HP Enterprise has work cut out following split

With the split two months away, HP Enterprise needs to ensure its hardware, software and services groups work and play better together.

With just two months to go before it splits into two, the Hewlett-Packard Enterprise half could face a bumpy road.

In its second quarter results reported earlier this month, HP reported software revenues declined 6% to just $900 million, with an 11% year-over- year decline in software license revenues. Its services business fared no better, showing a 10.5% decline, with its enterprise-class server hardware, storage and networking products dropping 6.3% to $6.4 billion.

These declines are reflective of the challenge HP has faced the past few years in getting its long-time legacy users, who collectively have invested billions in the company's on-premises products, to switch to more cloud-focused products and services for workloads such as big data. The key product that will help accomplish this transition is Helion, the company's cloud environment, which has struggled in the face of fierce competition from a handful of competitors including Amazon, Google and Microsoft.

But HP Enterprise group's challenges run deeper than its cloud issues. The new company has to retool its hardware, services and software organizations so they can work more closely to weave together more compelling end-to-end products that many corporate users have come to prefer, according to some analysts.

"Their history is so rooted in providing point products, they will have to evolve all aspects of their business, which will be a significant shift in their strategy," said Stephen Belanger, an analyst at Technology Business Research, Inc. in Hampton, N.H. "For the rest of this year and into 2016, they will have some challenges as they try to realign the business to supply more end-to-end solutions."

One corporate IT professional with an investment in HP's higher-end servers agrees, saying he would like to see more collaboration among HP's major product groups. He believes, for instance, that HP should push its converged infrastructure offering, the new HP ConvergedSystem 250-HC, harder because the integrated offering appears to be less expensive and easier to install and maintain than some of the standalone server offerings he's bought in the past.

"I'm more interested in not just the integrated nature of it, but it looks like an easier solution for getting into hybrid clouds for some of the departments here," said an IT professional with a large manufacturing company in Minneapolis.

One analyst agrees the converged infrastructure and hyper-converged infrastructure markets represent a promising opportunity for HP Enterprise. She cautions, however, that it is still a relatively nascent market that is not yet delivering the kinds of revenues HP's x86-based servers are. The latter systems were actually a bright spot in the company's latest revenues and earnings report.

"Converged and hyper-converged are important platforms, but in HP's case, you have to stand back and look at the bigger picture," said Jean Bozman, director of infrastructure research for Neuralytix Inc., IT-focused market researchers. "They will be increasingly important because it allows enterprise users to have everything all in one place, but it is a very small part of a much larger mix."

That much larger mix HP Enterprise must deal with is its enterprise-class Superdome server line of fault-tolerant systems, which has experienced a steady sales decline; older proprietary Unix-based servers; and its two-year-old Moonshot x86 server, which is all but disappearing from view in the competitive server landscape.

Despite HP's best efforts to market the technical advantages of Moonshot, such as its power consumption efficiencies and space-saving design, Moonshot has yet to find its raison d'etre outside of a couple of niche markets.

If [HP Enterprise] can pull it together, they could be a pretty formidable competitor.
Dana Gardnerprincipal analyst, Interarbor Solutions

"We have gained some traction in some markets where performance is valued, but the broader market still sees it as something of a specialty box," said one HP executive recently. “Right now, it's difficult to know which way to turn with it."

Some analysts take a more optimistic view of the HP Enterprise group's future. They contend the new company has less corporate baggage to lug around and can move faster after sales opportunities, as well as focus on offering more compelling integrated end-to-end systems.

"The net-net [of Hewlett-Packard Enterprise] is that HP can run a tighter ship and drive more profits from this business," said Dana Gardner, principal analyst with Interarbor Solutions, LLC. in Gilford, N.H. "They can approach Global 2000 enterprises now with a more solidified enterprise package and not have to pitch them on buying printers and PCs as leverage to buy more servers and storage."

Gardner agrees with a growing number of observers that HP needs to evolve into a better supplier of integrated systems. It has all the necessary pieces to deliver such systems, but it will have to make some organizational changes to execute that job crisply.

"Sun [Microsystems] had a lot of great pieces, too, but they couldn't pull it all together and got bought by Oracle," Gardner said. "HP has the same great pieces. If they can pull it together, they could be a pretty formidable competitor."

Ed Scannell is a senior executive editor with TechTarget. Contact him at [email protected]

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