HPE ceases to offer low-end server offerings to tier 1 service providers
Hewlett-Packard Enterprise (HPE) is bowing out of the cloud server game after announcing it is no longer providing low-end commodity servers to tech giants like Amazon, Google and Microsoft.
Last Wednesday, HPE President Antonio Neri announced at HPE’s analyst day in San Francisco it would cease offering low end servers to tier 1 service providers; although, the company said it would continue to offer higher-end servers. It is uncertain if tier 1 service providers will purchase these higher-end servers given the option of contracting with Taiwan or China manufacturers, which can custom build servers at low prices.
The news comes as somewhat a surprise as the company had previously said it intended to rework its cloud server line targeted at tier-one service providers. Although, HPE CEO Meg Whitman did raise questions about cloud server prospects in June, noting the company was heavily reliant one particular customer, namely, Microsoft.
The pivot appears to be financially motivated. It has become increasingly difficult for hardware developers to profit from low-end servers. While HPE provides large volumes of cloud servers to companies like Google and Amazon, these corporations are able to negotiate major discounts, making it harder to profit from such deals. In addition, as noted earlier, many cloud companies contract manufacturers based in Taiwan or China to build such servers.
Although HPE has provided appealing cloud offerings, the company sees Cisco and Dell as in a better place to offer such technologies. Since HPE is dependent on partnerships to provide solutions, it finds it a challenge to boost margins and delivery risk. The company expected it would have a moderate fiscal 2018 with shares falling 4.6% to $14.02 last Thursday. In addition, HPE announced major additional capital returns at its analyst day. Word has been circulating the company plans to ax about 10% of its staff, or a minimum of 5,000 jobs.
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