IT environments and HPE’s announced “sunsetting” of its public cloud, investing in private and hybrid cloud capabilities is critical for HPE to turn around revenue declines.

During 4Q15 HPE launched Cloud28+, a European-focused cloud catalogue that provides a transparent view of cloud and services providers in the region. In Australia, HPE extended its relationship with Microsoft around Windows 10 collaboration and launched a consulting service creating opportunities for HPE to provide integration services for Microsoft products such as Office 365 and Dynamics CRM. HPE will continue to invest organically as it has with its Helion Managed Cloud Broker, which offers provisioning, access, consolidation and security for multiple cloud workloads and providers. These new portfolio offerings will help drive transformational contracts for clients looking to enhance operations around cloud, mobile, digital and industry-specific applications.

HPE prepares itself to capture opportunities in the expanding cybersecurity market

Clients’ digital transformations require comprehensive security capabilities to protect organizations’ increasing amount of digital data. In TBR’s Enterprise Security Market Forecast 2015-2020, we estimate worldwide revenue for security hardware, software and managed security services for nonconsumer customers will grow at an 11.2% CAGR through 2020. With steady demand from enterprise clients around security intelligence, HPE has a significant opportunity to turn around declining revenues.

HPE announced plans to divest TippingPoint to TrendMicro at the beginning of 4Q15, with its network security solution portfolio facing significant competition from Cisco. TBR believes HPE will invest the proceeds into other areas of its security portfolio. In a global expansion effort, HPE and Hitachi extended their alliance to share gathered threat information specific to Japan. HPE also released Investigative Analytics during 2H15, a software solution supporting risk analysis and prevention for organizations. We believe HPE Services will leverage these solutions and relationships to increasingly attach security services to existing and new client relationships.

(C) TBR