UPDATED 18:45 EDT / MARCH 02 2021

INFRA

HPE beats forecasts but fails to return to growth as data center business drags

Hewlett Packard Enterprise Co. shares climbed 3% in after-hours trading today before falling back after the company reported fiscal first-quarter results that topped Wall Street expectations.

The results provided the best evidence yet that its turnaround, fueled by edge computing, software-defined infrastructure and as-a-service delivery, is paying dividends.

Not that the business is growing yet. Revenue fell 1.7% from a year ago, to $6.83 billion, but it was still above the $6.75 billion analysts expected. Adjusted earnings of $679 million, or 52 cents a share, were slightly higher than the $657 million and 50 cents a year ago and well ahead of expectations of 41 cents a share.

“I am very pleased, particularly with the strong growth in our intelligent edge business,” said Chief Executive Antonio Neri (pictured). “We expect to see gradual improvement in customer spending as we progress through fiscal year 2021.” The company raised its full-year fiscal 2021 EPS guidance to between $1.70 and $1.88 and its free cash flow guidance to $1.1 to $1.4 billion, citing strong order bookings and increased confidence in its outlook.

HPE has its sights set on becoming the “edge-to-cloud platform of choice,” Neri said, and strong demand for those products helped offset a 2% decline in compute revenue and a 6% decline in storage. Intelligent edge revenue rose 11%, to $806 million.

The company’s annualized run rate — a measure of subscription revenue seen as a key measure of financial stability — rose 27%, to $649 million, while as-a-service orders leapt 26%. HPE credited the gains to widespread adoption of its Aruba ESP edge-to-cloud connectivity-as-a-service and its GreenLake cloud-services division.

“Aruba was very strong out of the gate and we expect that to continue through 2021,” Neri said. “We expect to take market share in both campus switching and wireless LAN segments.”

Vision paying off

The company’s performance and growth areas was impressive though not unexpected, said Glenn O’Donnell, vice president and research director at Forrester Research Inc. “We expected Aruba/intelligent edge to do fairly well,” he said. “It was surprised that they beat expectations, but beating the Street is not the same as growing.”

Like other entrenched computing companies, HPE is wrestling with what O’Donnell called a “comatose” data center infrastructure market that has few growth prospects. HPE was visionary in seeing the promise of as-a-service delivery in its GreenLake on-premises cloud offering and has stuck with its commitment, he said.

“HPE jumped on the bandwagon first,” he said. “Neri said two years ago everything would be delivered as a service, and while it was hard to believe at the time, they’re getting there.”

That head start is paying off in the performance of recently introduced products such as the GreenLake-based Primera storage family, which grew at a triple-digit rate year-over-year and will soon exceed revenues of the company’s mainstream 3Par storage platform Neri said. HPE also signed 70 new GreenLake customers in the quarter.

Despite the company’s optimism about the edge computing market, O’Donnell said that business isn’t likely to shake out as quickly as other growth markets have in the past and that there’s no guarantee the big infrastructure players will dominate.

“You have the tech titans but also the telcos, the content delivery networks, the cloud providers and industrial giants like GE and Siemens,” he said. Manufacturing executives and factory managers who are making decisions about putting smart devices in their facilities are going to be inclined to work with companies that are most comfortable with, and those are necessarily the IT giants, he said.

HPE executives expressed confidence that they’re ready for the long haul, however, citing lessons of the COVID-19 pandemic. “We are emerging from an unprecedented crisis as a different company, one that is leaner, more agile and better-prepared,” said Chief Financial Officer Tarek Robbiati.

Image: World Economic Forum via Flickr CC

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