Antonio Neri: Why HPE Is Beating Cisco, Dell At Edge

HPE CEO Antonio Neri says rivals Cisco and Dell simply do not have the assets to go head-to-head with HPE at the intelligent edge.

HPE’s Big Intelligent Edge Bet is ‘Paying Off’ In Share Gains

Hewlett Packard Enterprise CEO Antonio Neri said the company’s big bet on edge-to-cloud platform as a service is “paying off” with 11 percent growth in the intelligent edge business in the most recent quarter and networking share gains expected in both wireless LAN and campus switching.

“This was the best performance of any networking vendor out there,” said Neri in an interview with CRN Tuesday after HPE posted better-than-expected results for its first fiscal quarter, ended Jan. 31. “I think it is because we have something very special. We have a cloud-native solution with a subscription model that allows you to get access to any kind of connectivity you need to deliver this edge-to-cloud vision. That momentum will continue throughout the year. And remember, 95 percent of that business goes through the channel partners.”

The “differentiated” HPE intelligent edge strategy resulted in triple-digit sales growth in SaaS revenue for HPE’s Aruba networking unit, contributing to $806 million in sales in the intelligent edge business compared with $720 million in the year-ago quarter.

Aruba has now delivered three consecutive quarters of growth and five quarters of margin expansion. The intelligent edge business reported an 18.9 percent operating profit margin compared with 12.1 percent in the year-ago quarter.

“We again expect to take market share in both campus switching and wireless LAN segments of the market,” said Neri. “We are seeing continued traction from our investment at the edge, including rich software capabilities like our Aruba Clearpass security, our cloud native Aruba Central and, most recently, Aruba Edge Services Platform.”

What drove the better-than-expected results during the quarter?

We had a very solid start to fiscal year 2021. It was a good quarter for us on a number of dimensions. Obviously it was marked by strong profitability and free cash flow.

We beat the EPS on the higher end of the guidance by eight pennies. That is higher than pre-pandemic levels which is pretty remarkable if you think about it.

Also we had record breaking free cash flow for this company. Since the inception of Hewlett Packard Enterprise in Q1 2016 we never had positive free cash flow in Q1.

We improved our free cash flow by $750 million which is a sign of our focus on the areas of growth and obviously the continued focus on making us leaner and meaner in everything we do to drive that profitability which ultimately shows up in free cash flow.

From a revenue perspective it was better than normal sequential seasonality and we had stellar performance like the intelligent edge. The intelligent edge was up 11 percent in constant currency and almost 12 percent in actual dollars. It was phenomenal.

This was the best performance of any networking vendor out there. I think it is because we have something very special. We have a cloud native solution with a subscription model that allow you to get access to any type of connectivity you need to deliver this edge to cloud vision. That momentum will continue throughout the year. And remember 95 percent of that business goes through the channel partners.

What was the performance of the channel during the quarter?

What I am really encouraged by is that both of us are growing together. I talk to partners – as you know - everyday. I was talking the other day to a large distributor who said – ‘Man- Antonio you guys are killing it! We see the momentum!’”

Just to give you a sense on the quarterly performance in the eyes of the channel, our revenue orders for the channel were up two percent quarter over quarter which is good. The number of active partners was up 62 percent year over year.

The transactional business was up nine percent year over year. Within that you had some very strong performance like storage which was up 15 percent quarter over quarter. Nimble was very, very strong. And obviously we continue to see the as a service adoption which is something we are very proud of.

The number of partners active now selling HPE GreenLake cloud services went up 62 percent year over year. That to me is a testament that shows what we are doing is resonating with our customers and our partners.

I am not surprised that our competitors are taking notice. I was just talking to an analyst just before this call. Obviously he talks to competitors. He said the competitors are scratching their heads. He told me they are asking how is HPE doing it? How are they making this as a service pivot?

This is what you want. You want competitors to chase you. That is because of our innovation. The way I think about innovation is you want your competitors to look at your tail-lights all the time.

Is the edge momentum increasing with more customers adopting intelligent edge and edge to cloud platform as a service?

We live in a much more distributed enterprise than ever before. So the fact that where we live and where we work is where most of the action is.

Remember in 2018, I said that the edge would be the next frontier, and that the enterprise of the future would be edge centric, cloud-enabled and data -riven. The pandemic has validated that vision. Obviously digital transformation starts by connecting people and things, connecting applications. Aruba enables that digital transformation in a mobile first, cloud first approach. I expect that to continue to be a major growth driver for our company.

Customers now need to accelerate their digital transformation. So the SaaS portion of Aruba which is all the software as a service through the Aruba edge services platform grew triple digits year over year. That will continue because obviously it is an easier way to get access to what you need versus investing capex dollars on a depreciation model that you have to wait three, four or five years out (to fully account for on the balance sheet).

Obviously people are more concerned about preserving capital and liquidity. So this new consumption model in everything for IT is obviously here to stay forever. It’s very exciting.

For customers making an edge to cloud platform as a service what is the biggest difference between HPE and Cisco?

Cisco does not have our assets. Let’s start right there. Obviously Cisco at the core is a networking company and a great one obviously that has pivoted to become more focused on software and security but does not have the footprint we have in compute, storage and services.

When you think about this edge to cloud architecture you need connectivity, compute, storage, software and a services set of capabilities and HPE Financial Services which is very, very important. So they don’t have everything that is needed in this new edge to cloud architecture.

What is the difference between HPE and Dell edge to cloud platform as a service?

Dell does not have an edge strategy. They have a bunch of servers they put at the edge but they don’t have connectivity, nor does Lenovo for that matter. I think that is why we are unique in that sense.

Obviously, as I have always said, we have been very, very consistent in our strategy with the partners. We don’t swing back and forth, direct or indirect, channel or no channel. That to me is our crown jewel. Consistency matters.

There has been a lot of fallout from the SolarWinds breach- what does it mean with regard to HPE’s hybrid cloud approach to the business?

First of all we were not impacted by SolarWinds ourselves which is a positive thing.

Why these attacks are happening is because bad actors are trying to get access to your data and data is your intellectual property.

What customers are really looking for are the benefits of the cloud native world which obviously is a combination of what I call the agility and simplicity of the cloud native world with the flexibility and control of the hybrid business model. That is where GreenLake allows customers to deploy that operating model in that environment.

At the core it is really about protecting that data through compliance and security, but also to extract data insights where it matters the most. Speed is essential these days. So you get multiple benefits (with GreenLake). You have flexibility and agility, while controlling costs. You drive compliance and security. And also you get that speed factor because moving data around is risky. The moment you start moving data around it is very risky and it is incredibly costly.

Remember what we have said – ‘Once you check all your data into the public cloud it is like checking into the Hotel California. You check in and you never check out. It is too expensive to take it back.’

The fact is when you move data that exposes you versus (the HPE GreenLake model) where we bring the cloud experience to where the data is. You secure it. You make it complaint. We bring the same technology benefits (as public cloud) by analyzing that data at the speed the business needs. That is the benefit of our HPE GreenLake cloud services model. This is where we saw 70 new logos, momentum in ARR (Annualized Revenue Run Rate), a massive pipeline. I love the fact that our competitors are scratching their heads asking how HPE is doing it!