HPE CEO Antonio Neri On The ‘Uncertainty’ Created By China Tariffs

Hewlett Packard Enterprise CEO Antonio Neri says the China trade tariffs are creating ‘uncertainty,’ which left unresolved will have a long term impact on the economy.

GreenLake’s ‘Largest Quarter’ Ever

Hewlett Packard Enterprise CEO Antonio Neri told CRN that partners are embracing the GreenLake pay per use model helping to drive the “largest quarter ever” for the on-premise consumption platform for HPE’s second fiscal quarter ended April 30.

“We have talked about the need to drive to a consumption business strategy and the partners are getting on board,” said Neri in an interview with CRN after HPE reported GreenLake sales growth of 39 percent for the quarter. “They all realize that for them to be relevant in front of customers in a hybrid cloud environment, they need to provide a consumption driven offering. For us, it is important that we continue to drive that momentum.”

The book to bill ratio for HPE’s Pointnext services business – a leading indicator of HPE GreenLake future sales growth – accelerated both year over year and from the preceding quarter, said Neri.

The GreenLake sales growth was one of the highlights for the quarter in which HPE reported non GAAP diluted net earnings per share of 42 cents per share, six cents higher than the Wall Street consensus, on sales of $7.2 billion, down from the Wall Street consensus of $7.4 billion.

Neri said the channel delivered the “best” performance of any route to market in the quarter. Among the strong areas of growth for HPE were: composable cloud which was up 78 percent; hyperconverged which was up 25 percent; and storage which was up five percent.

Those high growth areas, however, were offset, Neri said, by unexpected market dynamics and execution issues in the Intelligent Edge business which reported sales of $666 million, down six percent from the $706 million in the year ago quarter.

How did the channel perform in the quarter?

The channel was the best-performing route to market when I compare all the ways we go to market – direct and indirect. The channel motion was the best performing and we saw some awesome growth in some aspects of the portfolio for some geographies. For that I am very grateful to our partners.

We continued to see growth in key strategic areas. Put aside HPC (high performance compute), which the channel doesn’t really participate in, we saw growth in composable cloud with Synergy, hyperconverged and obviously the services piece with GreenLake.

GreenLake had the largest quarter ever with 39 percent growth. We have talked about the need to drive to a consumption business strategy and the partners are getting on board. They all realize that for them to be relevant in front of customers in a hybrid cloud environment, they need to provide a consumption driven offering. For us it is important that we continue to drive that momentum.

What kind of impact will the planned $1.3 billion Cray acquisition have on partners?

The Cray acquisition is very exciting because we see the ever-growing amounts of data continuing. We call these data intensive workloads. Think about workloads like big data analytics, AI (artificial intelligence), machine learning, simulation and modeling. These require very different characteristics in terms of performance, scale and costs. While the first instantiation of the Cray acquisition is clearly oriented around high performance supercomputing, the reality is that the foundational technologies will be able to scale down market into the enterprise space.

Our intent is to obviously leverage those foundational technologies into the rest of our infrastructure which ultimately our channel partners will benefit from.

My message to the channel partners is: we will continue to drive the innovation to make you relevant in front of our customers to deliver the business outcomes they need. Obvioulsy we will make this consumption enabled. That is why the combination of HPC (High Performance Compute) as a service through GreenLake could be an opportunity for our channel partners- not by selling the actual infrastructure, but by selling the services that require high performance computing. Partners can leverage HPE GreenLake targeting customers that need an HPC solution. They can sell GreenLake and monetize that through our portfolio without being an expert on HPC.

What type of growth in the margins are partners seeing from the high value infrastructure offerings?

We have been very clear that we are taking deliberate action to continue to shift our portfolio to higher value products and services. As we do that our gross margin rates continue to expand. Together we are driving that shift. That is why we saw 200 basis points improvement in our gross margin rates. Our operating margins were up 70 basis points. The reason is because we continue to take that growth in margins to make investments to drive the next generation of innovation that will continue to put us in the forefront of the market.

As partners continue to shift the portfolio with us they will see benefits in compensation. Our compensation for our Partner Ready program clearly benefits those who are shifting to (the value) portfolio. Those who are doing it are winning with us.

What do partners need to do to better align on the market opportunity with HPE Aruba?

One of the takeaways for me is as the market dynamic shifts and the demand shifts we need to be a little bit faster in realigning our sales coverage model. That also involves our channel partners. We saw a market demand shift from the beginning of the quarter to the end of the quarter, and we need to be faster in reallocating those resources, whether it is from the top end of the pyramid in the large enterprise to the transactional side in SMB. We have got to be more agile.

The opportunity at the edge continues to be one of the most exciting opportunities as we shift the portfolio to WiFi 6 and IoT (internet of things) ready access points with the need for more security. We have the portfolio to capture that demand. The partners need to jump with even higher enthusiasm and investment in that segment of the market. If we get aligned there we have a big opportunity as we exit 2019 into 2020.

What impact are the China trade tariffs and the macroeconomic environment having on HPE?

When you have a situation like this with global trade and tariffs it creates uncertainty and uncertainty is not good. As I said before, customers continue to assess what are the contingency plans for themselves if this thing doesn’t get resolved. Obviously if that happens long term it will have an impact on the economy.

For us- like anybody else in the industry- we are adapting to the changes here. But as I said before the latest round of tariffs that went from 10 to 25 percent has a very negligible impact because the number of components (impacted) are limited and we have mitigation strategies including pricing. That is why we were very confident to increase our EPS outlook despite the tariffs. That is what we put on the table.

Obviously over time we are going to continue to assess our supply chain because fundamentally there will be some long term reallocation of assets in that global supply chain. But right now, financially the latest tariff (increase) has no impact on what we are doing.

What can partners do to deal with some of the longer sales cycles that are showing up as a result of macroeconomic environment?

If you stay focused on the customer good things will happen. I think staying even closer now is more important. Customers want to work with trusted partners and someone who has a long term view of the future with innovation.

It is important (for partners) to not miss a beat. The (sales) pipeline is there. Let’s go after the (sales) pipeline and close that pipeline as quickly as we can.