In the latest HP Quarterly Financials, (HP Q3 2014 Financials show declining storage business) HP showed some improvements year over year in topline growth and profitability, but again showed a declining storage business while the Enterprise business overall grew.
Enterprise Group revenue was up 2% year over year with a 14.0% operating margin. Industry Standard Servers revenue was up 9%, Storage revenue was down 4%, Business Critical Systems revenue was down 18%, Networking revenue was up 4% and Technology Services revenue was down 3%.
In a statement Meg Whitman said :
"3PAR returned to double digit growth, and we continue to gain share in the midrange. As the markets shift incresingly from high end to mid range it is pressuring overall market growth but I believe this plays into a sweet spot for HP, which bodes well for us in the long term."
This latest drop in HP storage takes the revenue below $800M for the first time in my memory and it is not clear to me how HP is well positioned in the Mid-range. 7 years ago HP was busy refoccusing the storage business, (I was there at the time as Marketing Director for HP storage), EVA was in decline, they had had to outsource MSA to DotHill and at the high end they had an HDS OEM relationship for the XP. The strategic investment was in server based storage for the mid-range. HP was one of the first organizations to decide to fully embrace the software defined storage model. At least they were internally. HP went about aquiring the technology it needed to capitalize on it's server prowess to change the game in storage. They aquired LeftHand Networks for the Midrange and IBRIX to develop scalable file based solutions built on top of servers. They had innovative hardware developments aimed at the converged market to run both server and storage on a single clustered platform as well as plans to develop SSD caching models and all SSD based solutions based on the acquired technologies. Internally investments were being redirected to these initiatives. It was clear that the midrange would be king and that clustered solutions were going to be necessary within the midrange to achieve scale. HP had a unique opportunity to converge servers and storage and change the game.
So what happened? Where are these solutions now?
With the 3PAR acquition in 2010 that strategy changed. Dave Donatelli made a bold move to try and in one fell swoop replace the EVA and strengthen HP's Midrange and Enterprise offerings with a single acquition designed to deliver a top to bottom solution for HP. Mark Hurd had cooled on the aquisition as the storage team had not yet proved they could develop an aquisition to be big. Mark Hurd though was suddenly gone paving the way for a $2.3B acquisition after a bidding war with Dell. Not surprisingly, with that much money spent, 3PAR became HP storage with all else subsumed under it.
The 3PAR heritage was at the top of the midrange and the bottom of the high end. They had found success in a niche where service providers were looking for a consolidated storage platform and in the "noughties" there were not that many good choices. Investment choices at HP now switched to make sure that 3PAR was succesful. That included sales and marketing as well as engineering and advanced development plans. HP had EMC in it's sights but at the same time a bunch of startups had midrange customers, convergence and the cloud in their sites, (Tegile, Solidfire, Nimble, Pure Storage, Nutanix etc.), and the emergence of cost effective solid state solutions to fuel them. Although 3PAR was built on an X-86 architecture it was very much a "traditional" Storage model.
- Is it easy to use? Yes but compared to the old school not the new school
- Does it have great performance? Yes, but at what price vs more nimble competitive offerings.
- Is it highly reliable? Yes, but new data protection models have closed the gap.
Dave Donatelli always said that 3PAR was the architecture for the next 10 years because it was build around year 2000. The argument was that storage technology took 10 years to mature and therefore 3PAR was new next to HDS and EMC offerings. The problem was that did not comprehend that speed of innovation increases. Nimble Storage and others will not take 10 years to mature.
3PAR itself is growing within HP. It is back to double digit growth in the latest quarterly report. However this is within a declining overall storage business. It remains to be seen if 3PAR can innovate fast enough to fulfill Donatelli's vision. The current evidence though suggests it can not. That means HP is going to have to find another way to fuel it's storage revenue growth to add to 3PAR growth.
I for one hope it can.
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