February 27, 2017
HP quarter invites a peek at a smaller profile
Quarterly results from the latest report on Hewlett-Packard Enterprise didn't impress investors. On the news of its revenues falling short of estimates—what's called a "miss" in today's markets—the stock got sold down 7 percent a share. Stock prices come and go, and HPE has made a better restart than the HPQ end of the split-up HP. The future, though, is certain to be getting slimmer for HPE. The question is whether something smaller can ever grow like the monolithic HP which carried 3000 customers across more than three decades.
It's easy to dismiss the fortunes of a split-off part of a vendor which doesn't make 3000s anymore. When the plans wrap up on a pair of "spin-mergers" of two of the company's bigger business units, what's left over might have lost any further ability to change the enterprise computing game. Migrating 3000 customers will still have to take their computing someplace. Looking at the HPE prospects for 2017 is a part of that decision.
Analyst Bert Hochfeld has just written a 4,000-word report on the company on the Seeking Alpha website. That's a huge piece of business reporting that deserves a close read if you're buying stock or working for HPE. IT managers can find some insights as well. Cherry-picking some sections, to look at HPE's business futures, is useful for planning. HP's selling off its Enterprise Services and Software businesses to CSC and Micro Focus, respectively. The deals will wrap up by September. Hochfeld says what remains at HPE is unlikely to grow. A lack of growth is what drove down HP's stock last week.
"I do not think anyone imagines that what will remain of HPE in the wake of its divestitures is a growth business," Hochfeld said. "There are some growth components in otherwise stagnant spaces. The company has yet to demonstrate that it can execute at the speed necessary to exploit the opportunities it has—and to make the right choices in terms of allocating its resources in what are difficult markets."
In a report titled Has the company done a u-turn on a trip to nowhere? Hochfeld notes that what's left over at HPE this year might be viewed like the picture of Dorian Grey. But that would only be true, he adds, in a world where datacenters will only be run by cloud providers. Companies will run their own datacenters, a fact HP will need to stress to stay relevant when it displays a smaller profile.It's a debate that can't be solved easily, but it's worth considering when making changes to move a 3000 environment. That Dorian Grey picture, a portrait growing more haggard by the day while its subject appears hearty and hale, "seems to me to be a gross over-simplification."
It suggests there will soon be a world without datacenters other than those owned by the cloud vendors. There will be readers and other observers who will cite specific examples of large companies who have chosen to abandon the management of any of their data and who will move all workloads to the cloud.
A systems provider that focuses on datacenter provisioning and business needs a stout sales culture, Hochfeld adds. "What's far more important are questions about the long-term viability of a strategy related to selling a hybrid-cloud infrastructure to enterprise IT customers."
HPE, which through divestiture will be shrinking itself to less than $30 billion a year in annual sales, is going to need to replace the sales strategies that were appropriate when it was a behemoth, and it could use its consulting practice as a lever to promote sales of enterprise servers and storage.
"Core servers and storage is a tough market," he says, "and it is not easy to forecast that the market will ever return to significant growth numbers. The only way to deal with a market that seems, at best, to be stagnant or at worst to be in long-term secular decline, is to innovate boldly and perhaps ruthlessly. That again is a discipline that is still a work in progress at HPE."
Hochfeld is taking a long-term position in HPE stock, thinking it will maintain its value. The company is retaining business that earns about $900 million a quarter in profits. The HP that offered ProLiant and Integrity alternatives to the 3000 is just as much gone as the 3000 itself is from HP price lists. One observer at the Seeking Alpha site wondered if HPE might take itself private, or become an target of acquisition.
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