HPE execs manage to keep straight face during expert spin class

HPE execs somehow managed to put a positive spin on its latest earnings call which saw the team announce declines in revenues and a stronger focus on cheap, foreign labour.

Jamie Davies

November 23, 2016

4 Min Read
HPE execs manage to keep straight face during expert spin class

HPE execs somehow managed to put a positive spin on its latest earnings call which saw the team announce declines in revenues and a stronger focus on cheap, foreign labour.

While the top-line figures were less than complementary to the business, there were also some positives through the year for the team. The growth engines in the organization (high performance compute, Cloudline servers, all-flash storage, converged systems, mission critical systems, and networking with Aruba) all grew, however these areas covered the cracks as total revenues for the quarter and the full-year declined by 7% and 4% respectively.

“Our success in FY 2016 is proof that we’re on the right course,” said CEO Meg Whitman, seemingly ignoring top-line figures. “HPE today has the ability to better respond to the constantly evolving marketplace, while generating long-term value for shareholders. The leadership team can dive more deeply into products, have more time to spend with customers and partners, and can constantly develop our strategy.”

To be fair to the HPE team, measuring the success of a business purely on revenue growth during a time where major vendors are attempting to adapt offers to the new digital era isn’t always the best metric. Evolving business models and products to be relevant in the digital economy can be a painful transition and sometimes revenues are hit, especially for huge organizations with legacy business units such as HPE, but surely the separation of HPE and HP Inc. was partly designed to avoid some of these pain points.

Over the 2016 fiscal year the Enterprise Group generated revenues of almost $27.2 billion, down 2% year-on-year (Q4: $6.7 billion, down 9%), Enterprise Services brought in $18.9 billion, down 5% (Q4: $4.7 billion, down 6%), Software $3.2 billion, down 12% (Q4: $903 million, down 6%) and Financial Services $3.2 billion, a decrease of 1% (Q4: $814 million, up 2%). Not an idea set of results.

Now onto the good news.

The company is well on its way to meeting its target of reducing the number of American employees and moving labour to international markets where labour is cheaper and employment laws may not be as stringent as in the US.

“We continue to track against our longer-term goal of 60% headcount in low-cost locations and completed the quarter with 51% of our headcount in low-cost locations,” said CFO Tim Stonesifer. “This is an 8-point improvement since the beginning of the fiscal year.”

Considering one of the major campaign promises of US President-elect Donald Trump was American jobs for American people, the HPE leadership team is unlikely to make friends in Washington with such objectives.

The growth areas pulled down some good-looking numbers as well. Strategic Enterprise Services revenue grew over 30%, driven by Helion Managed Cloud, which grew over 50% and Virtual Private Cloud, which grew over 100%. In software, SaaS and security products demonstrated healthy growth, with Vertica and voltage solutions taking particular praise from Whitman.

HPE also claims to have 140 high performance computing systems on the top 500 supercomputing list, more than anyone else in the industry. The team has also boasted about strong feedback on new product launches such as Hyper Converged 380 solution and Synergy Infrastructure.

In terms of relationships with other IT giants, Whitman hopes the decision to merge the Enterprise Services group with CSC and spin out of the wider HPE business unit will improve relationships with services giants like Accenture and PwC.

“One of those unintended great consequences of the separation of ES (Enterprise Services) from the Hewlett Packard remaining company, is that alliances with former ES competitors like Accenture, PwC, the Indian outsourcers, they no longer view us as a competitor, and we are being integrated into a lot of their offerings that we were never integrated in before, and it’s been fascinating to me how much more traction, I think, we’re going to get with those alliance partners,” said Whitman.

Should these organizations no longer consider HPE a competitor, as the services arm is a separate organization, in theory they should be more open to selling HPE servers, software etc. This change is unlikely to be overnight, and the resentful feeling of selling HPE kit may still remain as customers may still look to the HPE services business in the long-run for aftersales care. How this claim from Whitman plays out remains to be seen.

Whitman has done a sterling job in trying to put a positive spin on the year for the business, though it is difficult to look past the top-line figures, even if the business is going through a transformation. Down across the board is a long way from ideal. Whitman may see this as a successful year, though there may not be too many in the industry joining her.

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