HPE NonStop Corner – one partner’s perspective

When the financial results were announced many investors focused on forecasts for 2022 that erred on the side of caution. As a result the stock price took a hit. However, with time to better understand not just the numbers but the commentary provided by HPE CEO Antonio Neri together with those of HPE CFO Tarek Robbiati, in the days that have passed since the results were published, the stock price has shown a steady rise to where it is approaching levels seen 30 days earlier.

So, what’s going on? But first, even as Pyalla Technologies, LLC., maintains investment accounts, we have no HPE shares in the portfolio we administer. There may be some presence of HPE shares in our retirement accounts but these are managed by former ITUG investment management company, Alliance Bernstein.

With that said – which is kind of demanded these days even of small companies that track the financial performance of public companies – what’s going on is that HPE not only has pivoted to “as-a-service” company where high value software solutions continue to make their presence felt, but has seen this pivot result in broad customer acceptance. Orders and deliverables continue to rise. As Neri told financial analysts in his earnings conference call of November 30, 2021:

We appreciate the opportunity to discuss how our edge-to-cloud strategy positions us to capture an expanded market opportunity and accelerate shareholder value creation.

HPE ended fiscal year 2021 with strong momentum. Customers are responding to our edge-to-cloud value proposition as evidenced by the record demand for our solutions. Demand accelerated in the second half of the year, driving fiscal year 2021 orders growth of 16% year-over-year.

Our as-a-Service annualized revenue run rate or ARR of $796 million was up 36% year-over-year.

This is all positive news for the company even at face value but where does NonStop fit into this picture? NonStop is part of HPE Growth Business as part of the HPC & AI organization. Going deeper than simply face value this is a great place to be as it is contributing in a significant manner to the overall performance of that organization. Having said that NonStop is also being positioned to better contribute to the as-a-service business which is where serious growth is happening.

Returning to the concept of pivoting, this is where the financial analysts are behind the times. Such pivots have occurred many times in the history of IT, most recently with major software companies moving from a license (CapEx) to a rental (OpEx) model. It’s not surprising to see this happening across HPE given the commoditization (and reduced margins) of today’s hardware. This isn’t lost on HPE even as Neri is undeniably enthusiastic with the progress HPE is making in terms of its three year plan unveiled at HPE Discover 2019:

Our results in Q4 strengthened the momentum we have as we enter fiscal year 2022. Increased demand in the quarter drove orders growth of 28% year-over-year, with particular strength in our as-a-Service orders, which grew an impressive 114% year-over-year, including a large network as-a-Service win.

HPE is at the center of several compelling megatrends, the explosion of data at the edge, the mandate for a cloud experience everywhere, and the need to extract value from data to generate insights.

There you have it, once again. For HPE it’s all about data at the edge, the cloud experience and yes, data generating insights. Not surprisingly then to revisit Neri statements at HPE Discover 2020 where he observed how IT was entering the Age of Insight. Furthermore, it’s not surprising either to hear from Jeff Kyle of how data is created on NonStop. It’s all about the data – creating, capturing, and communicating.

When asked by one participant in the earnings conference call the following:

I wanted to dig a little bit more into the as-a-Service performance. Obviously, orders are extremely strong during the quarter. How much of that was from the onetime…not one-time, but from the large contract signed, how should we think about the longerterm growth potential, how it flows through the model as we look to the next year or two? And I don’t know maybe if you can give a little bit more on the composition of the as-a-Service, is there any one product, or service that’s really driving that business at this point in time?

Neri responded with this observation:

Listen, we are super proud of the momentum we have in the market with HPE GreenLake. We believe it’s truly differentiated in the market. And as we show you some, twothirds of that is already in the software and services, and we believe in three years, will be more than 75% of it, which obviously comes with high margin and more durable revenue in many ways. What customers like about the model is the ability to procure everything from Edge to cloud from one integrated platform.

But what of the financial analysts miscue following the release of the Q4 results? Isn’t HPE making it very clear where they are headed and what their priorities are for the foreseeable future?

In many respects it goes back to a discounting of that all-important ARR number – the Annual Recurring Revenue that comes with embracing the as-a-service model. HPE is not only pivoting it’s business model but in many ways, it is attempting to pivot towards a different group of financial analysts, not focused solely on boxes but the added value that comes with high margin software. All of which plays into the improving presence of NonStop, a level of participation that I can only see growing as the NonStop organization more aggressively pursues adding new solutions to the NonStop portfolio.

Expect to read more about this in the coming months but for now, watching the steady upward progress being made by the stock, I fully anticipate it climbing further once the financial community comes to terms with HPE no longer being the HPE or even the HP Inc of former times.