As Hewlett-Packard Enterprise Co. (HPE) Discover 2016 opens tomorrow in the Venetian/Palazzo in Las Vegas, the big question hanging over it is: Quo Vadis HPE? Last month the company surprised the industry with the announcement that it would spin off its huge consulting division, the second time in a year it has split itself in half. What is left is the core hardware division of HPE stripped of almost everything extraneous. It is still one of the largest vendors in the industry, with an aging business with huge revenues but shrinking margins facing major competition from every side. It is also a company with huge potential. This conference will be the forum for HPE to unveil its plans for the future.
theCUBE will be at Discover 2016 starting tomorrow, for three days of wall-to-wall interviews with key executives from HPE, its partners and customers. Watch streaming coverage live and find out what is happening behind the headlines with the probing interviews conducted by the industry experts from SiliconANGLE Media, led by co-CEOs John Furrier and David Vellante. And if you have your own questions, you can post them on the #HPEDiscover CrowdChat that will run parallel to the conference. Furrier in particular monitors CrowdChat and will use questions people post there. If you are at the conference you can watch the replays later to pick up things you missed and get more depth on the trends.
The two spin-offs have left HPE in a strong position financially. It has rid itself of nearly all its debt and is still throwing off huge amounts of cash from its hardware business. However, the IT infrastructure market is changing radically under pricing pressure from the big cloud providers with their hyperscale data centers. In the last 18 months we have seen IBM sell its entire x86-based business to Lenovo Group Ltd. and Dell Inc. announce that it will purchase EMC, both clear responses to this margin pressure. While the hardware market is growing with the new, high-volume computing environments such as social media, Intel-powered servers in particular are rapidly becoming commoditized. One way or another, HPE needs to transform. Intel Inside will not be enough to sustain it as it is today.
HPE at the crossroads
So where does HPE go? If it continues as a pure hardware manufacturer, it will have to compete against white box makers from China and Taiwan, including Lenovo. It probably could do that, and its alliance with Hon Hai/Foxconn Technology Co Ltd. indicates that it will. But if that is its entire business, HPE will have to strip every penny of extra expense out of its operations and become as efficient as they are. That means little or no R&D and a permanent end to the creativity that characterized the old Hewlett-Packard.
But that is not the only choice. Over the last three years each semi-annual Discover has shown the company experimenting with a different direction. Initially, it said that hardware innovations like converged systems, which the company invented, and its Moonshot unique massively parallel system, would power its future growth. Converged systems did become a big market, but EMC and Cisco Systems, Inc., stole leadership with VCE Co. LLC. Then HP introduced Helion and with it a plan to work with its channel partners to build a public cloud business. Six months later it pulled the plug on that idea and said it would instead focus instead on private cloud. It bought Eucalyptus Systems, Inc., a startup with a private cloud designed to work with Amazon Web Services (AWS). In December in London it expanded that scope to include a partnership with Microsoft Azure.
Most industry observers, including Wikibon, agree that hybrid cloud is becoming a major infrastructure trend supporting the move to digital business. This could be a major opportunity for HPE. To capitalize on it, the company needs to build on its strengths and create a true private cloud appliance, as defined by Wikibon, with a fully integrated stack supporting Helion on HPE converged hardware and integrated with Azure, AWS and other public cloud infrastructure-as-a-service and software-as-a-service providers. This would put HPE squarely in the center of the hybrid cloud market, much as its invention of the desktop printer in the 1980s put it in the center of the PC revolution. Announcing such an appliance this week would make positive headlines for the company.
High-performance computing
High-performance computing (HPC) is another high-margin growth market where HPE is well-equipped to play. Once the primary realm of advanced government and university laboratories such as Lawrence Livermore and MIT, HPC is moving into large corporate data centers where it powers new compute loads such as big data processing. HPE’s Superdome high-end servers have competed successfully in this market, but today Superdome faces major competition from IBM, first with OpenPower and now with its introduction of a working quantum computer prototype.
For two years HPE has regaled audiences at Discover general sessions with presentations on its next-generation computing platform, The Machine. Hints emerged at HPE Discover Europe in December that HPE might have a working prototype this year. If HPE could unveil The Machine at Discover this week, it would grab headlines and provide the company with a visible path forward in high-performance computing that would excite both its customers and investors.
Acquisitions
HPE’s strong balance sheet gives it the strength both to fund internal R&D and to buying promising startups. It has already demonstrated that it knows how to select the right targets and nurture them once they are acquired. Several acquisitions will play important roles in the company’s future:
3Par Inc. brought HPE arguably the strongest storage platform in the industry. It has played a central role in HPE’s impressive migration to the all-flash data center and software-defined storage, both internally and in its customers’ data centers, making it the number one player in the enterprise storage market, according to the latest International Data Corp. figures.
Vertica Systems Inc. put HPE in the lead in near real-time data analysis. It is regarded as a great product with a strong customer base. Because Vertica has its own conference, which theCUBE covers, it probably will not get a great deal of attention at Discover, but it remains a key part of HPE’s portfolio.
Aruba Networks Inc., which HPE acquired last year, gives the company an interesting play in networking, said Wikibon Chief Analyst David Vellante. Combined with 3Com Corp., which HP acquired in 2010, Aruba gives HPE strong differentiation in corporate networking against Cisco. Vellante also suggested that Aruba could be a critical differentiation point in the Internet of things (IoT) edge-computing market. “If you want to ‘instrument the windmill,’ you need connectivity to eliminate truck rolls, and Aruba gives HPE the opportunity to do that,” Vellante said.
Security and edge computing
One place where HPE might be looking for acquisitions is in data security, where the focus is shifting from prevention technology to big data analysis. Vertica could play a strong role there, with new acquisitions to run on top of its database. The security market is ripe with innovative small companies.
SaaS is another place where HPE might hunt for acquisitions. SaaS makes up the largest part of the cloud market, but it is fragmented and ripe for consolidation. HPE could use its financial clout and knowledge of specific verticals to create a strong SaaS catalog that then could integrate with Helion private cloud appliances to create hybrid clouds for large customers.
The industrial Internet also offers a major potential market. The combination of Aruba and HPE Moonshot gives the company technical strengths in the edge computing market in particular. The right acquisitions and partnerships could give HPE a strong competitive position in an edge market that is expected to explode in the next few years.
Finally, HPE has a massive partner channel that can play a major role in bringing its new platforms and acquisitions to its worldwide market.
All of this is speculation, but it is clear that HPE has many options to maintain its current momentum. Many people are looking for signs that the company has recaptured the creativity that drove Hewlett-Packard Co.’s decades of success. This week is a time to define a coherent vision.
Image courtesy Hewlett-Packard Enterprise