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Opposite Day: HP Enterprise Hardware Up, SaaS Down

At a time when cloud computing is disrupting many segments of the hardware market, here’s an ironic twist: Hewlett Packard Enterprise‘s hardware sales look reasonably strong but HPE’s SaaS revenues continue to slide. Hmmm…

For HPE’s first quarter of 2016 ended January 31, the company said net revenue slipped 3 percent to $12.7 billion — but that was slightly above Wall Street’s expectations. Enterprise group revenues rose a slight 1 percent to $7.1 billion — thanks mostly to HPE’s 2015 buyout of Aruba.

Still, many of the company’s other businesses continue to show weaknesses — including services (down 6 percent), software (down 10 percent) and financial services (down 3 percent). Within the software business, SaaS revenues slid 9 percent, HPE said.

Rival Hardware Giants and Recurring Revenue

That could be a warning sign as HPE strives to compete with entrenched enterprise IT rivals like Cisco Systems Inc., Dell Corp., EMC Corp., IBM Corp. and Oracle Corp. continue to push hard into recurring revenue opportunities across cloud and managed services. And in many cases HPE’s rivals are succeeding in those recurring revenue efforts.

Three recent examples: First, Cisco CFO Kelly Kramer told partners this week that 28 percent of the company’s revenues are now recurring, and a major OpenDNS partner push could accelerate that. IBM generated $4.5 billion in recurring cloud revenues for 2015. And Oracle CEO Mark Hurd predicts only two companies will ultimately dominate the SaaS suite market. In stark contrast, HPE shut down its own public cloud and continues to show SaaS weakness.

Still, HPE’s hardware business is performing better than Wall Street expected. CEO Meg Whitman has provided consistent, channel-friendly leadership at HPE and its precursor, Hewlett-Packard Co., since her September 2011 arrival. The latest evidence arrived in today’s earnings results.

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