Antonio Neri On Why He Is ‘Proud’ Of HPE’s Financial Performance In Light of Dell, Nutanix Quarterly Results

“I am proud to say that Hewlett Packard Enterprise in the grand scheme of things has done very, very well,” said Neri. “The results of Dell and Nutanix yesterday bring even further context on our performance.”

Hewlett Packard Enterprise CEO Antonio Neri Friday told partners that the most recent quarterly results show that HPE’s focus on “attractive” high-margin, high-growth segments is paying off particularly in light of the results from Dell Technologies and Nutanix.

“I am proud to say that Hewlett Packard Enterprise in the grand scheme of things has done very, very well,” said Neri in a call with HPE’s top Platinum and Gold partners on Friday. “The results of Dell and Nutanix yesterday bring even further context on our performance.”

Neri’s comments came with Dell Technologies shares closed down 10 percent or $6.86 on Friday to $59.55 after the company reported a nine percent drop in its server and networking business in part due to the China tariffs. Dell Technologies shares were down an additional five percent in mid-day trading Monday to $56.48.

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Nutanix’s shares, meanwhile, dropped 14 percent or $4.60 Friday to close at $28.07 after the company reported a one percent decline in sales to $287.6 million, down from the $289.4 million in the year ago quarter, and down from its prior guidance of $290 million. Nutanix shares were down nearly four percent in mid-day trading Monday to $27.03.

HPE’s shares were down four percent on Friday or 50 cents to $13.72. HPE shares were down slightly in mid-day trading Monday to $13.68.

Dell and Nutanix declined to comment.

Although the global economy and geo-political situation are a factor, Neri said HPE’s results are showing a pronounced shift to high margin growth segments of the market. That shift includes a 25 percent increase in high performance compute sales; a 78 percent increase in Synergy composable cloud sales; a 25 percent increase in SimpliVity hyper-converged sales; and a five percent increase in storage sales.

“When you look at our financial performance and the pivot it is working,” said Neri. “We can do better, but obviously we need to understand what is going on in the market.”

HPE’s GreenLake pay-per-use model, which provides a public cloud consumption experience on-premise, meanwhile, had its largest quarter ever with a robust 39 percent sales growth. “We have been on a journey for the last six quarters to transform our portfolio and pivot to areas we believe are relevant to our customers and ultimately are relevant for our partners to continue to accelerate profitable growth,” Neri said.

HPE profits, in fact, are on the rise. In the most recent quarter, HPE reported a 31 percent increase in non GAAP diluted net earnings per share of 42 cents per share, six cents higher than the Wall Street consensus. What’s more, HPE raised its fiscal 2019 earnings outlook to $1.62 to $1.72, up from a range of $1.56 to $1.66 per share .

“From a profitability perspective it is just amazing what we have done here,” said Neri. “That is because we are pivoting the portfolio on the mix side and continuing to be more efficient in everything we do. We improved earnings per share by 31 percent. There is a lot of work to do, but we are on a journey, and when I reflect on that journey we are doing the right things in the context of where the market is going.”

Excluding hyperscale server sales to tier one service providers -- a business HPE began exiting 18 months ago -- HPE’s net sales when adjusted for currency were up one percent in its second fiscal quarter, ended April 30, said Neri. Overall HPE’s second fiscal quarter sales were down two percent when adjusted for currency and four percent on a constant currency basis to $7.2 billion.

In contrast, Dell’s infrastructure solutions group -- which includes storage, servers and hyper-converged infrastructure -- reported a five percent drop in sales to $8.2 billion for the quarter ended May 3. After many quarters of strong storage sales growth, Dell storage sales, meanwhile, were down one percent to $4 billion.

Nutanix, meanwhile, reported a one percent drop in sales for the quarter ended April 30 to $299.41 million compared with $287.62 million.

Even NetApp – which reported quarterly sales on May 22- reported a four percent drop in sales for the most recent quarter to $1.59 billion compared to $1.64 billion in the year ago quarter.

Neri credited HPE and its partners for shifting to the high-margin, high-growth markets. “Because both of us have been focused on that for several quarters, it is paying off,” he said.

HPE’s $1.1 billion proposed acquisition of supercomputing pioneer Cray – which is expected to close in HPE’s first fiscal quarter fiscal 2020 – will further boost that high-margin, high-value profile, said Neri.

In fact, he said the blockbuster deal positions HPE as the “undisputed” leader in a high-performance compute segment that is growing at nine percent over the next three years from $28 billion to $35 billion.

During the quarter, HPE’s sales through partners grew three percent compared to one percent for HPE’s direct sales route to market. “Our channel business is growing faster,” Neri said. “That is a reflection that we continue to do more business with you, through you, than our own direct coverage. That is a reflection of our strategy.”

Neri stressed that HPE has been and will continue to be a “partner-led” company. “We are partner-led and will continue to be partner-led in the future,” he said.

HPE Worldwide Channel Chief Paul Hunter, who hosted the call with Neri, said on the call that partners are at the vanguard of the pay-per-use transformation, with GreenLake channel sales accounting for more business in the recent quarter than in all of 2018.

Over 120 GreenLake channel deals have closed and more than 500 partners have a GreenLake sales pipeline, said Hunter.

“There is terrific velocity in the partner-led GreenLake business,” said Hunter. “I am really confident that we will over-deliver against our second-half aspirations and budget.”

If HPE delivers on its ambitious GreenLake sales forecast, more than 50 percent of sales growth will come from partners by the end of the current fiscal year, up from less than three percent of the business originated by partners some 18 months ago. “We have been in the market a long time, and we know how to sell this,” Hunter said. “We know how to enable the partners.”

GreenLake was not the only area where the channel delivered strong sales growth. In the Nimble all flash storage market, HPE partners delivered 20 percent sales growth. In the composable cloud Synergy business, partners delivered more than 80 percent.

In the hyper-converged market, partners delivered 40 percent sales growth. “That has been put into to context by the Nutanix performance,” Hunter said. “We are taking share in the hyper-converged market space.”

Paul Cohen, vice president of sales for New York-based PKA Technologies Inc., one of HPE's top Platinum partners, told CRN his sales team has won big deals recently against both Dell and Nutanix. “PKA’s high-level consulting combined with HPE’s innovative SimpliVity hyper-converged product is a winning combination,” he said. “When you combine SimpliVity with (HPE) Plexxi (composable network fabric) it’s a very attractive solution. HPE is providing us with great support and air-cover in the field.”

Overall, PKA’s HPE sales in the quarter were up more than 20 percent, said Cohen.

Neri’s focus on higher value segments of the market and differentiated innovation is paying off for partners, said Cohen. “We’re focusing on solving customer problems by either lowering expenses or increasing customer revenues, and we’re bringing HPE innovation to the table to get it done,” he said. “HPE’s value products are solving customer problems.”

Among the biggest points of innovation resonating with customers, Cohen said, are HPE’s InfoSight artificial intelligence predictive analytics platform and HPE’s Gen10 Servers with root trust security.

Raymond Tuchman, CEO of Experis Technology Group, one of HPE's top Platinum partners, told CRN he expects his HPE high-value segment business, including SimpliVity, 3Par and Nimble, to be up about 15 percent this year.

“We’re bringing value to our clients with HPE software-defined and intelligent storage offerings,” said Tuchman. “That is helping our clients grow their business, which means I’ll grow my business.”

SimpliVity’s instant recovery and backup capabilities are striking a chord with customers, said Tuchman. “It’s the No. 1 reason customers buy SimpliVity,” he said. “You can restore a VM in a second, restore a backup in less than a minute, and even get out of a ransomware breach in 10 minutes. Every customer that we have sold SimpliVty to loves it. It’s been a big hit for us.”’

Neri said he is looking forward to seeing partners at HPE’s Global Partner Summit and HPE Discover, which run from June 17 – 20. “You will be amazed at the innovation we are going to bring to Discover,” he said.

Neri said the biggest innovation will be to a pivot to the as-a-service model with HPE GreenLake. “GreenLake is an unbelievable innovation that we must capitalize on,” he told partners. “My goal over the next three years is to turn everything we do in this company and deliver it as a service. That is a massive opportunity. We believe that business for Hewlett Packard Enterprise can represent 20 percent of the entire company.”

That “massive pivot” to the pay per use model with a focus on making it “simple to sell and manage” represents a unique opportunity for HPE and its partners, said Neri. “With our workload optimized solutions, cloud-enabled and consumption driven we have a unique opportunity to really provide a true end to end experience for our customers,” he said.

Additional reporting from CRN's Mark Haranas.