Hewlett Packard Enterprise (HPE) is shutting down its cloud server business as it’s no longer profitable and sustainable for the company.
Over the last few years, HPE was supplying low cost cloud servers to large cloud companies like Microsoft and Google. According to industry experts, these large companies negotiate and get large discounts, and this means, HPE is left with little to no profits. But at least, HPE was covering its costs and this segment continued operating.
However, the last few years, things took a downturn for this company. Instead of bargaining and negotiating for discounts, Microsoft, Google and other companies began to directly approach the suppliers in China and Taiwan to build low-cost cloud servers, thereby cutting out HPE’s role and profits.
This change in strategy by HPE’s large clients has hit its revenue. During the first quarter, for example, HPE’s profits plunged because Microsoft canceled a large order. In June, sales dropped further. Obviously, it makes no sense for HPE to continue fighting in this market and that’s why it has decided to exit this segment.
A company spokesperson said that HPE will continue to sell high end servers, that’s more profitable and tenable to the company. In fact, HPE’s CEO, Meg Whitman, has been pushing high end cloud servers including converged hardware to its clients, and this move has been working for the company.
Again, the longevity of this strategy is questionable simply because more Fortune 500 companies are moving their operations to AWS, Microsoft and Google because of the many benefits that come with it. As a result, they are no longer inclined to invest in the high-end cloud servers offered by HPE.
In all, this is a difficult situation for HPE and it has to come up with an out-of-the-box solution to get out of this dilemma. IBM faced a similar situation three years ago and eventually, it sold its cloud server business to Lenovo. Maybe HPE can also think along the same lines, provided it’s able to find a buyer for its business.
In the meantime, it’s going to be a tough road ahead for HPE.
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