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Antonio Neri: Outposts Is AWS’ Bid To Lock Data In Public Cloud

‘To me, Outposts is just a way to continue to lure you to move to the [public] cloud because their ultimate objective is to move your data to the [public] cloud,’ says HPE President and CEO Antonio Neri. ‘We have this saying: When you check into the public cloud, it is like checking into the Hotel California. You check in and you never check out. What customers are realizing now is that the cost of egressing that data back is enormous. Enormous.’

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HPE made a decision to get out of the tier-one hyper-scale server market and not focus on server share for share’s sake. How has that translated into partners’ ability to make money?

We made that decision because there was no money to be made [in the tier-one hyper-scale server market]. It was very distracting. It was taking a lot of energy and time from our R&D team. Ultimately, it was not a long-term value creation for our shareholders. At its peak, we used to have almost $2 billion of our revenue selling through the tier-one business—call it the Super 10. So it was more than 50 percent of our compute revenue. So we decided to work it off. Now it is almost negligible. We transitioned the portfolio. We knew for those enterprise customers what they wanted was software- defined solutions that ultimately bring them a hybrid world and ultimately delivered as a service.

That is why it has been a journey to pivot what I call the commoditized business into more of a value business. What we see is the customers and our partners adopting what I call blocks of IT.

What they want is ‘Give me a solution out to the box that can run my apps and data so I can innovate faster.’ That has resulted in a significant margin improvement. We have three businesses: intelligent edge, hybrid IT and HPE Financial Services, which I think is a core component I think our partners should leverage more.

In the end, our hybrid IT business has improved margins in excess of 600 basis points by taking costs out and by pivoting the portfolio.

At the same time, we have invested more. We have invested a significant amount of dollars on our go-to-market. A big chunk of dollars goes through the channel, obviously, and at the same time more dollars in R&D. If you look at our last earnings on our investor relations site, look at the [slide] deck: There is a slide that shows our Opex for R&D as a percent of revenue. In the last seven quarters that has continued to grow. Our profitability was 7 percent operating margins in Q1 2018. In Q3 2018, we exited the quarter at 10 percent.

So the pivot is there. The growth in strategic categories is there. The acceleration in as a service is there. We just need to do it in a more integrated-edge-to-cloud manner, keep driving that customer-driven innovation and continue to build the portfolio together with you.

 
 
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