Editor’s note: Analysis: The first quarterly earnings release filed by Hewlett Packard Enterprise (HPE) underscores the opportunities and challenges inherent in a market undergoing significant technological and competitive disruption, concludes Technology Business Research analyst Krista Macomber.
HAMPTON, N.H. – The tipping point from legacy to next-generation solutions weighs on HPE’s near-term financials
The first quarterly earnings release filed by Hewlett Packard Enterprise (HPE) underscores the opportunities and challenges inherent in a market undergoing significant technological and competitive disruption. Akin to peers including Cisco, Dell and Lenovo, HPE faces continually increasing attrition to public cloud resources and software-mediated functionality. HPE kept server and storage revenue declines to 1% and 3% year-to-year, respectively, supported by rising success anticipating customer transformation initiatives and deflecting competitive efforts.
The vendor’s May 2015 acquisition of wireless networking provider Aruba Networks drove networking revenue 54% year-to-year. However, software and services revenue declines of 10% and 6% year-to-year, respectively, during the quarter underscore persistent challenges. As traditional infrastructure management and outsourcing offerings become commoditized, HPE joins a number of peers, ranging from IBM to CSC, in the challenge of growing strategic solutions revenue fast enough to offset the rate of decline in legacy businesses.
But HPE’s focus on adopting a more centralized and unified sales approach, and more closely aligning its software and services competencies with high-value areas such as consulting and new “as a Service” delivery models during 2016, will help accelerate this transition.
As hardware commoditization steadily pressures HPE’s revenue and profitability, the company is keenly investing in partnerships and engineering to bring customers into hybrid cloud environments that preserve on-premises infrastructure.
For example, the December launch of Synergy shows HPE is positioning to capitalize on customer requirements for simple, scalable infrastructure, even while pure-play hyperconverged vendors continue to find market success with similar messaging. HPE, operating as a focused, independent company, has an immediate opportunity to shed its reputation as a deliberately paced vendor in a period where customers are spending for widespread IT transformation. This opportunity is notable as disruption surrounds HPE, particularly amid competitors Dell and EMC as Dell’s acquisition of the latter draws near.
HPE seeks to accelerate customer transformation to flash in the data center
Amid challenging market trends such as the shift to public cloud and rising hardware commoditization, HPE is expanding its storage footprint, increasing investments in transformational IT areas to win larger-scale solutions engagements. HPE is increasing its efforts around flash and software-defined storage as it seeks to return its storage revenue to year-to-year growth after eight quarters of decline. To better accommodate customers’ storage demands and display the value of the HPE portfolio, the vendor is focusing on its strategic product lines such as 3PAR and StoreVirtual.
TBR believes recent product launches such as new all-flash versions of its 3PAR product line will help HPE protect its install base and appeal to new customers seeking alternate storage models. As HPE invests in newer storage architectures such as flash, hyperconverged platforms and software-defined storage, TBR believes aggressive pricing strategies and a drive toward unified management will help HPE attract customers considering flash solutions.
With its business in transition, TBR expects HPE to amplify its product development and marketing focus on ease of migration and management as well as the specific performance and cost benefits of HPE’s platform. For example, HPE integrated its StoreServ, StoreOnce and StoreEver product lines to accelerate backup and recovery and lower data security risks and costs.
For customers, the security and efficiency of their data environment is paramount, as that data becomes increasingly crucial to business advantage. Capabilities such as its 3PAR Online Import tool help HPE target competitive displacements from peers such as EMC. These focused initiatives underscore HPE’s focus on more closely linking its brand to storage requirements, solidifying the value proposition of its portfolio as it moves forward as a newly independent company.
HPE readies a refreshed security strategy
HPE’s revenue growth in the enterprise security market in 4Q15 came in below growth rates of peers, such as IBM, Dell, Cisco and Check Point, according to TBR’s estimates. However, this performance reflects HPE’s position in its journey to reinvigorate its brand and portfolio around security technologies designed to address customers’ changing demands, such as leveraging cloud-based security resources and securing identities and data in the cloud. TBR expects HPE to take important steps to evolve its security portfolio and go-to-market strategy in this way in 2016.
HPE has a relatively large customer base for security products and services and a strong reputation in areas such as application security and security management expertise. It has an extensive partner ecosystem of systems integrators, resellers and technology alliances, with its ArcSight security information and event management solution in particular serving as the fulcrum of many of these partnerships.
By building on this foundation and investing in additional security segments, HPE will be positioned to reverse its enterprise security revenue growth decline and present a strengthened competitive challenge to enterprise security vendors such as Check Point and Intel.
(C) TBR
