HPE: Fiscal 1Q17 Financial Results

Hewlett Packard Enterprise Development LP (HPE) announced its 1FQ17 results for the period ended January 31, 2017.

Globally the revenue is down 10% Q/Q at $11.4 billion even if profit reaches $276 million, exactly the same value as one year ago.

The enterprise group – servers, storage and networking – has made $6.3 billion and storage itself is down 15% Y/Y delivering $730 million which is pretty weak coming from $779 million in 4FQ16 and $863 million one year ago. The only good indicator is the revenue of 3PAR all-flash systems but even that increase was less than expected.

HPE is still suffering from the split and the re-organization of the company. It’s difficult to believe when you see IBM addressing new markets, building aggressively a new cloud offering based on Cleversafe acquisition, Oracle pushing cloud as well and of course Dell/EMC at the opposite of HPE having chosen a consolidation strategy. We don’t know if this revenue erosion will last or if it’s exceptional but clearly HPE has a storage product line problem.

In fact, the storage portfolio continues to have holes, having made some random choices and difficulties to offer new generation of solutions. It also continues to illustrate that HPE is the champion of OEM and doesn’t really own stuff, the majority of product came from acquisitions or OEM agreements. Wikipedia has a special page for HP acquisitions even if three  in 2017 are not listed: SimpliVity, Cloud Cruiser and Niara.

Just go to the HPE storage product pages and you’ll understand what I mean:

• SDS is present with StoreVirtual Storage and its VSA flavor. Historically it comes from Lefthand Networks acquired in 2008 for $360 million. The other offering is something named Helion OpenStack that continues to create some confusion on the market.
• Block storage is by far what works the best at HPE storage with entry, mid-range and enterprise products, again coming from OEM with Hitachi for XP7 or acquisition for 3PAR StoreServ or even before with Compaq.
• File storage is limited as X9000 disappeared, again based on an acquisition, this time Ibrix swallowed in 2009, and it exists today only 3PAR File Persona and StoreEasy for the entry product.
• Object storage is non-existent as well as HPE relies on external commercial or open source offering such ones based on Red Hat Ceph or Suse. The strategy announced under Manish Goel leadership didn’t go anywhere.
• Storage networking is pretty strong still pushing OEM solutions with the StoreFabric line, perfectly aligned with the block storage line.
• Data protection, archiving and tape are synonymous of StoreOnce and StoreEver and of course still Data Protector and have a pretty good reputation on the market. 

When you see this line of products you realize that even if it exists strong products especially for block storage and secondary storage solutions, everything else is very limited. Also, HPE acquired SGI in 2016 but it’s still operating as a separated unit and SGI products are not listed on the HPE. Take for instance two interesting storage software products – DMF and CXFS – these two are not offered.

Just try to name a NAS product from HPE and you realize you will have difficulties, same thing for object storage. They will need to invest and select a strong offering and think about a potential acquisition in that segment. As SimpliVity got acquired for $650 million, good enterprise-class multi-protocol SDS could be swallowed for $300-400 million.

But HPE difficulties illustrate issues A hardware vendor could have with pure software approach running on commodity servers. In fact, if they push these products they will compete with other internal departments and reduce revenue for their hardware product line. For instance, as a vendor, do you push SDS StoreVirtual on commodity servers or an entry level-block storage array? And this is true for file storage as well. HPE didn’t find yet the right strategy to address this internal competition.

The rest of 2017 will be interesting.

Quarterly revenue for HP storage only
(without services, in $ million)

Quarterly revenue for HP storage only since 1FQ13
(without services, in $ million)

Note: For 4FQ15, HPE announced previously $905 million for storage and then $819 million. That’s the same for 1FQ16: $863 million and now $837 million; and for 4FQ16: $779 million and now $827 million. Explanation: the transfer of the big data storage product group previously reported within the servers business unit to the storage business unit.

To read the earnings call transcript