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HPE bets on hybrid IT to combat public cloud

HPE is re-engineering its business to focus on hybrid clouds powered by its recent ProLiant Azure Stack server. We assess the strategy

HPE plans to shift its business to support hybrid IT and technologies such as the Microsoft Azure Stack, which enables businesses to deploy cloud workload in their own datacentres.

Speaking at a security analyst meeting in San Francisco, HPE CEO Meg Whitman said: “Going forward, we will accelerate profitable growth through a focus on higher-margin services and solutions. We will redesign our company to deliver hybrid IT and edge innovations tailored to our services’ strengths.”

One result of this move will be a shift away from selling custom-designed servers to the major cloud providers.

HPE is betting that its existing customers will opt for the Azure Stack – running on its ProLiant servers – to move workloads to the cloud. Unveiled at Microsoft’s annual Ignite conference in September, the HPE ProLiant for Microsoft Azure Stack enables customers and service providers to run Azure-consistent services on HPE infrastructure in their own datacentres to help simplify their hybrid IT environments, said HPE.

At the launch, McLeod Glass, vice president and general manager, software-defined and hyper-converged solutions at HPE, said: “Our customers live in a complex hybrid world that requires tools to simplify and optimise their hybrid IT environment. HPE and Microsoft have a shared vision for making it easier to manage hybrid clouds. By extending our software-defined capabilities to Microsoft Azure Stack, we are simplifying and speeding up deployment of on-premise cloud capabilities, enabling customers to succeed in their digital transformation initiatives.”

Available with four to 12 nodes, the ProLiant Azure Stack can be purchased through HPE’s Flexible Capacity, its consumption-based pricing model.

At its annual Discovery conference in June, the company unveiled Project New Stack, which it said would extend the ability to provide on-demand allocation of resources, operating environments and applications across an organisation’s entire hybrid IT estate. In effect, HPE hopes Project New Stack will enable IT administrators to manage different operating environments from private clouds, VMware environments, Azure Stack, Kubernetes, Docker or other local platforms, as well as link to the public cloud.

Since 2016, the company has fleshed out its infrastructure product range with the acquisitions of Simplivity, SGI and Nimble storage. It has acquired Niara and Rasa Networks for the intelligent edge and bolstered its hybrid cloud strategy by acquiring Cloud Cruiser and Cloud Technology Partners.

Three areas of focus

In a note covering the meeting, financial analyst Berenberg wrote that HPE’s strategy remains focused on three key areas. The first is simplifying hybrid IT using its datacentre technologies, systems software, and private and public cloud partnerships. The second area of focus is to support the so-called intelligent edge. This encompasses its offerings from Aruba in campus and branch networking, and the industrial internet of things (IoT) with products such as Edgeline and the Universal IoT software platform, said Berenberg. The third area of focus is HPE’s advisory, professional and operational services, which Berenberg said will include consumption-based pricing.

The analyst said HPE’s decision to stop selling custom-designed commodity servers to the tier-one service providers (such as Amazon Web Services and Microsoft Azure), while continuing to sell them higher-margin products, was a risky business strategy. “As we have noted before, while such a move will certainly protect margins in the near term, we think it only makes sense if one does not believe that, in the long run, cloud service providers will be hosting the largest part of overall IT workloads,” said Berenberg. “In our view, such an assumption is, at best, a risky bet.”

Read more about HPE’s strategy

The challenge HPE faces is not only that it will expect hybrid IT to remain a big driver going forward, but some of its recent acquisitions appear to be at odds with the company’s hybrid strategy.

For instance, its September purchase of CTP is at odds with a hybrid strategy. CTP is an AWS and Azure partner, with a mission statement to accelerate end-to-end cloud adoption with the “best implementation services, software and intellectual property available”.

Similarly, Cloud Cruiser is a multi-cloud pricing service, which enables businesses to determine their costs associated with running application on Azure, AWS and Google’s GCP public clouds.

And while the company remains the top server manufacturer, according to market analyst IDC, like all server hardware companies, its business is being eroded by the public cloud.

Geographically, IDC reported that server growth from all manufacturers in the US declined 2.3%, Japan declined 4.3%, Western Europe declined 14.3%, Latin America declined 14.6%, and the Middle East and Africa declined 14.8%.

Market continues to struggle

Commenting on the IDC first-quarter 2017 worldwide server market share report, published in June, Kuba Stolarski, research director, computing platforms at IDC said: “The server market continues to struggle to find growth. As the market prepares for the switch to Intel’s Skylake this year, we may be witnessing a shift in how workloads are deployed in the future, and what architectural choices will be made around modularity, operating environments, software and cloud services.

“As indicated by this quarter’s results, one large server customer appears to be betting on a major transition to cloud services, as it alone accounted for approximately 250,000 servers deployed in the first quarter.”

For HPE, hybrid IT may well plug a gap, giving enterprises a way to start moving workloads to the public cloud. But as more workloads are shifted and businesses adopt a cloud-native approach to deploying new applications, over time, less of the on-premise server estate will shrink.

The risk from a CIO strategy perspective is that these internal datacentre servers could become exorbitantly expensive to buy and manage and may well end up as infinitely more complex versions of old-school mainframe systems.

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HPEs acquisitions are not really at odds with their Hybrid strategy. Cloud Cruiser and CTP are definitely "public cloud focused" companies but the public cloud is a component of Hybrid. In line with this thinking, HPE will also strengthen its on-premises consulting capabilities and then bring the two pieces of expertise together. Customers get access to experts for each component of their hybrid framework.
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