HPE Server Revenues Slip in 2Q17

Thursday Jun 1st 2017 by Sean Michael Kerner
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Though total server revenue was down, HPE sees strong growth in HPC and converged systems.

Hewlett Packard Enterprise (HPE) reported its second quarter fiscal 2017 earnings on May 31, showing some weakness in server revenues, which were attributed to a single Tier 1 operator customer.

For the quarter, HPE reported net revenue of $7.4 billion, which is a 13 percent year-over-year decline.

Among the areas that declined during the quarter was HPE's server business, which declined by 14 percent. During HPE's financial analyst call, CFO Tim Stonesifer reported that server revenue declined due to tier 1 hpeweakness as HPE deemphasizes the category to focus on more profitable areas.

During the question and answer period, CEO Meg Whitman added further color on the 2Q17 server revenue decline. Whitman noted that the tier 1 service provider server segment is one that HPE entered into approximately two years ago and HPE is heavily dependent on one customer. Whitman said that HPE expects that server purchases from the one tier 1 customer will continue to decline over the next several quarters.

While the tier 1 server revenue is pulling HPE's overall server revenues down, there are areas of growth. In particular, HPE reported that its High-Performance Compute (HPC) segment grew by 40 percent, with SGI servers growing over 20 percent. HPE acquired SGI in August 2016 for $275 million.

"We are seeing strong demand from companies like global chemical company BASF, which recently selected HPE to build one of the world's largest supercomputers based on HPE's Apollo Systems," Whitman said.

Additionally Whitman noted that HPE announced an extended partnership with Nvidia to create purpose-built technology solutions for artificial intelligence and deep learning. She added that HPE continues to be the leading SAP HANA infrastructure and services provider with two times the market share of its next closest rival.

HPE's Edgeline converged systems are also an area of growth. Edgeline provides compute, storage and analytics at the edge of networks and helps to enable Internet of Things (IoT) deployments.

"Given its small form factor and low energy consumption, Edgeline has been in high demand for the distributed applications that will drive industrial IoT," Whitman said. "Edgeline saw significant growth in Q2 and we are seeing a number of promising proof-of-concept programs with major institutions across retail, manufacturing, transportation and smart cities in particular."

Acquisitions

During the earnings call, Whitman was asked about potential future acquisitions. She noted that through the HPE Pathfinder program, which invests in companies and fosters technology partnerships, HPE is already adding capabilities.

"I'm looking for companies that further our strategy powering hybrid IT, powering the intelligent edge and the services that we can weave into our solution," Whitman said. "So, for example, Docker, Mesosphere, Chef are all woven now into HPE OneView, that makes HPE OneView much more valuable to our customers."

"We're used to selling only what we own, but actually this Pathfinder program has been a great success," Whitman said. " I think it's a differentiator for Hewlett Packard Enterprise because in some ways what we do is we curate Silicon Valley for our enterprise customers."

Sean Michael Kerner is a senior editor at ServerWatch and InternetNews.com. Follow him on Twitter @TechJournalist.

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