HPE - The Past and The Future
HP (HPE) has been in a continuous state of reorganisation since the ill fated take over of Electronic Data Systems since 2008. Promises were made to completion authorities (including the EU) that the EDS business unit would continue to source hardware and software from third party vendors (Cisco, Sun, EMC etc). It soon became clear that HP had no intention of honouring these commitments, and HP Salesmen soon started controlling the technology solutions and spend for the Enterprise Outsourcing division. Special signoff was often required to purchase from third party suppliers where there was a HP equivalent. In the early days there were many heated arguments, particularly in the network space as the HP Procurve range was vastly inferior to Cisco.
HPE has reported for the last two quarters that that a Tier 1 provider has massively reduced orders for HPE servers. Speculation is that the Tier 1 provider is Microsoft who is shifting spend to either Dell or Chinese white box server vendors.
Now for some additional speculation. HPE Enterprise Services has been spun off to DXC. It is sensible to assume that DXC will be vendor neutral and operate a system similar to the old EDS Agility Alliance to provide the best price, technology stack, and service to their customer base. This will have the potential to cause:
• Reduced margins on hardware that HPE sells to DXC (as compared to the old internal HPE market).
• Reduced orders for HPE kit, which could have a similar impact to the Tier 1 Service Provider order reduction in the past two quarters (HPE Q1 & Q2).
• A potential for reduced margins in division such as HPE Technology Services. TS and other HPE business units were excellent at “milking” HPE Enterprise Services by cross selling permanent and contract resources and other services at hugely inflated rates. No doubt this will change as DXC starts to review all business operations to maximise revenues and profits.
HPE revenues and profits will probably continue to be massively squeezed over the next few quarters as they adjust to the real word of selling to external customers rather than pillaging profit from their internal outsourcing operation. DXC will probably start to benefit from cost reductions and increased profits from unshackling the company from a dominant internal hardware vendor where there was no real negotiation on price, discounts, or the optimisation of the technology spend.