HPE CEO Whitman: Look For Channel Improvements Aimed At Shoring Up Industry Standard Server Sales

Hewlett Packard Enterprise (HPE) CEO Meg Whitman told Wall Street analysts on Tuesday that the server powerhouse is poised to make channel changes aimed at shoring up its declining industry standard server (ISS) sales.

"We need to shore up core ISS rack with improvements in the channel, improvements in [channel price] quote-to-cash and more focus on the distributors and VARs for the volume related ISS rack business," said Whitman.

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Whitman's comments came after HPE reported server revenue in the fourth fiscal quarter ended Oct. 31 was down 7 percent to $3.52 billion, compared with $3.77 billion in sales in the year-ago period.

The ISS rack system business is all "volume based" channel business where HPE's ability to move quicker with partners to beat competitors is critical, said Whitman."There is weakness in ISS racks; we are not executing as well as we could and we aim to fix that," she said.

Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, a top HPE partner, No. 167 on the 2016 CRN Solution Provider 500, praised Whitman for speaking out on the ISS issues impacting partners. "I give Meg credit for speaking out on how the ISS supply chain is broken," he said. "The question is: can it be fixed?"

Venero said HPE has "definite challenges" around ISS channel delivery and engagement that must be addressed. "From a competitive standpoint, there is an engagement issue, not at the channel rep level, but at the HPE end user account rep level," he said.

The issues are directly impacting Future Tech HPE server sales, said Venero, with his HPE server business flat in the last three quarters, while his Dell business is growing at a double-digit clip. "Dell has a much more robust engagement at the field level with respect to aligning its sales force and partner teams with Future Tech," he said.

Venero said he expects that HPE could have an even harder time going up against the combined Dell EMC as that company brings together the two product lines under a unified channel program. "That is going to enhance the offering Dell has for its partner and customer communities," he said.

Whitman, for her part, said she likes HPE's win rate against Dell EMC. "We like our strategy of getting smaller and more focused, while they are still integrating a very large acquisition," she said.

Whitman anticipates that HPE's server business will grow at 1-2 percent next year with a focus on faster growth including high performance compute and hyper-converged systems.

Even as HPE is making moves to turn the ISS tide, Whitman said the company is aggressively investing in higher growth enterprise offerings which are growing including the hot selling HC380 hyper-converged offering, Synergy composable infrastructure, SGI high performance compute systems, 3Par all-flash, and the Aruba wireless networking products.

HPE is also poised to benefit from tighter partnerships in 2017 with global system integration "alliance partners." These partners include Accenture and PwC, along with India-based outsourcing giants who no longer view HPE as a competitor now that it is in the process of the spin-in merger of its $20 billion HP Enterprise Services business with systems integrator CSC. "It's been fascinating to me how much more traction I think we are going to get with those alliance partners," she said.

HPE is also doubling down on its go-to-market strategy on tier two and tier three enterprise accounts "that offer better growth at a higher margin," said Whitman.

Whitman also pointed to improved sales numbers in the Technology Services business, which was up two percent in the most recent quarter when adjusted for currency. "Even a slight return to growth in TS actually helps mitigate margin pressure in ISS rack," she said.

HPE also remains firmly focused on reducing sales expenses for the company in the wake of the HPE Enterprise Services spin- in merger with CSC, and the $8.8 billion spin-in merger of HPE software assets with Micro Focus.

Those spin-in mergers, which remake HPE into a $28 billion hybrid infrastructure super power, are going to enable the remaining company to be faster-moving and more laser focused on the software-defined infrastructure market, said Whitman.

"In the volume business we can react very quickly from a pricing perspective, from a VAR perspective, probably much more quickly than we could have before," she said.

HPE's overall sales for the fourth fiscal quarter ended Oct. 31 were down 7 percent to $12.47 billion, compared with $13.44 billion in the year-ago quarter. The Wall Street consensus for the quarter was $12.8 billion.

HPE reported net earnings in the fourth quarter of $302 million, compared with $1.38 billion in the year-ago quarter. Non-GAAP diluted net earnings of 61 cents per share, which include one-time charges, were just above the Wall Street consensus of 60 cents per share.

HPE shares were down $0.21 to $22.54 in after-hours trading on Tuesday.

Among the company's major wins in the fourth quarter, said Whitman, was a blockbuster hybrid IT deal with a global healthcare company that replaced a 19 year relationship with EMC. "We will provide services and technology to deliver simplicity, operating efficiencies, and automation as the company modernizes and realigns their core storage and compute platforms," she said of the deal.

Also in the quarter, Whitman said, HPE's Aruba unit won a WiFi "preferred provider" pacty for all of Nordstrom's stores, distribution centers and corporate sites and a wireless network rollout deal at Penske Truck leasing.

HPE's Technology Services business, meanwhile, scored a five year flexible capacity infrastructure service with a large European auto manufacturer and a five year data center pact with a large global bank based in Europe.

At the HPE Discover show in London next week, which is expected to attract 10,000 customers and partners, there will be product announcements that center on "hybrid IT" and the "intelligent edge," said Whitman.

Once the spin in mergers are completed, HPE will have a a total addressable market of $250 billion growing at 2-3 percent per year, said Whitman.

Over the last year, she said, HPE has delivered the "financial performance we promised, fulfilled our commitment to groundbreaking innovation and began to transform the company in ways we believe will deliver an exciting future for customers, partners, employees and investors. I am excited about the path we see ahead and very much look forward to the journey."