HPE NonStop Corner – one partner’s perspective

HPE reports fiscal 2021 Second Quarter results

Whenever HPE announces its quarterly financial reports there is always something contained within the public material that is of interest to the NonStop community. The NonStop business is an important group within Mission Critical Systems (MCS) which is now a part of the much bigger High Performance Computing – Mission Critical System (HPC-MCS) organization and as such, it’s where the bigger deals are made and where, as HPE CEO Antonio Neri reminds the financial community, “this is inherently lumpy business due to lead times between order and revenue recognition.” While it is true about HPC it is equally true about MCS and NonStop and hence, why the two groups now make up the single organization.

For Q2 FY2021, two documents are worth reading. The first is the HPE news release, HPE Reports Fiscal 2021 Second Quarter results while the second is the sometimes more compelling transcript of the earnings call with financial analysts. There were commentaries published in the press following the HPE news release, with perhaps the best update provided by ZDNet in their article HPE Q2 beats expectations on strong SaaS momentum.

Starting with the HPE news release, the statements made that stand out the most for me include the following:

“Our disciplined execution on our strategic priorities is positively impacting both top and bottom line performance,” said Antonio Neri, president and CEO of Hewlett Packard Enterprise. “We are strengthening our core compute and storage businesses, doubling down in our growth Intelligent Edge and HPC businesses and accelerating our pivot to as-a-service, while also advancing our cloudfirst innovation agenda to become the edge-to-cloud platform as-a-service choice for our customers and partners.”

Followed by segment results:

“High Performance Compute & Mission Critical Systems (HPC & MCS) revenue was $685 million, up 13% from the prior-year period or 11% when adjusted for currency, with 2.8% operating profit margin, compared to 7.6% from the prior-year period. We remain on track to achieve our full year and 3-year revenue growth CAGR target of 8% to 12%.”

What does this tell us? What continues to stand out is that HPE is growing the business even as it adds a new way of doing business. It is hard to ignore how HPE is in its second year of a three year pivot to where its product portfolio will be offered not just along traditional CapEx lines but alternatively, made available on the basis of as-a-Service, OpEx lines. The software industry went through a similar extended pivot following the dot.com era and it was an ugly experience to say the least. Gone was the big multimillion dollar software license deals replaced with monthly installments. In one respect this was a pivot away from purchase in favor of lease.

HPE divides its organizations into three groups, two of which are heavily focused on products. What is good for NonStop is that it continues to be part of the group labelled Growth where together with the Intelligent Edge, HPE & MCS deliver revenues that are on the rise. A clear picture of HPE GreenLake being a financial option is reinforced when you see is as being supported by Financial Services group – a real clue to what GreenLake means to HPE. Indeed, it was during the call with financial analysts where Neri said:

“Hewlett Packard Enterprise had a strong second quarter. I’m very pleased with our results and that are marked by revenue growth, strong profitability and free cash flow.

“The overall demand environment is improving, and we are seeing traction across our portfolio. 

“We are strengthening our core businesses, doubling down in key areas of growth and accelerating our as-a-service pivot, while advancing our cloud-first innovation agenda to become the edge-to-cloud platform-as-a-service choice for our customers and partners.

“I’m particularly pleased with the double digit revenue growth in both, our HPC and Intelligent Edge businesses

“Our pivot to as-a-service continued the strong momentum. Our annualized revenue run rate of $678 million was up 30% year-over-year. We saw strong total as-a-service order growth of 41%.

“Over 900 go-to-market partners are now actively selling HPE GreenLake as a part of their own marketplace.”

What does this now tell us about HPE’s vision and how it is executing in support of its vision? Clearly, the reference to doubling down in key areas of growth caught the attention of financial analysts as it sent a strong message that HPE was doing well and that two years into its pursuing of a vision of become a world leader as an edge to core platform as a service company, it was certainly on track to reach its goal after three years.

The final reference is the article published in ZDNet:

“HPE delivered better-than-expected second quarter earnings on Tuesday and the company says its as-a-service pivot is accelerating with consumption-based services orders rising 40% from a year ago. The enterprise software player reported second quarter net income of $482 million, or 19 cents a share, on revenue of $6.7 billion, up 11% from a year ago. Excluding charges, HPE delivered earnings of 46 cents a share.”

Could it be a mistake on the part of ZDNet to reference HPE as an “enterprise software player?” This is the first time I have seen HPE referenced in this manner, but is significant. This is exactly where we see HPE going and it’s where NonStop has already made considerable progress. The number of times GreenLake has been referenced in the reports also is significant and the presentations on this topic by the NonStop product management team suggest that NonStop will turn the corner on its participation within the GreenLake purchase-plan options shortly.

All told, HPE continues to not only execute to plan but in so doing is demonstrating that it can grow the business while doing so. The software vendors who went down this path a decade or so ago struggled to do so but eventually came out much stronger as their Annualized Run Rate (ARR) strengthened in time to eventually surpass prior revenue numbers. I will not say anything more about the number of times the word pivot appeared in all the articles but it is clear, HPE has pivoted and in so doing, not only declared that it is doubling down (on growth) but taking business away from the competition. Will we see NonStop in GreenLake or even in the Intelligent Edge? Time will tell, but for now, the logical answer to both just has to be a positive maybe! And for many members of the NonStop community, that’s all we want to hear.