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Antonio Neri: HPE’s Intelligent Edge Strength Is Driving Networking Share Gains

“This was the best performance of any networking vendor out there,” said HPE CEO Antonio Neri after HPE posted better-than-expected results for its first fiscal quarter, ended Jan. 31. “I think it is because we have something very special. We have a cloud-native solution with a subscription model that allows you to get access to any kind of connectivity you need to deliver this edge-to-cloud vision. That momentum will continue throughout the year.”

Hewlett Packard Enterprise CEO Antonio Neri said the company’s big bet on edge-to-cloud platform as a service is “paying off” with 11 percent growth in the intelligent edge business in the most recent quarter and networking share gains expected in both wireless LAN and campus switching.

“This was the best performance of any networking vendor out there,” said Neri in an interview with CRN Tuesday after HPE posted better-than-expected results for its first fiscal quarter, ended Jan. 31. “I think it is because we have something very special. We have a cloud-native solution with a subscription model that allows you to get access to any kind of connectivity you need to deliver this edge-to-cloud vision. That momentum will continue throughout the year. And remember, 95 percent of that business goes through the channel partners.”

The “differentiated” HPE intelligent edge strategy resulted in triple-digit sales growth in SaaS revenue for HPE’s Aruba networking unit, contributing to $806 million in sales in the intelligent edge business compared with $720 million in the year-ago quarter.

Aruba has now delivered three consecutive quarters of growth and five quarters of margin expansion. The intelligent edge business reported an 18.9 percent operating profit margin compared with 12.1 percent in the year-ago quarter.

“We again expect to take market share in both campus switching and wireless LAN segments of the market,” said Neri. “We are seeing continued traction from our investment at the edge, including rich software capabilities like our Aruba Clearpass security, our cloud native Aruba Central and, most recently, Aruba Edge Services Platform.”

Some of Houston-based HPE’s competitors in the intelligent edge business do not disclose specific product segment numbers, Neri said, but he is nevertheless confident that HPE significantly “outperformed” the market.

Networking market behemoth San Jose, Calif.-based Cisco’s Infrastructure segment, which includes its core switching and routing businesses as well as wireless and data center products, decreased by 3 percent during its second fiscal quarter, ended Jan. 23, from $6.59 billion last year to $6.39 billion in its fiscal second quarter of 2021.

HPE’s edge charge comes with Cisco CEO Chuck Robbins declaring recently that the the networking behemoth plans to transition the majority of its portfolio to cloud managed offerings that can be delivered as a service. “If we can deliver from the cloud, we will. For example, we’re looking at offering SD-WAN plus cloud security as a service, along with other new solutions,” he said.

Neri—who put an HPE stake in the ground on the intelligent opportunity three years ago, declaring it the next frontier—said the pandemic has “validated” the HPE vision of an edge-centric, cloud-enabled and data-driven world. “Aruba enables digital transformation in a mobile-first, cloud-first approach,” said Neri. “I expect that to continue to be a major growth driver for our company. Customers now need to accelerate the digital transformation.”

HPE Tuesday said that it is providing deeper integration between the Aruba Edge Services Platform and Microsoft Azure. That comes on the heels of new SD-WAN capabilities to centrally monitor and manage connectivity to Amazon Web Services.

HPE also recently announced new cloud native data center switching products designed for edge cloud data centers, a $12 billion total addressable market expansion for HPE, said Neri. “We have multigrowth drivers in our intelligent edge business, and we believe we are well positioned to outgrow the market,” he said.

HPE’s $925 million acquisition of SD-WAN player Silver Peak, which was completed last September, is also helping fuel the intelligent edge business. That deal reinforces HPE’s ability to grow “high-margin recurring revenue” with technology that accelerates HPE’s ability to capture the SD-WAN opportunity. “Our Silver Peak SaaS offering provides customers the ability to connect all their edges and all their clouds in a fully automated and autonomous way,” said Neri.

Besides the intelligent edge strength, HPE also reported its highest first quarter ever for sales of its HPE GreenLake on-premises cloud service, resulting in a robust 27 percent increase in annualized revenue run rate (ARR) to $649 million. “Customer adoption continued to be very strong,” said Neri. “In Q1 we gained more than 70 new HPE GreenLake cloud services logos.” Lineas, the largest private rail freight operator in Europe, for example, recently adopted GreenLake as part of its digital transformation strategy. “We remain very confident in our unique approach and our differentiated portfolio to capitalize on the rapid and growing on-premises as-a-service market,” said Neri.

Pat O’Dell, general manager and managing partner for CPP Associates, a Clinton, N.J., HPE Platinum partner and winner of HPE’s U.S. North America Solution Provider of the Year award in 2019, said HPE’s edge-to-cloud platform as-a-service charge is gaining momentum.

“I believe HPE has the most complete vision for edge-to-cloud platform-as-a-service and the consumption model,” said O’Dell. “GreenLake is getting better and better with every iteration. It is growing rapidly. We feel very comfortable with HPE, their management team and their ability to execute. The fact they are No. 1 or No. 2 in almost every key Gartner and IDC ranking is very important.”

CPP experienced double-digit growth in the quarter compared with the year-ago period in large part due to the innovative HPE portfolio. “We feel the HPE vision is coming together with HPE edge-to-cloud platform-as-a-service,” he said.

O’Dell credited Neri with driving a big innovation advantage for HPE over competitors with big investments in areas like GreenLake and edge computing. “Antonio is a doing a great job,” he said. “Antonio was the first to define the edge-to-cloud platform-as-a-service opportunity and vision. At the end of the day we really believe in that vision. Data and compute is moving to the edge. That is a trend that can’t be stopped. You have to move to where the puck is going to. The fact that Antonio has been speaking about this for several years says a lot about his technology vision. That makes me proud to be an HPE partner.”

The HPE portfolio is also helping drive CPP’s expectations for double-digit growth again for the full year. “HPE is offering great integrated solutions,” he said. “It’s all about how you put it all together and how everything works together. We love the HPE portfolio. They are strong in all the top technologies. We are the glue that puts it all together and gives the customer a great outcome. HPE is our partner to get it done.”

Overall, HPE posted fiscal first-quarter non-GAAP earnings of $679 million, or 52 cents per share, up from $657 million, or 50 cents a year ago. That was well above the Zacks Wall Street earnings consensus of 40 cents per share on sales of $6.80 billion. The considerable earnings increase is higher than pre-pandemic levels, said Neri. “That is pretty remarkable if you think about it,” he said.

Sales for the quarter dropped to $6.83 billion for the first quarter, compared to $6.95 million a year ago.

HPE also reported record breaking free cash flow for the quarter of $563 million, up $748 million from the year-ago period. “We never had positive free cash flow in Q1,” said Neri.

That free cash flow success is a tribute to HPE’s ability to focus on growth markets and a commitment to be “leaner and meaner in everything we do to drive that profitability that ultimately shows up in the free cash flow,” said Neri.

The overall revenue performance was also “better than normal sequential seasonality,” said Neri.

As a result of the strong quarterly performance, HPE raised its fiscal year 2021 non-GAAP diluted net earnings per share outlook to $1.70 to $1.88, up from $1.60 to $1.78. That amounts to a projected increase of more than 20 percent in non-GAAP operating profit.

HPE also raised fiscal year 2021 free cash flow guidance to $1.1 billion to $1.4 billion, up from $900 million to $1.1 billion. That translates to a $250 million increase at the midpoint.

“We are confident in the demand recovery and our own execution, which allows us to raise guidance for the full year in both non-GAAP [earnings per share] and free cash flow,” said Neri. “We see tremendous momentum in our areas of innovation and focus, including intelligent edge.”

Neri said he sees HPE’s pivot to as a service paying off as customers move to transform their businesses even in the midst of the pandemic. “I think customers realize this is the year they need to make the investments to digitize everything in their company,” he said.

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