Neri To Channel: Now Is The Time To 'Double Down' On HPE; It's 'All The Way' With Partners

Hewlett Packard Enterprise President Antonio Neri Wednesday told CRN that the dramatic sales changes prompted by the Next restructuring initiative make it the perfect time for partners to "double down" on the $28 billion company.

"This is a great time for partners to double down on HPE," said Neri in an interview with CRN after he detailed the Next plan, along with a stepped up charge into Intelligent Edge and hybrid IT markets, during a meeting with securities analysts. "We are a much more focused company. We have been and continue to be a channel-led company. We are extending the ability for partners to increase their coverage because of a geographic coverage focus [shift that moves HPE's direct sales reps out of 84 countries in favor of a channel-led model].'

[Related: HPE Reduces Internal Comp Plans From 400 To 25 As Part Of Sweeping 'Next' Overhaul]

Neri's comments came after HPE announced that it was dramatically revamping its internal compensation by reducing the number of sales plans from 400 to 25; launching a channel-only sales strategy in a number of global markets, and eliminating 40,000 product configurations in its volume and value server businesses.

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"We are making investments to improve the ease of doing business with us," said Neri. "Obviously we already have phenomenal innovation and are more excited about the future than ever before. We are going where the market is going and to where the customer needs us. Ultimately, we wanted to really simplify the way we do work and improve our execution. All of that will translate into a better return for partners, and we will be there with our partners all the way, all the way for the journey."

Specifically, Neri said the big opportunity for partners is to focus aggressively on the fast-growing Aruba Intelligent Edge portfolio and drive to a services-led model with a business outcome focus for customers with the rest of the software-defined HPE portfolio.

"The opportunity going forward is how we harness the power of that Intelligent Edge with analytics and making secure connections and ultimately manage that data at the edge with the right tools, like computer storage and connectivity," he said. "For me when I think about the future, the edge is a very important opportunity. I keep talking to partners about that. They should invest with us there."

At the same time, Neri said partners and HPE will drive better returns with faster quote-to-configuration and order turnaround time on the volume server transactional business. "If you are an inside sales rep for a partner, you have a few minutes to make a decision," he said. "They can't wait for pricing for hours or maybe even days. HPE Next is all about simplifying the way we do work with customers and partners, streamlining, accountability and improving the [sales] metrics, whether it is quoting time, shipping turnaround time and the ability to configure solutions that are relevant to the specific business outcome the customer wants. That will translate absolutely into a better experience for partners and ultimately for them to make more money-- growing revenue and making more margins with us."

HPE CFO Tim Stonesifer told analysts to expect the Next program to drive gross cost savings of $1.5 billion over the next three years. He said HPE plans to reinvest $700 million of that into the company in the form of R&D and operational investments in growth areas.

The net cost savings from HPE Next will be approximately $800 million on a run rate basis at the end of Fiscal year 2020. To achieve those savings, HPE expects $1.1 billion in cash funding payments with two-thirds of that funding to "optimize the workforce." HPE did not detail how many positions will be eliminated or added under the restructuring initiative.

HPE has said the restructuring eliminates management layers from as many as seven down to four. "We are investing in specialized sales while at the same time we are removing layers that make it difficult to do work," said Neri.

For Fiscal 2018, which begins Nov. 1, HPE expects non-GAAP diluted earnings-per-share of $1.15 to $1.25 with "modest" revenue growth when adjusted for sales to Tier One service providers like Microsoft Azure or Amazon Web Services. That compares with Fiscal Year 2017 non-GAAP diluted earnings-per-share of $1 per share on sales growth of five percent when adjusted for divestitures, currency and sales to Tier One service providers.

Stonesifer said HPE expects continued pressure in Fiscal 2018 in the volume server market with as a result of intense competition from cloud and white-box solutions. Furthermore, he said DRAM pricing pressure recently hit a peak level, with current DRAM prices 20 percent higher than the average year-to-date in Fiscal Year 2017.

At current levels, Stonesifer said, every 10 percent increase in average DRAM prices equates to $225 million to $275 million of annualized cost increases. "Although we tried to pass through some of these elevated costs through price increases, the competitive environment has effectively mitigated most of our pricing actions," he said.

The CEO for a solution provider, who did not want to be identified, said the HPE Next sales restructuring was inevitable given the dramatic changes in compensation with the shift to the cloud. "HPE is finally saying they have to go with fewer people going forward," said the CEO. "What choice do they have? The problem is if you cut the steak too thin, you don't taste it."

Long term, HPE expects revenue growth of zero to 1 percent with operating profit growth of four to five percent and earnings-per-share growth of 7 to 9 percent.
HPE shares remained unchanged in after-hours trading after closing up nine cents per share to $14.70.