Hewlett-Packard held its second quarter earnings call earlier this week. The hardware behemoth’s revenue fell short of analysts’ expectation but its guidance for the third quarter beat the Street’s estimates by a noticeable margin. More notably, the company revealed that its storage business is collapsing under its own weight.

Demand for HP’s converged storage solutions increased by 48 percent from last year to $349 million. Within that, sales of 3PAR equipment soared by 82 percent. At the same time, the company’s traditional storage business – which includes tape backup and SAN – declined by one third to $508 million. Overall HP’s storage division reported a 13 percent drop on a year-over-year basis.

“HP’s storage business is like a lot of HP right now…it has to shrink to grow. This is a story of the new (3PAR) not being big enough to offset the old (EVA, tape, etc.), and the result is no growth,” commented Wikibon co-founder and chief analyst Dave Vellante. “The key for HP is to stay focused on expanding 3PAR and getting the channel story right. HP has a huge supply chain and distribution channel and it needs to leverage that to compete and gain shares. It also needs to articulate its flash and SW-defined strategies to the world. This is critical because for the time being, because HP’s focused right now on paying down debt; the company’s not going to be a big acquirer.”

Patrick Osborne, director of product management for Hewlett-Packard’s storage business, indicated that the company’s top brass drew the same conclusions as Vellante. During an interview with theCube at HP Discover, he revealed that his company is doubling down on 3PAR, StoreAll and other high-growth portfolios in an effort to deliver a unified architecture for customers of all sizes.

To hear Vellante’s full take, click on the video below.