When you don’t own the operating system, the chipset or the software, what’s left for an IT service provider? For the freshly split off Hewlett Packard Enterprise Co., infrastructure is nearly all that remains of its product portfolio. Under the guidance of Chief Executive Meg Whitman, HPE has scaled back operating costs and sold off superfluous services to focus on core infrastructure and related management services, despite the lower margins expected from this completely revamped business model.

To gain insight into the future of HPE, Dave Vellante (@dvellante) and Paul Gillin (@pgillin), co-hosts of theCUBE (* disclosure below), from the SiliconANGLE Media team, sat down together at the HPE Discover EU conference in London. The main points of conversation included HPE’s leaner portfolio, its bets on the Internet of Things and its opportunity for differentiation within a highly competitive market.

Aside from possible acquisitions, the real issue is how HPE is perceived by the market, according to Gillin and Vellante. Gillin felt the company’s challenge is to break out of HP’s old image of “being a company living off a [software services] annuity stream” and do something new and innovative. He also noted that HPE seems almost allergic to software, particularly after shedding its open-source OpenStack assets in a landmark deal with SUSE.

To that end, it seems HPE is comfortable reselling much of the technology it once embraced under a very broad and arguably bloated portfolio, according to Vellante. This begs the question of whether or not HPE is still in the software business. “Yes and no,” Vellante estimated, going on to say that HPE is merely “in the software business to manage infrastructure,” likening the streamlined services model to storage provider EMC (now Dell-EMC).

“It’s not a pure play software business model, which was the intent of Autonomy and Vertica, which clearly are higher margin, pure play software business models,” Vellante furthered, speaking of two disruptive HPE acquisitions that contributed to HP’s financial and integration burdens. “HPE is choosing to focus and be comfortable with a lower margin, predominantly infrastructure business,” he explained.

Can HPE differentiate in IoT?

The two analysts then turned toward HPE’s opportunities and challenges with the promising IoT market. Aruba, HPE’s networking service, is key to the company’s IoT play, according to Vellante, tying into HPE’s focus on the infrastructure building blocks of modern IT.

The other crucial component to HPE’s IoT efforts, Vellante said, is analytics, which will require strategic partners for delivering value to customers. “It’s the data around the things,” he explained, citing General Electric’s efforts to become a true competitor in Silicon Valley to power analytics for the Industrial Internet of Things.

In fact, GE has become a notable development in the IoT market, and its partnership with Dell-EMC is indicative of the growing competition HPE faces. After Dell underwent a similar streamlining process to cut back on software services, it maintained a strong allegiance with the agnostic cloud services provider Pivotal, and acquired EMC, including its virtual machine powerhouse VMware. Even as IBM trimmed the fat on its product portfolio, the acquisition of The Weather Company further proves the importance of data endpoints and analytics for the future of IT service providers. In Gillin’s mind, a close partnership with GE could be beneficial to HPE.

Gillin also wondered where HPE will invest, now that it is backing away from pure play software services. “Hardware is going to be tough,” he said, pointing out Dell-EMC’s apparent comfort in low margin infrastructure management and rising competition from white box hardware providers like Huawei working with even lower margins.

“HPE is going to be pressured in that area, and they’re going to have to innovate in the management and the architecture in ways that the customer really understands and values,” Gillin concluded.

Watch the complete video interview below, and be sure to check out more of SiliconANGLE and theCUBE’s coverage of HPE Discover EU. (*Disclosure: HPE and other companies sponsor some HPE Discover EU segments on SiliconANGLE Media’s theCUBE. Neither HPE nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Contributors: Kristen Nicole Martin

Photo by SiliconANGLE