HPE Is Exiting the Cloud Server Business
Hewlett-Packard Enterprise is getting out of the cloud server business. That means it will no longer sell low-end “commodity” servers to large cloud computing customers like .
It has proven to be an exceedingly tough business for traditional hardware makers because while they may sell huge volumes of cloud servers, profits are slim to none. The target customer is companies like Microsoft , Web Services, or , each of which can (and do) negotiate huge discounts. Insult to injury, most of these cloud companies go directly to contract manufacturers in Taiwan or China to have servers built to their specifications at low cost. They don’t need or want to pay for name-brand servers.
On Wednesday, HPE president Antonio Neri said the company will stop selling custom-designed commodity servers such customers, which HPE calls Tier 1 service providers. It will, however, continue to sell higher-end (and more profitable) servers to them. Neri was speaking at HPE’s analyst day in San Francisco.
It’s not clear how many Tier 1 customers are willing to buy higher price HPE Proliant or other branded servers.
Related: HPE Blames One Big Customer for Storage and Server Slump
HPE under CEO Meg Whitman continues to push powerful, high-end servers and storage--as well as “converged hardware” that combines both functions--into large corporate accounts. That can be a very profitable business, but the problem is that many of its targeted Fortune 500 accounts are putting more of their own software and data in AWS, Microsoft, or Google clouds. That means they have less need for servers to use in their own data centers. HPE is not alone in this dilemma; the shift also drove to sell its Intel-based server business to Lenovo three years ago.
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HPE’s predecessor company Hewlett-Packard entered the commodity cloud server business three years ago when it signed a deal with Foxconn, the huge Chinese contract manufacturer, best known for building iPads and iPods to Apple’s specifications.
But Whitman as been signaling since early this year that all was not well with the cloud server business. In February she said that first quarter earnings were dinged because a single large customer (which turned out to be Microsoft) unexpectedly cut back on its expected server order. In June, when server sales continued to swoon, Whitman indicated that HPE had to evaluate if it should stay in that business.
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