HP Enterprise Discover: Beyond Hyberconverged Data Centers

Hewlett Packard Enterprise's (HPE) hyberconverged data center strategy will surely take center stage during the HP Enterprise Discover 2016 conference. And overall, HPE is in good shape heading into the show (June 7-9, Las Vegas). But can CEO Meg Whitman and her lieutenants spring a few SaaS and recurring revenue surprises for partners?

First, the big picture: More than 10,000 customers and partners are expected to attend the event. And frankly, the timing couldn't be better for Whitman and Hewlett Packard Enterprise. In May 2016, the company delivered stronger-than-expected quarterly financial results and an upbeat business forecast. For the first time in five years, the HPE businesses grew their revenue over prior-year period. At the same time, HP Enterprise announced plans to spin off its global IT services business -- ultimately merging it with CSC to form a new company.

Overall, Wall Street loved the news. Even amid a potential server market slowdown, Deutsche Bank says HPE's leadership position in the volume server market continues to grow. HPE's own metrics reinforce that point. For its fiscal Q2 2016 ended April 30, 2016, enterprise group revenue rose 7 percent to $7 billion. That included improved server revenue (up 7 percent) storage revenue (up 2 percent) and networking revenue (up 57 percent).

HPE Hyberconverged Data Centers

So far, so good. But HPE isn't resting on its laurels. The company is seeking to capitalize on the hyberconverged data center market. Plenty of product announcements are expected at the conference. Moreover, HPE will seek to connect the dots between its infrastructure and third-party cloud systems -- particularly Amazon Web Services and Microsoft Azure. The idea is to help on-premises HPE customers "burst" workloads up into public clouds when needed.

The challenge? Just about every other major hardware vendor -- Cisco Systems, Dell, EMC, Oracle and the list goes on has a similar strategy. Even SMB players like Lenovo are moving hard into the hyberconverged market, partnering with fast-growth startups like Nutanix along the way.

Overall, I suspect HPE will get its fair share of the hyberconverged market. But Whitman and channel partners will wisely pursue more than their fair share.

It's safe to say Whitman has addressed two of HPE's three biggest business issues. First, the hardware business is growing again -- even as cloud computing takes off. Second, the IT services business -- an overall drain on the company -- will soon be spun off. But a third challenge still looms large. It involves HPE's anemic software and SaaS business.

A lengthy list of SaaS companies  -- large and small -- enjoy double- and triple-digit growth rates. From Salesforce.com to upstarts like New Relic (application performance management), business is booming in the subscription-oriented software market.

HPE Software, SaaS: Not So Good

In my mind, HPE has essentially missed the SaaS and recurring revenue waves. For its Q2 2016, HPE software revenue fell 13 percent to $774 million and SaaS revenue fell a painful 11 percent. During the earnings call in May, HPE tried to put a positive spin on the situation.

"Our Software business also delivered a strong quarter. When adjusted for divestitures and acquisitions, software delivered its third consecutive quarter of constant currency growth," Whitman said.  Sales strength in security and big data software was partially offset by declines in IT Management, CFO Tim Stonesifer added. On a product level, HPE saw "encouraging results" from its Voltage, Fortify and IDOL lines, the CFO added.

During the call, underwhelmed Wall Street analysts asked if HPE planned to spin off the software business. In response Whitman said she's happy with HPE's software portfolio but hedged a bit. "We are going to continue to optimize the set of assets that we have but we are really happy with the current portfolio," she added.

Hmmm... Perhaps the HPE Helion Cloud effort -- coupled with software defined data center moves -- will pay some dividends. But at this point I wonder if Whitman has to make a bigger, more dramatic move to make the company's software and SaaS businesses far more relevant.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.