HPE is back in growth mode
HPE is finally living up to its pre-split billing of being the sexy, fast-growing half of HP.
It's now delivered two straight quarters of low double-digit growth, with revenues hiking 10 per cent to $7.5bn in its fiscal Q2 ending 30 April 2018.
Growth came across "all business segments", according to new CEO Antonio Neri, with "particular strength" in its Intelligent Edge unit, which saw revenues rise 17 per cent to $710m, as well as high-performance compute, hyper converge and composable infrastructure. Even storage, which was a mess for HPE last year, grew 14 per cent.
That marks a change from its fiscal 2017, when HPE saw sales shink by five per cent.
Even more pleasing for shareholders is the fact that HPE beat its profit expectations for the quarter, and also returned $1bn to shareholders.
DRAM price hikes are flattening
DRAM shortages dogged HPE and competitors such as Dell last year, but on a Q2 call - a transcript of which can be read here - CFO Tim Stonesifer indicated that cost increases are beginning to "flatten".
Expanding on this in the Q&A, Neri added that HPE is no longer having to absorb the higher components costs itself.
"We still see what I call nominal low single-digit cost increases, but where we're able to pass those along for two reasons," Neri said.
"One is stronger execution in our go-to-market, more disciplined approach, and second is our competitors are becoming more rational about pricing in general. So it's going to be a very low kind of cost increase and we feel confident we'll pass those along."
Middle managers are for the chop
HPE's profits are soaring and it's partly thanks to ‘HPE Next', a "re-architecting" of the entire company designed to yield savings of $250m this year alone.
The Palo Alto-based firm's operating margins leapt by 270 basis points year on year to 8.6 per cent in the quarter, which it attributed in part to effective execution of the initiative.
But while HPE Next is great news for shareholders, it's less of a boon for middle managers, many of which have already been cleared out as HPE looks to reduce bands and layers between the CEO and customer.
"We have significant streamlined our sales structure, empowering the front line to make key decisions, and we have dramatically reduced SKUs and platforms across our volume and value segments, which simplifies our operation and makes us easier to work with," Neri said, adding that he is confident that HPE will achieve its $250m savings goal for this year.
Investment in high-margin sectors continues
The rationale of Neri's predecessor, Meg Whitman, in splitting off HPE was so that it could plough on unabated with its push into high-margin, high-growth enterprise technologies.
Since it split from HP Inc, HPE has announced a string of acquisitions, notably storage duo Nimble and SimpliVity early last year.
On the call, Neri emphasised that the firm "continues to prioritise investment in those higher-margin, high-growth segments of the market".
"For example, just last week, we announced the acquisition of Plexxi. Plexxi provides innovative software-defined networking technology, which we plan to integrate into both SimpliVity, our hyper-converged offering, and Synergy, our composable infrastructure offering," he said.
"With Plexxi, we will enable customers to move and manage their data more quickly and effectively and also significantly reduce CapEx and OpEx by up to 50 per cent in some cases."
Conversely, HPE continues to move away from commodity server sales to tier-one vendors.
HPE is proud of its RedPixie
HPE's hybrid cloud services arm, PointNext, struggled in Q2, with revenue up a muted one per cent.
Its success hinges partly on its ability to build a credible public cloud advisory service, and on this front Neri talked up HPE's recent acquisition of UK Microsoft Azure partner RedPixie, which he said would complement recent US acquisition CTP.
"RedPixie is a UK-based cloud consulting company with deep Microsoft Azure expertise, which perfectly complements CTP's strong AWS relationship. We are excited about the capabilities these two acquisitions bring to HPE and are already seeing them open doors to new and bigger deals," he said.
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