Antonio Neri: Partners Are Making ‘More Money’ With HPE Portfolio Even In ‘Uneven’ Macroeconomic Environment

“We executed with unbelievable discipline this quarter in a market that is obviously slower than we have seen before,” Neri said in an interview with CRN. “That resulted in what I call strong profitability. We significantly expanded profitability and delivered a record level of free cash flow. What that means for partners is they are making more money. That is the bottom line.”

Hewlett Packard Enterprise (HPE) delivered a robust 34 percent year-over-year increase in gross margin in its third fiscal quarter, driving higher profits for its partners even in the midst of an “uneven” macroeconomic environment roiled by trade tensions, said CEO Antonio Neri.

“We executed with unbelievable discipline this quarter in a market that is obviously slower than we have seen before,” Neri said Tuesday in an interview with CRN after San Jose, Calif.-based HPE posted better-than-expected earnings for its third fiscal quarter, ended July 31. “That resulted in what I call strong profitability. We significantly expanded profitability and delivered a record level of free cash flow. What that means for partners is they are making more money. That is the bottom line.”

[Related: HPE Steps Up GreenLake Sales Blitz, Pledges Everything-As-A-Service By 2022]

The lesson from the 340 basis points year-over-year increase in gross margin is that partners who follow HPE’s lead into higher margin areas like the HPE’s GreenLake pay-per-use channel model are going to be flat-out more profitable and more successful, said Neri.

Neri’s rallying cry to partners: “Follow our lead and you will make more money in the areas ultimately customers are shifting to. One of the areas customers are shifting to is as a service. We continue to see high double-digit or triple-digit [growth] in some cases depending on the tier of the channel partner on the adoption of GreenLake.”

Neri has commited to transforming the entire HPE portfolio to an an Everything-as-a-Service model by 2022.

Overall, HPE said GreenLake sales grew at 10 percent year over year. Excluding one large deal from the year-ago quarter, GreenLake sales were up 42 percent in the quarter.

“HPE GreenLake is now one of our fastest-growing businesses,” said Neri during the conference call with Wall Street analysts.”This quarter we continued to see very strong customer momentum …Customers are choosing HPE GreenLake for choice, flexibility and speed to market.”

Among the HPE GreenLake wins in the third fiscal quarter was an HPE GreenLake SAP HANA deal with multinational advertising and public relations company Publicis Groupe, said Neri. Key to that win was the speed, scalability and budget predictability that comes with HPE GreenLake, he said.

“Publicis evaluated public cloud alternatives, but determined that an on-premises model with a pay-per-use managed solution built on HPE’s recognized industry leadership was the right option for them,” said Neri.

HPE also won a significant GreenLake pay-per-use deal that included HPE 3Par with engine manufacturer Rolls Royce Power Systems, providing unmatched high speed and low latency, said Neri.

Paul Cohen, vice president of sales for New York-based PKA Technologies Inc., one of HPE’s top Platinum enterprise partners, said HPE’s investment in innovation with GreenLake, its Silicon Root of Trust firmware security for its wide array of servers, and its InfoSight artificial intelligence-based predictive analytics platform is paying off for customers and partners.

“Our sales pipeline is stronger than it has ever been in the midmarket and the enterprise,” Cohen said. “It’s up more than 50 percent from a year ago.”

GreenLake is proving popular with both sales reps and customers, he said. “It provides a long-term monthly revenue stream that is ultimately more profitable for our sales reps, and customers are excited about the ability to do billbacks to business units using the GreenLake consumption model. Our Q4 GreenLake pipeline is very mature. We see GreenLake gaining momentum.”

HPE has provided a Quick Quote tool that is making it dramatically easier to provide customers with GreenLake price quotes, said Cohen.

What’s more, PKA is seeing strong field support from HPE Pointnext to help close deals, said Cohen. He credited HPE North America Sales Chief Dan Belanger and North America Channel Chief Terry Richardson for driving tight alignment with HPE’s field sales and marketing teams for channel partners. “Field engagement is really strong,” he said. “HPE really understands the competitive environment and is making it easier for us to compete.”

Neri, for his part, said he remains “very confident” in HPE’s high margin strategy and the ability to drive “profitable” growth along with its partners with the HPE Everything as a Service strategy. In fact, he said, that services strategy positions HPE to deliver long term recurring revenue growth and profits with partners.

“Partners see the advantage and the momentum [with HPE GreenLake] and they want to be part of it,” said Neri. “The more partners get on board, the more money they are going to make.”

HPE posted better-than-expected non-GAAP earnings of 45 cents per share for its third fiscal quarter ended July 31. That non-GAAP performance was up seven percent compared to the year ago quarter and well above the 40 cents per share expected by Wall Street analysts. HPE’s non-GAAP operating profit margin of 9.9 percent was up 80 basis points year over year.

As a result of the strong earnings performance, HPE raised its full-year non-GAAP earnings-per-share outlook to $1.72 to $1.76 for fiscal year 2019, ending Oct. 31. That marks the seventh consecutive quarter that HPE has raised its full-year non-GAAP earnings-per-share expectations.

HPE generated free cash flow of $648 million in the quarter. For the year so far, HPE has delivered $860 million in in free cash flow, up $790 million from the comparable period last year.

HPE shares were up 47 cents per share, or four percent, in after hours trading to $13.40.

HPE reported sales in the quarter of $7.21 billion – just shy of the Wall Street analyst consensus estimate of $7.29 billion and off seven percent from $7.8 billion in the year ago quarter. Adjusting for HPE’s exit two years ago from the tier one hyperscale server market, sales for the quarter were down just three percent.

Neri said “on-going trade tensions” are “impacting market stability and customer confidence.” That is resulting in “elongated sales cycles particularly in larger deals,” he said.

That said, customers continue to “affirm” their need to accelerate their digital transformation to “improve business outcomes and customer and employee experiences while reducing costs,” said Neri.