And Now For Something Completely Different… And This Time We Mean It

Just days after unloading the majority of its software business HPE reported better-than-expected financial results, including $8.2 billion in revenues. “Execution continued to improve and our profitability increased over last quarter as we reduced costs across the organization and we successfully closed the spin merge of our software business late last week,” said CEO during the earnings call. “With that milestone behind us, we are off and running.”

Whitman attributed the “strong Q3 performance” primarily to better execution and a “compelling portfolio”, i.e. core server revenue was up 13% year-over-year, 200% growth in HPE SimpliVity hyperconverged offering (albeit off a small base), 30% year-over-year all-flash storage growth (driven by Nimble), and continued success with Aruba, including 30% growth in wireless LAN solutions. She also announced the intent to acquire Cloud Technology Partners, which helps Fortune 500 customers move to a cloud, build new cloud-based solutions and manage their cloud environment.

Of course it wouldn’t be HPE without some controversy, and this time it was the stories circulating about Whitman jumping ship to Uber. Her explanation during the earnings call left something to be desired: she said she was called in late to be interviewed for the CEO position but “in the end that wasn’t the right thing.” She stated that there is lots more work to do at HPE to make it successful and “I actually am not going anywhere.”

At least until the next time. The company was generating close to $120 billion annually just five years ago, and under Whitman’s guidance the company split into two — HP (PCs and printers) and HPE (enterprise) — and spun-merged software and services to shrink HPE down to a still significant, but significantly smaller $30-billion powerhouse.

HPE is a Jekyll and Hyde, difficult to figure out, according to Mark Peters, ESG Practice Director and Senior Analyst (Storage), Enterprise Strategy Group. In June he noted that the company’s direction is becoming clearer. Whitman said things were getting easier, with “nowhere left to hide.”

That’s no longer the case, said Whitman in a post-earnings call. “Now we can see Hewlett Packard Enterprise on a go-forward basis with perfect clarity.”

The proof is in the performance of high-performance computing, Synergy, Simplivity, and Nimble all-flash arrays, she added. “What we have done, if you pull the lens all the way back,” said Whitman, “is to focus on higher-growth, higher-margin products, while stabilizing the core.”

Software continues to be critical, but HPE’s focus is on system software, not the application software spun-merged with Micro Focus. “We are focused, though, on moving hard to software-defined infrastructure, with a stack that is quite modern, including Docker, etc.”

It remains to be seen now that it has dumped its (application) software and services businesses (DXC, the spin-merge with CSC), if the company’s new focus on hardware and system software will differentiate HPE and drive sales and market share. While the latest results were positive, it’s almost the only big vendor taking this approach: Oracle is apparently almost finished killing off its $7.2 billion Sun Microsystems acquisition. The company has reinvented itself so many times over the last few CEOs’ terms that figuring out who and what HPE is a game that everybody can enjoy (or hate).

HPE’s future is not the only thing in doubt. Whether Whitman will still be at the helm — she apparently only promised to hang in for five years and is now in her sixth — is also unclear. Stories are circulating that she has already started to plan for her exit, which could happen as soon as this fall.
DISCLAIMER: I have shares in companies mentioned in this story.

Author: Steve Wexler

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