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HPE NonStop Corner – one partner’s perspective
There are never truly days when HPE isn’t making news. Just a few weeks ago it was all about the publication of the Q2, 2020, financial results. If you check the HPE web site for the May 21, 2020 Press Release, you cannot miss the picture at the top of the page. Very similar to the one above, it featured Moab, Utah’s famous arches with just a glimpse of sunlight peeking through. Symbolic, to say the least and for those who follow news from HPE, it is hard not to notice how there are shadows even as there are brightly illuminated rock features.
As HPE CEO Antonio Neri did the rounds of television financial channels, he was extremely pragmatic. Yes, the effects of the global pandemic meant that there were unavoidable disruptions to the supply chain that led to Neri making the following observations:
“The global economic lockdowns since February significantly impacted our fiscal Q2 financial performance. We exited Q2 with $1.5 billion dollars in orders across the portfolio, representing two times the average historical backlog.
“Despite challenging circumstances, HPE GreenLake, our as-a-service offering, gained traction with 17% ARR growth and our Intelligent Edge business grew 12% in North America outperforming the market while expanding margins.
“We are taking decisive steps to navigate the near term uncertainty, while ensuring we align resources to priority growth areas so that we are well positioned to accelerate our edge-to-cloud strategy and address the needs of our customers in a post-COVID-19 world.”
So let’s acknowledge the bad news first as it can be easily addressed. Business wasn’t good; having such a sizable backlog simply meant sales was continuing to do its job selling HPE products even as manufacturing and distribution struggled to find enough supplies to build systems, storage and infrastructure products. One of the worst hit areas just happened to be High Performance Compute and Mission Critical Systems that saw an 18% decline year over year (when adjusted for currency). No biggie, seriously even as sales would have likely bemoaned missed opportunities to reap any immediate rewards.
However, it wasn’t just COVID-19 impact on supply chain, perhaps worth noting was the fact that this downturn in revenue was also influenced by “COVID-19 related delays in installations and customer acceptance.” On the other hand, the second half of the year looks much more promising. What is a biggie however, is the realization that metrics once used to measure the performance of HPE may no longer be relevant. What we are talking about here is that HPE is transforming and behaving more like a software vendor than a traditional big box sales-focused vendor.
In the run up to HPE Discover 2020 which is only a matter of being days away from starting (virtualized, of course), we should recognize we are coming to the end of year one in a three year program to move HPE away from selling boxes to selling “everything-as-a-service” or XaaS as you probably have read. The software industry went through something similar only a few years ago when it moved away from a heavily-focused purchase model to where software could be licensed for varying terms. What was the biggie here was that these software vendors could no longer “book” sales of one million or even ten million but rather the sum of monthly license fees received in the year.
The change in direction of their revenue curve was unmistakable and for many investors, it looked at first as though these software vendors were going out of business. However, it only took a year or three for the transition to recurring fees materialized with serious financial benefits being realized – and yes, the business then became far more predictable. HPE is facing the same challenges and you could tell that in his interview with the CNBC network, Neri was treading very carefully around this topic. The was nothing to signal the massive economic downturn that came with COVID-19 but HPE has seemed to have done a little better than some of us had readily predicted only a few weeks earlier.
Of course, to provide a sense of proactive management oversight, programs at HPE have been put on hold, some benefits temporarily suspended, including 401K matching contributions, and the board, executives and management all taking a temporary salary cut. As Neri made very clear during his interviews as reported by Reuters, “Beginning July 1, through the remainder of fiscal year 2020, the base salaries of the CEO and officers at the executive vice president level will be reduced by 25%, HPE said. The board also agreed to cut by 25% the portion of the annual $100,000 cash retainer entitled by directors for the same period.” Again not a biggie as this is typically what becomes apparent when the market receives essentially bad news.
However, for all those who have watched this take place from the quiet of their home offices, one of the concluding observations by Neri struck a positive note. Just as the picture HPE chose to lead their press release shows rays of sunshine quickly displacing areas of shadow, if you are enjoying working from home then Neri has some news for you. “My expectation is at least 50% of our employees will never come back to an office,” Neri said on the (post-earnings) call. On this topic, HPE is not alone with a prediction like this and if you haven’t been following blog posts and commentaries, it’s pretty much common knowledge that there will be radical alterations to the traditional campus and glass tower operations we have become familiar with as we turn our attention towards Silicon Valley.
As the publication Data Center Dynamics reported after the post earning call, it was CFO Tarek Robbiati who gave analysts the best snapshot of how HPE is continuing to position itself to the future that continues to be called the new normal:
“But, effectively, if you look at what the plan is about, it’s fundamentally around realigning resources to the segments that we started to report back in the first quarter and areas of growth that we see driving better productivity levels across those segments, changing fundamentally the way we engage with customers from a marketing and sales standpoint, rethinking our supply chain to create it in such a way that is more resilient than before, yet agile and efficient, rethinking also our workforce management practices.
Because quite frankly… we’ve been working very effectively from home for the past three months almost. And so, this is pointing to us the need to think about this new normal and what does it mean from a workforce management standpoint, and our real estate footprint”
Once again, please take time to check out the HPE web site for more on the Q2 Financial Results as news, commentaries and posts continue to be added on a regular basis.
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All opinions and observations expressed here are those of Pyalla Technologies, LLC, and unless otherwise expressly identified, are not provided by HPE employees.