HPE has announced Q1 FY2023 results, with revenue above guidance at $7.8 billion and an annualised run-rate exceeding $1 billion for the first time. However, is everything looking good in HPE World, or can those numbers be interpreted in another way?
Background
We last looked at HPE’s financial reporting back in August 2022 and in June prior to that. Since then, the company has published full year figures for 2022 and data for the first quarter 2023. Looking first at the annual data, at $28.5 billion, revenue was up 3% on the previous year (5% adjusted for currency), with the storage business down slightly (approximately 1%). The Intelligent Edge, otherwise known as Aruba networking, continues to be the bright spot, increasing by almost 12% year on year.
As shown in figure 1, overall annual growth is modest, however, if we take inflation into consideration, HPE’s revenue is declining in real terms. Figure 2 shows US inflation figures for the last six years, which effectively wipe out growth in 2020-2023.
Now, we could argue that inflation can’t affect long-term contracts, those with a term of three years. It’s also possible to claim that in 2019, there was no predicted impact from inflation or COVID (which in turn resulted in supply chain shortages). HPE and other businesses couldn’t have known about the potential inflationary effect, but it’s still there. A more important question is whether an increase in pricing is being applied to end users as contracts renew.
FY2023
As we examine the first quarter’s financials for 2023, we’ve shown the data in figures 3 to 6, showing quarterly revenue by BU, then individually the data for Storage, Servers and Intelligent Edge.
The positive data comes from Intelligent Edge and HPC & AI, consistently up quarter on quarter. Servers had a good quarter in Q4 FY 2022 and are still up year on year. We think that this data represents an improvement in the supply chain and latent demand being fulfilled.
When we look at Storage, both Q4 FY2022 and Q1 FY2023 saw modest improvements year on year (4% and 2.6% respectively). HPE quotes a 5% figure, but that’s based on a Q1 FY2022 number which has been revised down ($1.128 billion from $1.156 billion).
Alletra
We think the storage business is quite flat and has been for the last four years. However, HPE claims that “Alletra revenue growth was up triple-digits from the prior-year“. How can this be, when Storage has only grown in the single digits?
The answer is, of course, that Alletra isn’t a new product but a rebranding of the Nimble and Primera (3PAR) storage lines. This process continues with the announcement of HPE Alletra 4000 series. We believe that this platform may be a rebranded version of the MSA, but we honestly have no idea, as the HPE website provides no actual storage specifications, only server hardware configurations.
Triple digit growth has been achieved by retiring older products and pushing customers to choose Alletra going forward. Naturally, HPE will see significant growth as a result.
The Architect’s View®
HPE’s business continues to look relatively stagnant. The server market has recovered to a degree, but that could be latent demand. Most growth seems to come now from the Aruba and HPC/AI business units. Although ARR continues to increase, the transition to GreenLake still doesn’t appear to have been transformational. It would be hard to discern from the financial data when the GreenLake process started.
The storage business has bifurcated to a degree, with all the HP-owned intellectual property now sold under the Alletra brand (as far as we can tell). Older products are still listed on the HPE website, but we believe there’s a transition in place.
Back in December 2022, we wrote about rumours that HPE could acquire Nutanix. Any deal appears to have fallen through (and could be in part, due to an “internal audit” underway, as reported in the latest financial data). Is this a lost opportunity for HPE, or a bullet dodged? Where will future growth be obtained? At this point, we don’t know the answer to either question.
Copyright (c) 2007-2023 – Post #he3e – Brookend Ltd, first published on https://www.architecting.it/blog, do not reproduce without permission. HPE is a Tracked Vendor by Architecting IT in storage systems.