Four partner takeaways from HPE's results

We rounded up the four key messages from the vendor's Q1 earnings

Hewlett Packard Enterprise reported first-quarter revenue of $7.56bn (£5.89bn) for the three months ending 31 January 2019.

We've picked out the key points from the earnings release and conference call.

Decline of tier-one business raises fiscal outlook for 2019

Though HPE's total revenue was slightly below analyst expectations of $7.6bn, operating margins expanded from three to six per cent in the quarter, with significant growth in key segments, causing CEO Antonio Neri to predict accelerated sales growth for the rest of 2019.

"We are very confident that in our Q2 and beyond our revenue will accelerate from the current levels," he told investors on an earnings call, transcribed by Seeking Alpha.

"We are on track to exceed most of our fiscal year 2019 financial commitments that we laid out at our securities analyst meeting in October last year.

"We also expect the solid enterprise demand environment to continue and our own execution to remain strong, all of which should drive accelerated year-over-year growth rates beginning in Q2."

This prediction is also backed by a sharp decline in the vendor's burdensome tier-one server business, which provides low-margin commodity servers.

"What now gives us more confidence that we can grow as of Q2 is because we have seen the tier-one decline being sharper than what we originally anticipated, which reduces the dilution effect for the subsequent quarters," explained CFO Tarek Robbiati on the same call.

Intelligent edge and hybrid IT are the big winners

The vendor doubled down on its commitment to its intelligent-edge and hybrid IT offerings, as both saw growth in the quarter.

Intelligent-edge revenues were $686m, representing a five per cent year-on-year hike. HPE Aruba, which sits in the vendor's intelligent edge division, reported 20 per cent growth in its services division, as well as three per cent growth in products.

Meanwhile, turnover for hybrid IT saw a three per cent year-on-year decline to $5.97bn, but HPE attributed this to a decrease in orders from tier-one customers.

Excluding the vendor's intentional exit from certain tier-one customer segments, its compute revenue grew three per cent, while its storage revenue segment also saw three per cent growth.

"Computing at the edge is the next frontier," Neri stated.

"HPE's unique ability to connect our customers' data between all their edges and all their clouds is a significant differentiator and opportunity for us.

"Our strategy is on point. The enterprise of the future will be edge-centric, cloud-enabled and data-driven.

"In the near term we expect the demand environment to remain healthy and our differentiated software-defined solutions to continue to gain traction with customers driving accelerated revenue growth starting in Q2."

Brexit shmexit

Neri was optimistic about the health of the IT landscape among ongoing global economic concerns, including Bexit and threats of another government shutdown in the US.

He told analysts that HPE continued to monitor these economic uncertainties, but that the digital transformation continued to gather pace.

"Our customers tell us the IT investments they are making are critical to driving business outcomes as they look to harness the explosion of data that continues to grow," he said.

Neri told investors that Europe was the vendor's fastest-growing region in the quarter, adding that its UK business grew "double digits".

"From a macro perspective the demand remains steady, and we continue to monitor the economic uncertainties driven by global trade and Brexit and others, but our demand was very steady throughout the quarter," he said on the call.

Channel investment

When asked by an analyst whether the tech giant would be investing more in its channel, Neri replied in the affirmative.

He took the opportunity to praise HPE's channel partners for the growth in its Aruba and hybrid IT offerings and claimed that 70 per cent of HPE's hybrid IT business, and 90 per cent of its Aruba offerings were driven by the channel.

"If the channel doesn't grow, we can't grow," he said.

"I will be talking more with channel partners about our momentum and our innovation to all the key seals in there with us…so they can understand how to make money with us.

"Ultimately, they like our portfolio to serve our customers better. So our sellout in the channel has grown double digits and that's why we are confident."