HPE’s new CEO presents strong first quarter for hybrid IT

Hewlett Packard Enterprise (HPE) has reported first-quarter 2018 net revenue of $7.7bn, up 11% year on year, with growth across each business segment of Hybrid IT, Intelligent Edge and Financial Services. 

Its Hybrid IT division reported revenue of $6.3bn, up 10% year on year, the Intelligent Edge business reported revenue of $620m, up 9%, and Financial Services reported revenue of $888m, up 8%. 

In his first quarterly financial presentation as CEO, Antoni Neri discussed how, as the new CEO, he was in a position to drive the company’s HPE Next strategy, a cultural transformation that involves simplifying the business to focus on innovation and execution. 

“Our strong Q1 performance is proof that we have the right strategy and improved execution,” said Neri. “We had good revenue growth across every business segment, continued to execute HPE Next with no disruption to the business, and delivered strong shareholder return in the form of share repurchases and dividends.” 

In the transcript of the earnings call, posted on the Seeking Alpha financial blogging site, Neri highlighted the performance of HPE’s Hybrid IT strategy, and said its customers were keen to adopt it. 

“Last week, I was actually in the UK and hosted a Board of Advisors, where we bring our key strategic customers to talk about vision, our strategy, get their inputs about the future. And they all made the same comment: ‘We love your innovation. We need you to continue to position that innovation against our problems, and to see the value’.”

Asked about the company’s shift from providing custom servers for the large public cloud providers, Neri said: “We are totally de-emphasising the focus on what we call the customised commoditised compute platforms. That does not mean that we are going to continue to sell the rest of the portfolio to those in large customers, because those are customers who buy everything, not just that type of platform with commoditisation. 

“So, we are executing that strategy and we remain committed to that strategy. I am optimistic and confident about our ability to compete and win in the areas we decided to pay focus and attention. For example, high-performance compute, hyper-converge, synergy, which has been a great success for us.”

According to Berenberg analyst Josep Bori, although the strong growth in HPE’s Hybrid IT and Intelligent Edge, up 9% and 7%, was encouraging, up to 3-4% of this growth came from the company’s Nimble and Simplivity acquisitions. When these are taken into account, Bori said the HPE Enterprise Group grew by about 5-6% compared to Q1 2017, when the company reported a decline of 6%.

With an implied compound annual growth rate of about of 0.1%, Bori said: “It is therefore not surprising that management reiterated its modest long-term revenue growth target of above 0%. It also acknowledged in the call that server unit growth comes largely from the hyperscale market (for example, Amazon Web Services, Microsoft Azure), and this is a market from which HPE has decided to exit, to protect margins.”