HPE supply chain issues drive up server prices

Hewlett Packard Enterprise (HPE) has reported revenues of $7bn for the third quarter of 2022, an increase of 1% over the same quarter last year. Its Intelligent Edge business reported revenue of $941m, up 8% from the prior year; Aruba Services revenue was up double digits from the prior year; and Intelligent Edge as-a-Service ARR3 was up more than 60% from the prior year.

HPE’s high-performance computing (HPC) and artificial intelligence (AI) business grew by 12% to $830m, while revenue in its compute business declined by 3% to $3bn and revenue in its storage business dropped by 2% to $1.2bn.

“Customers continue to prioritise investments in IT and are finding HPE’s industry-leading edge-to-cloud portfolio to be particularly relevant in today’s complex macroeconomic environment, where technology innovation is critical to accelerate business transformation and deliver important business outcomes,” said Antonio Neri, president and CEO of HPE.

During a conference call with financial analysts covering the results, Neri discussed the growth of the company’s Greenlake infrastructure-as-a-service offering, which has doubled since last year.

According to the Seeking Alpha transcript of the earnings call, Neri claimed that more than two million devices now connect to Greenlake and an exabyte of customer data is being managed by the HPE service.

“The momentum is reflected on annualised revenue run-rate up 28% and total as-a-service orders up 39% year-over-year, bringing our year-to-date orders growth to 86%. These indicators show enduring demand for our as-a-service solutions, even while supply constraints limited some installations,” he said.

During the earnings call, company executives were quizzed over continued supply chain issues, which have led to a backlog in orders of HPE hardware.

“In compute, demand remained robust, with backlog growing sequentially to another record and is now at five times normal levels,” said HPE chief financial officer Tarek Robbiati. “Revenue was down 1%, reflecting a continued difficult supply environment, with some improvement expected next quarter with new multi-sourcing options for certain components and demand steering towards new solutions.” 

To tackle the backlog caused by the supply chain crisis, Robbiati said the company was engineering new products that were less dependent on the components experiencing shortages and “steering demand” toward those products. “We are also multi-sourcing the most constrained components, and this is helping work through the backlog,” he added.

One of the effects of this strategy has been an increase in the average selling price and average order price of HPE hardware, which, according to one analyst, has experienced an increase of between 10% and 20%.

Neri suggested that the number of options available on this new generation of servers, including features like non-volatile memory express (NVMe), NVMe over fabrics (NVMe-oF) and smart network interface cards (smartNICs), would satisfy demand for two-thirds of HPE’s customers.