HPE and HP Inc - when breaking up works out for the best

Profile picture for user slauchlan By Stuart Lauchlan August 28, 2018
Summary:
HPE and HP Inc are thriving in the post break-up years. Just those tariff concerns to deal with now...

divorce
The companies formerly known as Hewlett Packard continue to demonstrate the power of two as HP Enterprise (HPE) and HP Inc turned in strong quarterly numbers.

HPE reported third-quarter profit of $451 million, up from $165 million in the comparable quarter last year and the third consecutive quarterly rise, on revenues of $7.8 billion, up 4%. Meanwhile HP Inc’s total revenues climbed 12% year-on-year to $14.59 billion with GAAP net earnings of $0.8 billion.

HPE CEO Antonio Neri said the numbers demonstrate that HPE Next, the firm’s push to “re-architect the company from the ground up” is paying dividends, picking out strong growth in Hybrid IT, Financial Services and Intelligent Edge offerings as well as High Performance Compute:

We have strong momentum across both public and increasingly, private sector deployments. For example, we announced a new development in our long-standing relationship with the US Department of Energy to build a new supercomputer for the national renewable energy laboratory. The new system named Eagle, will run detailed models that simulate complex processes to advance early research and development of renewable energy technologies across fields, including vehicle, wind power and data science.

Advisory and Professional Services revenues were down 10%, but this was, according to Neri:

largely due to our intentional exit of more than 40 companies as part of our HPE Next plan, and we continue to invest in new services capabilities. For instance at HPE Discover in Las Vegas, we announced our next generation of HPE GreenLake hybrid cloud to help our customers optimize their hybrid cloud operating models. By eliminating the need for staff to manage their hybrid environments day to day, the new HPE GreenLake solution enables them to focus on innovation. Overall, our Hybrid IT portfolio of products and services is stronger than it has ever been, and continues to help our customers manage and simplify their IT in a hybrid world.

But it’s the Intelligent Edge segment that attracted the most enthusiasm from the HPE CEO, with revenue growth of 10% year-on-year:

Intelligent Edge is a significant long-term growth opportunity for us, therefore, a key area of investment. I say that because there is a major transition happening right now, driven by the explosion of the data created at the edge. The Edge is the world outside the data center. Gartner says 75% of the world’s data is generated at the edge. I am certain that the rise of Intelligent Edge is the next great market transition coming...That is why we recently announced that we plan to invest $4 billion in this segment over the next four years.

There are already good use cases around Intelligent Edge, he added:

We see a world that is Edge-centric, cloud-enabled and data-driven and our portfolio of Intelligent Edge solutions is resonating with customers. In Q3, Aruba won significant new deals with customers, including Caesars Entertainment which will roll out Aruba wireless LAN across their large public venues, and a deal with University of Arkansas where Aruba will completely replace the existing networking system, including software and security.

We’re also seeing strong traction with our Edgeline system in industrial IoT applications. For example, a leading auto manufacturer is deploying these systems to pioneer the convergence of operational technologies and enterprise-class IT functions, all in a single solution. This new integration is allowing customers to reduce costs in the manufacturing operations while increasing production rates.

On track

Over at HP Inc, CEO Dion Weisler was equally upbeat, with a message of ‘on track and sticking to it’:

As a company, we’re delivering what we said we would do and optimizing the business to consistently deliver long-term sustainable and profitable growth...As I’ve been clear about, our goal is to consistently deliver on our financial commitments, while executing our strategic framework. We do this by playing our own game and winning the right way and by delivering products and services that are consistently engineered to amaze our partners and customers.

The biggest news coming out of HP Inc of late was the announcement earlier this month of the acquisition of Apogee, Europe’s largest independent provider of print and document services. Weisler highlighted a driver for the deal:

[Apogee] has a proven track record and deep capabilities in contractual sales. This is an important next step in our strategy to accelerate growth in the contractual office print market. Following the announcement of the transaction, I met with a number of our large partners who understand that scaling our contractual business faster benefits both HP and our partners to grow in the industry shift to contractual...the Apogee transaction is all about giving access to new profit pools by expanding our ability to deliver value-added services and the acceleration of the deployment of what we assure [you] is superior technology into the growing contractual spaces, especially amongst SMBs.

He added:

We’re seeing increased demand from customers in their quest to move from a transactional relationship to a much deeper contractual relationship...we’re starting to think about the business and our customers through a lens of transactional and contractual...the Apogee acquisition was obviously designed and the strategic rationale was to tap into this growing trend towards contractual.

3D printing is another industry shift that HP Inc is working across, said Weisler:

We are pleased with our progress in accelerating 3D printing for production manufacturing. We drove installations with industrial-grade customers, including the new 3D printing center in China, the world’s largest manufacturing market. We are encouraged by the increasingly wide array of final part applications across sectors, including the industrial, consumer, auto and healthcare markets. We’re seeing north of 50% of the parts produced on our systems are for final production.

This quarter, we also furthered our channel presence and expanded our strategic partnership with Siemens, providing design software support for our full color platform. Ensuring the world’s industrial product engineers have integrated design tools for 3D production is a critical enabler for market expansion. We are still in the very early stages of this business, but remain excited and optimistic with our ability to disrupt the $12 trillion global manufacturing market.

My take

Despite the upbeat tone being struck by both CEOs, each is aware of the uncertainties posed by President Trump’s escalation of a trade war with partner nations and the imposition of tariffs. Both are playing a waiting game. Or as Weisler put it:

I don’t think it has had a material impact on our business to date. We, like all companies are monitoring the evolving market dynamics and the situation very closely. I can tell you we don’t speculate or comment on the situation until we know all the facts and things become more definitive. We continue to assess the actions that are announced and we go to work on making the best outcomes for our customers and our shareholders. And we work with the US administration to make sure they understand our point of view on the suggested changes.

But our supply chain team and our go-to-market team and all areas of our business, including our broad ecosystem of suppliers, customers and partners work together to take any change and turn it to opportunity. And just we’ll monitor the situation and evolve it as necessary.

For his part, HPE’s Neri stated:

This is a very complex topic. Let’s say, most of the US tech firms relying on complex supply chain and HPE is not different. So, this system, [if we] call it [that], has been built over many decades. We need to understand the details. Honestly, it’s too early. We don’t have the full details. Obviously we are provided inputs in the right forums. And we believe there is different ways to address this problem. But, from our vantage point, we are looking at scenarios depending on where this is going to land.

That’s an unfortunate position to be in, but not one that either CEO can do much about right now until they see where the tweets land. But overall, HPE and HP Inc remains a good example of how to make divorce work in practice.