It was a day of contrasting fortunes for information technology infrastructure leaders Hewlett-Packard Enterprise Co. and NetApp Inc. as they reported their latest financial results today.

While the former missed expectations on revenue amid a steep decline, the latter company reported increased sales that came in ahead of estimates. HPE’s stock was consequently trading lower, while shares of NetApp made big gains in extended trading.

HPE reported fiscal first-quarter earnings before certain costs such as stock compensation of 48 cents per share, just ahead of the Street’s target of 45 cents. However, its sales plunged 14% from a year earlier, to just $6.76 billion, coming in way short of the analysts’ consensus estimate of $7.09 billion. All told, the company delivered a net profit of $387 million, down from the $501 million profit it recorded a year earlier.

HPE President and Chief Executive Antonio Neri (pictured) pointed out that the company exceeded its profitability expectations. “Despite a mixed quarter, I remain very confident that our focus on customer-centric innovation and our track record of operational discipline will allow us to capitalize on the significant market opportunities in AI as well as across edge and hybrid cloud and to deliver value to our shareholders,” he said.

Regardless of the opportunities, investors are much more fixated on the here and now, and in that respect HPE didn’t have a lot to boast about. The company’s Server segment, its largest business unit, saw sales drop 23% from a year earlier, to just $3.4 billion. The Server segment combines the previously reported Compute and HPC & AI segments, while adjustments for certain product lines now fall under the new Hybrid Cloud segment.

Intelligent Edge revenue inched up 3% from a year earlier, to $1.2 billion, while Hybrid Cloud fell 10%, to $1.2 billion, and Financial Services was flat from a year earlier at $873 million.

HPE is clearly struggling to get growing again and the numbers from today’s report underscore why it’s looking toward future opportunities, especially those centered on AI technology. But as big as those opportunities are, the company is struggling to take advantage of it. Analyst Steve McDowell of NAND Research said HPE has a big backlog of AI-related server sales that are still waiting to be fulfilled, due to the difficulty it faces in procuring the graphics processing units that are meant to go inside them. “The constraint on GPUs is keeping a lot of products that would otherwise be shipping to customers, sitting on the loading docks,” the analyst said.

According to McDowell, the biggest surprise in HPE’s results was that its GreenLake revenues were down substantially. GreenLake is the company’s service model, where customers subscribe to rent its hardware instead of buying it. “Some of this is that the macro environment continues to be unfavorable, but HPE is also facing increased competition in the as-a-service space,” he continued. “Pure Storage disclosed in its earnings this week that it grew its storage-as-a-service business, and I’m sure some of that growth came at the expense of HPE. GreenLake is no longer the only game in town and HPE’s going to have to compete more aggressively.”

Holger Mueller of Constellation Research Inc. was a little more positive, saying HPE did well to maintain its profitability in the quarter, despite generating over $1 billion less in sales. “This is a statement of very good control over its costs,” he explained.

For Mueller, the big question is when HPE will be able to restart its growth engine. Until now, he said, its newer business units, such as the Intelligent Edge segment, have been unable to make up for its shrinking server and storage revenues. “This year will show if Antonio Neri and his team can find a route to growth, as they’ll be hard pushed to keep maintaining profitability if revenue shrinks again.” he said. “But the good news is that company can’t shrink forever.”

Blockbuster acquisition

The big news in the quarter was HPE’s announcement that it intends to acquire Juniper Networks Inc. in a $14 billion all-cash deal. When it announced the move in January, HPE said the acquisition will effectively double the size of its Aruba networking business.

One of the stated reasons for the deal is that HPE will be able to leverage Juniper’s Mist AI service to capitalize on opportunities in AI within the networking space. Moreover, the deal will likely help HPE to better compete with Cisco Systems Inc. by forging a larger identity to overcome challenges that both companies have faced in growing their market share.

“If you combine the two companies together, you get in theory a much bigger company that can compete with Cisco,” said Zeus Kerravala, founder and principal analyst at ZK Research.

Neri appeared on theCUBE, SiliconANGLE’s mobile livestreaming studio, where he discussed how HPE will leverage Juniper’s AI technology to deliver on the original vision of edge compute. “We’re going to give [customers] a very strong modern AI-driven choice,” he said. “We intend to drive a modern architecture where we bridge both the cloud-native world and AI-native world. From a shareholder point of view, this is a no-brainer.”

Still, HPE doesn’t expect to close on the Juniper acquisition until late this year or early next, and it admitted that it’s likely to struggle in the months ahead. For the current quarter, HPE is forecasting earnings of 36 to 41 cents per share on revenue of $6.8 billion. Both of those numbers are some way below the Street’s targets of 45 cents per share in earnings and $7.12 billion in revenue.

The disappointing forecast sent investors scrambling to jump ship, and HPE’s stock was down more than 4% in late trading.

NetApp grows on rising demand for AI storage

HPE’s results were in stark contrast to those of NetApp, which is a smaller and more focused challenger that primarily rivals it in the data storage infrastructure industry.

NetApp reported fiscal third-quarter earnings per share of $1.94 on revenue of $1.61 billion, up 5% from the year ago period. Analysts had expected the company to report earnings of just $1.69 per share on sales of $1.59 billion. The company also reported a 7% increase in billings, which came to $1.69 billion.

NetApp made its name as a pioneer of high-end, flash-based enterprise storage arrays but these days it has reinvented itself as a hybrid cloud data services and data management company. The majority of its revenue now is derived from the cloud.

The company said its all-flash array annualized revenue run rate hit a new quarterly record, rising 21% year-over-year to $3.4 billion. It comes at a time when organizations are looking to improve their storage infrastructures amid the rise of AI. “Our modern approach to unified data storage, spanning all-flash and cloud environments, is clearly resonating with customers,” NetApp CEO George Kurian said in a statement.

McDowell heaped praise on NetApp, saying the company did exceptionally well during the quarter and was notably the only major infrastructure provider besides Lenovo Group Ltd. to deliver year-on-year revenue growth. He said it benefited from stronger than usual all-flash sales, which were up 21%. “NetApp simply outperformed the market in that segment, which helped lift its overall earnings,” he said.

On the other hand, McDowell said it was surprising to see that NetApp’s public cloud sales declined in the quarter, as all of the major cloud infrastructure providers showed growth. “For NetApp not to follow suit is concerning,” he said. “IT buyers have an increasing number of options for managing data in the cloud, so some of this is likely increased competitive pressure. Whatever the cause, it’s an area to watch over the course of the year.”

Mueller said Nutanix’s cloud transition is going well, aided by the demands of expensive AI GPUs which need data to be served as fast as possible, ideally from flash-based memory. “This is why Nutanix’s all-flash array annualized revenue has hit a record high,” Mueller said. “The good news is that this demand isn’t going away, so Nutanix will likely deliver more good news and results throughout the year. Add to that its track record of operational discipline, we can expect investors to acknowledge this.”

Looking to the next quarter, NetApp said it’s looking at earnings of between $1.73 and $1.83 per share on revenue of $1.585 billion to $1.735 billion. Wall Street is looking for earnings of $1.73 per share on sales of $1.65 billion.

Investors liked what they saw, and NetApp’s stock shot up more than 14% in extended trading.

Photo: SiliconANGLE