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HPE NonStop Corner – one partner’s perspective

HPE reports fiscal 2022 Fourth Quarter results; Provides summary for the financial year, 2022!

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It has been our practice here at NonStop Insider to include an update on HPE financial results just as it has been our practice to focus on the fourth quarter as well as what the full financial year 2022 delivered. From the chart above you can see that the stock price, weathering as it has done a number of sell-offs, has climbed above the price referenced in this article this time last year. At the time, the stock price was $15.77 whereas today it is hovering around $16.78, a full dollar better than this time last year.

To the casual observer this might not mean all that much. However, for those within the NonStop community who have been watching the digital transformation journey that HPE initiated just over three years ago, the numbers simply mask what is taking place. HPE is itself not just championing a digital transformation with its customers but is in the midst of a revolutionary transformation to where it is delivering all products “as-a-Service.” In so doing, the number where we should be paying the most attention to is the Annualized Run Rate, as in time this will likely overtake revenues of its Core product portfolio that includes Compute and Storage.

However, before we get ahead of ourselves, the results for this latest quarter highlight the importance too of GreenLake. In the 2022 Proxy Statement issued prior to HPE’s annual shareholders meeting of April 5, 2022, HPE CEO Antonio Neri wrote of how:

“HPE is at the center of several compelling megatrends that are driving the market: the need to be connected to accelerate digital transformation and extract value from data to generate insights, the mandate for a cloud experience everywhere, and the shift to consume IT in flexible new ways.

“Each of these market trends represent a significant area of addressable, profitable growth for HPE with our differentiated edge-to-cloud as a service strategy.”

What caught my attention were two key items: Extract value from data to generate insights and the shift to consume IT in flexible new ways. This is not an entirely unexpected observation, megatrends or otherwise as our NonStop community has begun feeling the impact of this for the past two years. If 2021 was a toe in the water, 2022 looks like we have fully immersed ourselves in these very same waters.

With the exception of a reduced corporate investment contribution being less in 2022 than in the same quarter in 2021, all segments of the portfolio have seen improved performances. Compute still represents the bulk of the company’s income even as HPC&AI shows a healthy gain for the year. It is within HPC&AI where NonStop resides even as the lines are a little murky to those who are not HPE insiders as to how much of NonStop revenues make up Compute as it is Compute that sources the hardware for NonStop.

Nevertheless, watching all segments show improvement for the quarter is encouraging and is helping the lift in the HPE stock price. But it is the heading chosen for the slide (above) that deserves one more observation: Mega trends in data, cloud and connectivity. All three have been strong attributes of NonStop – after all, NonStop creates data, virtualized NonStop is running in clouds and yes, when it comes to connectivity the breath of connectivity options was at the foundation of NonStop success dating back to the beginning of Tandem Computers.

If you missed reading the press release associated with the announcement of this final quarters financial results or have not seen it referenced in financial media, then it was the attention given to these results by Antonio Neri –

“HPE had an impressive fourth quarter, generating an outstanding performance across our key performance metrics. We are producing strong financial results as we meet new customer needs with the edge-to-cloud portfolio that only we can deliver.

“The strength of our culture and commitment of our team members this quarter and throughout the entire 2022 fiscal year enabled us to innovate and take bold actions to pivot our portfolio and bolster our financial position as we head into 2023,”

The attention that Neri gave to these points was later reinforced by commentary from Tarek Robbiati, EVP and CFO of HPE –

“These results would not have been possible without the strategic actions we have taken. We are now entering a very different phase of the company, one where the combination of our rightsized cost structure and substantial order book is expected to deliver profitable growth that is increasingly recurring at higher margins as our as-a-service transformation continues to unfold.”

It is good to see the positive reference given to the culture of HPE but it was also encouraging to read that its portfolio has pivoted which I have to believe is a reference to as-a-Service and GreenLake, even as we can deduct from these two quotes that not only has HPE pivoted but that in pivoting it is in the initial phase of generating increasingly recurring growth, revenues and profits.

It is this pivot and the transformation that is underway that many investors have not caught up to – yes, HPE may still be a traditional server provider but increasingly, it is a software company and with that, how we read the financials should look a lot different. Those who consider HPE a value company might want to recalibrate expectations along the lines of HPE being a growth company. The cumulative effect of such a positive ramping up of orders within as-a-Services has only just started to be appreciated and yet, there is still a long way to go. However the slide below does illustrate where this upward growth could take HPE.

When it comes to the overall performance of HPE for the full year and taking into account that, when it comes to as-a-Service orders they are “an overlay across all business segments contributing to HPE’s consumption-based services (both recurring and non-recurring) and includes hardware as well as GreenLake as-a-Service, Aruba SaaS, CMS SaaS, and other Software assets,” it is good to see that HPC and AI are classified as Growth. This is where NonStop lives and goes a long way in acknowledging that investments continue to be made in NonStop.

On the other hand, stability will continue for some time with revenues associated with the company’s Core of Compute and Storage helping plug any revenue shortcomings as the transition to as-a-Service continues. There will be a lot more coverage of HPE performance in the coming months and as has been the case now for many years with NonStop Insider, expect further analysis to follow as HPE executives head back out into the finance and industry analysis communities.

Your NonStop Insider Team