HPE, Inc. has announced Q4 FY2024 and full-year financial results that show a year-on-year revenue increase of 15.1% for Q4 and 3.2% for FY2024. Once again, the Server segment experienced growth for the quarter, with Hybrid Cloud also growing year-on-year. Intelligent Edge declined again. What can we discern from the latest data on where HPE is headed?
Background
HPE, Inc. published financial data for Q4 FY2024, the period ending 31st October 2024, on 5th December 2024. The results show an annual increase in revenue of 3.2% to $29.7 billion. For the quarter (Q4), revenue was $8.46 billion, up 15.1% year-on-year.
Within the business segments, the Server business grew annually by 12.8% (based on HPE restated data for FY2023) and 31.7% in Q4 year-on-year. Hybrid Cloud (which includes the old storage business) declined in FY2024 compared to FY2023 by 1.9% but grew year-on-year in Q4 by 18% compared to Q4 FY2023. Intelligent Edge (networking) fell 15.7% annually and 20.3% year-on-year.
We present the data in 6 graphs, labelled Figures 1 to 6.
Yin & Yang
A few quarters ago we discussed how networking was keeping HPE afloat. The FY2023 data showed Compute down 10.3%, HPC & AI up 22.6%, Storage down 6.2%, and Intelligent Edge up 41.6%. At that time, networking and AI servers were keeping HPE revenue growing. Jump forward to FY2024, and the restructured business units continue to show increased revenue in AI servers while the networking business has declined significantly.
Each time HPE achieves growth in one area, it seems like this is matched with a decline elsewhere. The result is that we see little overall annual growth – 3.2% FY2023/4, 2.2% FY2022/3, 2.6% FY2021/2 and 3.0% FY2020/21. Data for FY2020 and FY2019 showed a decline in revenue on the previous year by 7.4% and 5.6%, respectively. Remember that these numbers don’t include inflation, which has been higher than the revenue growth for several years, making revenue flat or declining in real terms.
AI
Looking at positive news, AI server revenue has now picked up, with significant growth over FY2024 (see Figure 8 from the HPE earnings presentation). One issue for HPE was the “de-booking” of a large order for $700 million due to “concerns” with the customer. Presumably, HPE didn’t feel that customer could (or would) pay for the equipment ordered.
Hybrid Cloud
Storage growth is difficult to ascertain, as HPE no longer breaks out the numbers for the Storage division as a separate line item. What we can see is revenue growth for Hybrid Cloud in Q4 FY2024, compared to Q4 FY2023, but the year-end figure is actually down. HPE claims 3000 Alletra MP systems have now been sold since launch (as highlighted in the post-results conference call).
GreenLake ARR increased sequentially by 11% and 46% over the year. However, the average GreenLake ARR spend is still only $48,700, of which 16% (approximately $8,000) is classed as infrastructure. We don’t know exactly how HPE determines the “software/services” versus “infrastructure” categories of GreenLake revenue, so it may be that storage sales are classified as services within that alignment. If not, then GreenLake storage is only a small portion of a part of the GreenLake revenue.
Remember that HPE recently renamed its block storage platform, dropping the GreenLake prefix, so perhaps the services model of selling storage wasn’t working as well as desired.
The Architect’s View®
HPE is profiting from the boom in AI-related hardware, specifically servers with embedded GPUs. The backlog and lag due to unavailability appear to have diminished, and this is translating to significant revenue increases. However, like other hardware vendors (Dell, for example), that server business doesn’t appear to be acting as a drag-through for additional storage sales.
HPE claims Alletra MP is the fastest growing storage platform in the company’s history, but then if that’s all the salespeople are pushing, it isn’t a surprise, as Alletra MP would be effectively cannibalising sales from legacy products. The only meaningful metric is whether net storage sales are up, and for that we have no specific details.
Putting aside the assumptions of product replacement in the block protocol part of the storage business, the new Alletra X10000 and the file solution (GreenLake for File Storage MP) are essentially new products. Whether HPE’s storage strategy is working or not will be dictated by the success of these solutions rather than the replacement of existing legacy block offerings. It would be useful if HPE was prepared to provide details that broke down the Alletra MP numbers in more detail, but that’s unlikely to occur.
Generally speaking, Alletra Storage MP B10000 isn’t a bad product, although it is the reinvention of the legacy 3PAR platform. GreenLake for File Storage is VAST Data rebranded on HPE hardware, again not a bad product and definitely a differentiated architecture from a software perspective. The X10000 platform is an unknown at this point.
HPE has storage assets that could be successful, but we need to see better explanations of product capabilities, including justifications for the claims made about X10000 performance. Perhaps this is where HPE is failing; a decade ago the company would be “all over” the detail, but today there’s a focus on glossy marketing and shallow messaging. This doesn’t look like the right way forward.
What does all mean from a customer perspective? The B10000 systems are good enough, although without the capacity scaling efficiency of the latest high-capacity SSDs. The file platform (GreenLake for File Storage MP) runs the VAST data software platform, which is designed more for file systems requiring massive scale-out and throughput than, say, on-premises user file shares. The X10000 is still an unknown. Let’s not forget that HPE also still markets the older Alletra storage solutions based on the Nimble Storage acquisition. So, there are many options still present in the portfolio.
Unfortunately, though, Storage appears to have taken a back seat at HPE compared to the focus on AI. This strategy will need to change, if HPE wants all business units to be contributing to revenue growth in the future.
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