CRN Exclusive: HPE CEO Meg Whitman On Why Memory Shortages Will Continue, Dell EMC's 'Copy Cat' Channel Program And Future Acquisitions

Whitman On The Record

Hewlett Packard Enterprise CEO Meg Whitman spoke with CRN about the future impact of the industry wide memory shortage which has resulted in a whopping 50 percent increase in the cost of memory, the new unified Dell EMC channel program, acquisition strategy and her personal pledge to partners.

Whitman's comments came after the company posted a 10 percent drop in sales to $11.4 billion for its first fiscal quarter ended Jan. 31 compared with $12.72 billion in the year ago period. The Wall Street consensus was sales of $12.07 billion, according to analysts polled by Thomson Reuters.

HPE's mainstay Enterprise Group sales were down 12 percent in the quarter to $6.32 billion compared with $7.18 billion in the year ago period. Server sales in the quarter were down 12, while storage sales were down 13 percent.

HPE reported non GAAP diluted net earnings per share in the quarter of 45 cents per share, up one cent from the Wall Street consensus of 44 cents per share, according to Thomson Reuters.

HPE said it was hit hard in the quarter by higher memory prices, foreign currency impact, sales execution in Enterprise Group and lower than expected demand from a tier one cloud service provider.

How do you see memory price increases and the memory shortage impacting channel partners?

There is definitely a memory shortage as channel partners will tell you. It became particularly acute in January (when HPE saw a 50 percent increase in memory prices). It has continued. We think it is going to continue because there was a pretty big shift in manufacturing capacity from servers and storage over to smartphones and PCs.

PCs got a fair amount more memory here. The PC category had a pretty good quarter. Here is what I would say to channel partners is: get your orders in early. If you need this stuff on April 1 get the orders in right now. The more lead time we have the better off we are in terms of reallocating to those partners. This is one giant shift (from manufacturing capacity to smartphones and PCs to servers and storage).

What kind of role will the HPE partner business managers (PBMs) play in helping partners through this crises?

Partners need to make sure they ask their PBMs what products they should be selling that they can demand shift to. I will make sure that our PBMs know that because there are certain kinds of memory that is more available than others. So we ought to be demand shifting to products that we have. I will check with (HPE Channel Chief) Denzil Samuels on whether we are giving that guidance.

Talk about the HPE supply chain and what you are doing to make sure that you are getting more than your fair share of that memory?

We definitely grabbed more than our fair share in the fourth quarter because we forward bought. We didn't know the price was going to spike, but we knew there was going to be a shortage so we forward bought through the end of Q4 and Q1. So that was very helpful.

Does size and scale equate to better supply when you have this kind of shortage?

What I found when we had giant HP ($110 million company) with PCs, printers, servers, storage and networking that actually being the biggest was not necessarily the best. You are better off being able to be quite nimble, buying on the spot market, being able to buy in different countries. But when needed we buy often with HP Inc. I don't think we have lost supply chain leverage there. But I will tell you nimbleness matters. We used to say that we are so big we will get the biggest share. Actually that wasn't the case. We feel pretty good that we are going to get at least our fair share and perhaps more.

What are the execution issues in the enterprise group and what you are doing to correct it?

One of the things that we have got to do is to get the go forward HPE fit for purpose. (HPE) ES (Enterprise Services) transitions out on March 31 which is by the way 110,000 people- a huge chunk of our company moves. So we have got to have the go forward ($28 billion HPE) Remain Co. be lean, mean, effectively operated, taking out costs so that we can remain price competitive with even the most aggressive Chinese providers. All of that was underway (in the quarter).

We loved (former HPE Channel Chief) Kerry Bailey (who recently left the top worldwide indirect sales job to pursue other opportunities). But Kerry was really a cloud seller. Kerry on his own accord went off to do something else. We hired Denzil Samuels who is very well known in the industry. He was most recently at GE Digital. I think he is going to make us even better in the channel. He has got (HPE Vice President and General Manager North American Channels) Scott Dunsire in the US who has been a longtime friend of the channel and is very well regarded.

It is always good to get a fresh set of eyes, to get someone from outside the company every once in a while who can come in and say: 'Hey why are we doing things this way?'

What kind of interaction will you have with the channel going forward?

I am redoubling my efforts on the channel. I was recently with ($14 billion solution provider behemoth) CDW and called our top 10 distys and channel partners. I am going to be spending a lot more time with the channel because I want to make sure they are embracing not only the core ISS (industry standard servers) and 3Par, but Synergy which is a big opportunity for the channel. With Synergy, partners can go refresh HPE's existing installed base of blade (servers). The next place you go is after (Cisco) UCS. And then the third place you go is you use it as a hunting license because it is a brand new, no one else has it product category. It is a fantastic hunting license. Anyone will take a meeting to understand Synergy.

Why are you are getting more personally involved in the channel sales trenches?

I just need to be more frequently in front of the channel partners. Listen I do a ton of channel roundtables. I just need to keep doing them. I need to keep talking about the Arista opportunity, the Synergy opportunity and the SimpliVity opportunity.

How big of an opportunity is the Simplivity for the channel?

SimpliVity is a big, big opportunity for the channel. That is a $2.5 billion market growing at 25 percent compound annual growth rate.

How does SimpliVity stack up against Cisco, Dell EMC and Nutanix?

SimpliVity combines the excellent UI (user interface) that we have in the HC380 with a fantastic enterprise grade data fabric. I would say the technology on SimpliVity is best in class. The UI – the front end was a little kludgy. Now we are going to graft our UI onto the SimpliVity data fabric in an (HPE) DL380- the most widely sold and installed server in the world. I think this is going to be best in class.

We'll be effectively the number two or number three hyper-converged player now. Our objective is to be a firm number two and I'd like to take on Nutanix.

How big is the HPE-Arista sales opportunity?

Arista has no channel presence. We are their vehicle into the channel. It is not just the big financial services institutions that buy Arista. Think about the local regional banks like Umpqua Bank, Albany Bank, Alpine Bank that are doing difficult things and they want a software defined data center networking product.

Arista has taken 13 points of share off of Cisco in the last two years. No one has taken 13 points of share off of Cisco in the data center in the last three decades. This is a fantastic product focused on the software defined networking market trend. I just need to get out and explain that to the channel partners and make sure they are embracing it and we are doing everything we can to help them.

What kind of impact has your presence in the channel has on partners?

If a channel partner or a disty is having a challenge with us then I get the right people on the case. I am going to be spending more time on that. I have been doing separation (of HPE's Enterprise Services business and Software business), M & A, running around. I am back to my first love: the channel.

What do you think of the Dell EMC unified channel program launch?

My analysis of the situation is they sort of followed us. The channel partner program they instituted we already had.

We actually are working hard to make sure that we continue to hold our best partners close and if we need to make some adjustments in the near term we will do that.

We are all over it, but I think this was a copycat maneuver.

What is the strategy going forward with the spin-off of HPE Enterprise Services and HPE Software?

We spent the last three years skinnying down to a very focused business with a very focused strategy. We make hybrid IT simple. We power the intelligent edge and we have the services to make it happen. Now what people are seeing is HPE is putting its capital to work against that strategy. So now we are getting bigger in a very focused way. So whether it is SimpliVity, Aruba, Cloud Cruiser, Niara. People can see the implementation of the strategy.

What is the acquisition strategy going forward?

It's a good time to be buying things. We got SGI at a very good price. That is a big opportunity for the channel. This high performance compute market in SLED (State, local and Education market) and FED (Federal market). With big data and analytics this is a $12 billion market growing six to eight percent and we are the clear leader. HPE High Performance Compute plus SGI and the last guy standing is Cray and Cray is like a little island out there. Cray is pretty nervous because of the R and D that needs to go into this high performance compute.

What is the market looking like for acquisitions in terms of valuations?

There are a lot of independent companies that are feeling kind of alone as the market shifts. We have got a lot of things coming our way and we'll continue to do smart, returns based M & A when we can.