CEO Antonio Neri: Why HPE GreenLake Is ‘Years Ahead’ Of Dell Apex
Hewlett Packard Enterprise CEO Antonio Neri tells CRN that HPE GreenLake is ‘years ahead’ of Dell Apex. ‘The difference between what they are doing and what we are doing is that we have years of expertise and momentum,’ he says.
HPE Partner-Led GreenLake Deals Up 53 Percent In Second Quarter
The number of partner-led HPE GreenLake deals was up 53 percent in the most recent quarter with the annualized revenue run rate (ARR) for the edge-to-cloud service hitting $1.1 billion for the second fiscal quarter ended April 30, said HPE President and CEO Antonio Neri.
In addition, HPE GreenLake ARR for the quarter was up 38 percent as HPE continued its pivot to drive higher-margin software and services with HPE GreenLake.
“We already have 66 percent of the contribution in ARR coming from software and services, which obviously by industry standards have higher gross margin,” said Neri. “For partners, when they sell their own services on top of GreenLake there is a better return.”
The pivot to higher-margin software and services paved the way for HPE to report record non- GAAP gross margin of 36.2 percent for the quarter, up 360 basis points from the year-ago period.
The number of partners selling GreenLake is up 55 percent year over year, another testament to GreenLake’s momentum, said Neri.
HPE also delivered strong AI results in the quarter, booking an incremental $800 million in AI orders in the wake of the ChatGPT AI boom.
In addition, HPE’s intelligent edge business posted its 11th consecutive quarter of growth with sales up 50 percent to $1.1 billion. The intelligent edge business now makes up about 20 percent of HPE’s revenue.
“We are very pleased with the momentum we have in hybrid cloud with GreenLake; AI, which is a massive, massive opportunity for the company with our unique differentiation; and obviously the intelligent edge, which is delivering standout performance quarter after quarter after quarter,” said Neri.
Overall, HPE reported better-than-expected earnings of 52 cents per share on lower-than-expected revenue of $7 billion, up 4 percent from the year-ago quarter. The Zacks consensus estimate for the quarter was 44 cents per share on sales of $7.28 billion.
Below is an excerpt from an interview with Neri Tuesday as HPE reported its second-quarter results.
What are some of the key highlights of the second fiscal quarter financial results?
As I think about our Q2 performance, I think it was a solid performance considering the macroeconomic conditions and the unevenness of the market.
We grew revenue and recurring revenue. Revenue was up 9 percent. Recurring revenue was up 38 percent. To put that recurring revenue in context of our partners, the number of partners selling GreenLake is up 55 percent year over year.
The key takeaway for the quarter was the exceptional profitability and the earnings expansion. The key driver of that is our strategy to pivot the portfolio to high-growth, high-margin businesses. And that pivot is led by the intelligent edge business, which is our HPE Aruba networking business. That business was up 56 percent year over year.
Second but close in terms of strategic importance and momentum is AI. Our AI business was up 22 percent year over year. But in the quarter, we saw significant, significant uptick in customer interest and we booked an incremental $800 million in orders from large Fortune 500 generative language model companies, including digital native startups.
We talked last quarter about working with Aleph Alpha [which owns and operates Europe’s largest high-performance AI cluster] and also a large cloud provider. This is a testament to our solution for AI at scale for training. HPE has a broad AI portfolio from inference to training.
For the quarter, we expanded earnings 18 percent year over year. So we delivered the high end of the guidance.
Our GreenLake ARR was $1.1 billion, up 38 percent. Sixty-six percent of that contribution came from margin-rich software and services. The total [GreenLake] contract value now is in excess of $10 billion. Storage was up 2 percent, but HPE Alletra was up more than 100 percent year over year.
Compute is the most uneven part of the portfolio. It delivered what I call a stellar performance in operating margin of 15.2 percent. But revenue was down 3 percent [in constant currency]. That [decline] was also for the partner side, which was down low single digits as well. That is because we see the digestion of compute in enterprise customers. We see elongated sales cycles. Obviously, the financial crisis had a short-term impact on the financial services industry as a whole.
But when you look at how we exited Q2, we exited with 1.5 times order bookings compared with normalized historical levels with intelligent edge and HPC/AI having significant large order bookings.
The headline is our strategy to pivot the portfolio to high growth, high margin is delivering record-breaking gross margins, exceptional profitability. The momentum at the edge and in AI is super strong. The edge now is close to 20 percent of our revenue, which is pretty significant, and AI is a massive opportunity for us in a space where we have unique differentiation.
How important is Ezmeral as you build out the AI strategy?
Ezmeral is a unique part of the portfolio, which is unified analytics from edge to cloud. It is going to be a component of the software we are going to offer as part of our AI solutions in order to collect the data, prepare the data and then automate the data pipeline and then eventually train the data. That is why the new release of Ezmeral is an important milestone together with Pachyderm and Determined AI. You will hear more about that at HPE Discover in a series of announcements.
What is the focus for partners as you head into HPE Discover?
With our partners we are focused on four key areas. One: Continue to drive the adoption of HPE GreenLake, the true hybrid platform so they can add their own value on it. Two: Continue to drive the intelligent edge because it is a massive opportunity for our partners. Remember, 95-plus percent of that business is delivered through channel partners. Three: Hybrid cloud with compute and storage but more and more private cloud and workload-optimized solutions. You will see an extension of our private cloud portfolio at HPE Discover. Four: Last but not least is AI, where we will make it accessible to every customer size as we go forward and provide partners with an opportunity to participate in that. Partners are not going to build any of these systems. They are not going to build the AI cloud. But ultimately, they could sell it in an as-a-service model. That is all in concert with the unification of the [cloud] experience from edge to cloud whether it is general-purpose or AI workloads.
Dell Co-COO Chuck Whitten (pictured) just claimed that Dell now has the ‘world’s most comprehensive as-a- service multi-cloud portfolio.’ What is your view of that Dell claim?
To me the fact that Dell came forward with the number of announcements they did last week—and listen, ultimately announcing is one thing and delivery is a different thing—to me it is a validation that our strategy is right. The customers need hybrid solutions. The customers want to pursue more and more of those hybrid solutions as a service. So in many ways it validated that we are on the right path and that definitely we are ahead. Now they are trying to catch up.
But the difference between what they are doing and what we are doing is that we have years of expertise and momentum, meaning we are ahead. To build a cloud platform takes a long time and it takes persistent investment. You have to build it with partners in mind and not as an afterthought. That is what we did from day one.
No. 2, you need to have a diversified set of offerings, which they don’t. We are super strong in the intelligent edge. They are not because they don’t have an Aruba portfolio. That includes AI inference all the way to the core AI at scale which they don’t have. They don’t have unique IP as we do through the acquisition of SGI [Silicon Graphics] and Cray.
We have a differentiation in the portfolio. We have a differentiation in the value proposition of HPE GreenLake. We have differentiation in how we include partners at the core of our strategy. We are a number of years ahead. The back end of this is it all comes together for a simple experience.
To me it is no surprise because we are winning customers and they need to do something. It is a validation of what we have done and it is making us more relevant together in the market together with our partners.
How important is it that the number of partners selling GreenLake is up 55 percent in the quarter?
Momentum and scale is very, very important.
The challenge that partners have is no different from any company that is going through a transformation. You have to cross a chasm. So you have to maintain scale in the transactional business—the core business—while you grow and accelerate that growth in the future growth business. You have to go through this crossing at some point and that requires time and investment, which we have been on for a number of years.
If you go back to 2018, I committed to investing $4 billion over the next four years in the edge. Look at the results of that. In 2018, I committed to offer everything as a service. Well, the as-a-service total contract value on the balance sheet at the end of Q2 now exceeds $10 billion. We have been driving this GreenLake cloud experience for everything we do, which in context brings a lot of SaaS subscription in storage and intelligent edge and now with private cloud enterprise.
These things take time. But fundamentally at the end of the day we will drive better growth—perhaps immediately not too high growth because we have to through this crossover—but better gross margin, which means more profitable growth for partners and shareholders.
How important is the profitability partners can drive with richer-margin software and services around GreenLake?
We already have 66 percent of the contribution in ARR coming from software and services, which obviously by industry standards have higher gross margin. For partners, when they sell their own services on top of GreenLake there is a better return.
How important is the OpsRamp acquisition, which includes an AI platform aimed at detecting and resolving IT management issues?
In the context of what we just talked about, which is more software and services, OpsRamp is exactly targeted at that space. We are adding more automation to the platform, which helps customers manage this hybrid cloud in a more intelligent and automated way with higher gross margins. For customers it means reducing Opex because you need human glue to manage this multi-cloud, heterogenous environment. So we continue to add value where there is a return to the customers in terms of experience and cost and there is a return to partners and shareholders in terms of revenue and profit.
Ultimately, it is the integration with HPE GreenLake which will drive that adoption of OpsRamp. We will be integrating OpsRamp in Q3 and you will see that at HPE Discover. We just closed the transaction and we already have offers out there. So now it is a matter of scale. But everything related to compute, storage, private cloud and even the edge and networking we will be able to manage that IT through OpsRamp. And by the way, that manages other vendors like Dell, Cisco, NetApp and Pure.