In 2019, Hewlett Packard Enterprise Co. declared its new strategy: to shift its entire portfolio offering to an as-a-service by 2022.

As 2021 enters its final few months, HPE’s path to transform seems to be brightening. GreenLake, the company’s as-a-service edge-to-cloud platform, is one of the company’s fastest-growing solutions. Its future looks promising from the point of view of both investors and customers. 

“Take HPE and its strategy aside, and what we have now are all of the traditional big iron IT OEMs moving in this [as-a-service] direction concurrently,” said Daniel Newman (pictured), principal analyst, and founding partner at Futurum Research. “They all understand from both valuation standpoint, meeting Wall Street, and also meeting the customer where they are. It’s a lot to undertake, but it’s an exciting time. And knowing that hybrid is the answer, the data has proven that, it puts a lot of these companies in a good position to compete.”

Newman spoke with Dave Vellante, host of theCUBE, SiliconANGLE Media’s livestreaming studio, during the HPE GreenLake Announcement event. They discussed the pivot to cloud services, value, data, as-a-service shift and edge services. (* Disclosure below.)

[Editor’s note: The following has been condensed for clarity.]

We saw Q3’s HPE that did a beat-and-raise. I think 1,100 customers for GreenLake, announced the orders were up well over 40%. I think revenue was up 30%+. So, those are the kind of metrics that Wall Street wants to see. Interestingly, the shift to an ARR model hurts the income statement, but it makes it more predictable and that’s what investors today want. What are your thoughts?  

Newman: Most of the market is forward-looking and tries to anticipate where growth is going to come. And SaaS companies tend to drive fast growth and multiples. This has also left for somewhat slow growth valuation for companies like HPE, despite the fact that it’s doing a lot of the right things. You mentioned mid-double-digit growth in GreenLake, large customer growth numbers, and I believe usurping a billion dollars in revenue or in subscription dollars. 

So the confluence of all those events, the market has to be able to basically cherry-pick through a part of the business. And I think that’s been a little bit of a problem. Not just for HPE, but just for all these companies that are struggling with smaller multiples of their [price-to-earnings] ratios. But as the company continues to talk about GreenLake and it continues to lean into this, this is the part that has to rise to the front of the Wall Street investor or the business media. 

And HPE last quarter hit almost 35% gross margin, which is a high watermark for them. So how do you see as-a-service driving value for HPE, its customers, and ultimately what do they have to do to convince Wall Street? 

Newman: Recurring revenue companies drive higher multiples. It’s not even a debate. And companies that have a large percentage of their business as recurring tend to drive much higher valuation and tend to also be more beloved by shareholders. The performance of HPE has been good, it’s been solid and it’s been in the right place, especially given the circumstances of the pandemic and the impact of on-prem. 

To the extent that you can lean into that wave, have a higher contribution from software, higher-margin business, and a more predictable revenue stream, that seems to be the right direction in my view. It’s gonna take some time to play out. But to the extent that the majority of their business over time can become as-a-service, shouldn’t that confer higher margins and greater value to investors? 

Newman: You build your entire business process around these investments in these technologies. Software is sticky, it’s organizationally complex, because where HPE sits in the stack, where their analytic solutions and software help you more successfully deploy SAP-type workloads, the entire company runs on that. So the involvement and the importance of the role that HPE is playing is huge. The challenge for customers isn’t as big. Customers get this. The enterprise users, the CIOs, they get the importance. Wall Street, though, it’s a little harder for them sometimes to digest.   

Digital changes the equation. It’s no longer servers, storage, networking database; its cloud services that are enabling digital transformations.

Newman: When you run a multinational global enterprise that has edge [networks], that has data centers, that has manufacturing facilities, there are just unbelievable requirements on technology. And again, we’ve got to connect that public cloud somehow. So we can’t ignore the fact that those public cloud players are all addressing this; they’re all bringing solutions out. But companies like HPE, this is where their sweet spot is, and this is where I believe they’re going to have to compete very aggressively and efficiently to show we are a great partner to the public cloud.

As an analyst, what do you want to see from HPE GreenLake cloud services? What are the areas that you’re going to be watching that could serve as indicators of success and momentum? 

Newman: All this data itself has to be managed and processed. So the fact that you’re getting to that data management at scale, the fact that you’re building out orchestration for containers. Well, this is because of that data deluge. But the best companies in the world are going to find a way to extract more value from that data, and that’s going to be through the application of AI, ML, neural networks, deep learning and other important capabilities. 

I think this is gonna be an area that through on-prem and through hybrid offerings, we’re gonna want to see [HPE] compete.

Watch the complete video interview below, and be sure to check out more of SiliconANGLE’s and theCUBE’s coverage of the HPE GreenLake Announcement event. (* Disclosure: TheCUBE is a paid media partner for the An HPE GreenLake Announcement event. Neither Hewlett Packard Enterprise Co., the sponsor for theCUBE’s event coverage, nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Photo: SiliconANGLE