Corporate spending on data center servers, storage, and networking hardware has slowed down, and the largest companies that sell this equipment are faulting macroeconomic uncertainty caused, according to them, by international trade disputes and other geopolitical tensions.
Hewlett Packard Enterprise, Cisco Systems, and Dell Technologies all reported earnings for the last full quarter this month (Dell’s report came Tuesday), and weak enterprise data center hardware purchasing was a common theme across the board.
Cisco started seeing “some weakness” due to global macroeconomics in the quarter before last, CEO Chuck Robbins said on the company’s earnings call earlier this month. It was mainly apparent in service-provider and emerging-markets segments at the time, he said. But the weakness has now broadened to also include enterprise and commercial segments, he said.
“Ongoing global trade tensions and other geopolitical factors have created uncertainty that contributes to an uneven demand environment,” HPE CEO Antonio Neri said on his company’s earnings call Monday. “The elongation of sale cycles we experienced since Q2 continues, particularly in larger deals.”
HPE’s overall revenue was down 9.1 percent in the quarter – to $7.22 billion, according to Bloomberg. Server revenue was down 13 percent and storage hardware dropped 12 percent.
Dell’s data center hardware revenue for the reported quarter was down 6.1 percent year over year, sagging to $8.39 billion. Within the category, servers and networking products dropped by 16 percent, while storage revenue was up 6.9 percent, according to Bloomberg.
The Dell-controlled data center software company VMware did much better, reporting $2.46 billion in revenue for the quarter – a 12-percent increase.
Cisco’s Infrastructure Platforms segment, which includes data center products, declined 1 percent, to $84 million. There was revenue growth from Cisco data center switches, however, driven by Nexus 9000 Series sales, the company said.
Likewise, Cisco’s HyperFlex converged infrastructure hardware drove growth, but a decrease in sales of routing products dragged the entire segment down. Cisco did not specify how much revenue growth it saw from data center switches and HyperFlex.
Execs of the big incumbent data center hardware vendors sought to reassure analysts that the strategies they had in place made them optimistic about the future.
Both Dell and HPE have been reorienting their businesses to focus on subscription-based services to take advantage of hybrid cloud, which they expect to be the architecture of choice for enterprises going forward. That means their customers will want to keep control of at least some hardware that runs their applications and stores their data – not move everything into the giant public clouds run by Amazon, Microsoft, Google, and others.
Hoping to recreate the cloud user experience in their customers’ own data centers, they are marketing on-premises hardware services, where customers order equipment through a web interface and get it delivered, installed, and managed by the vendors while paying only for the capacity they use and the time they use it for.
Dell and HPE are also positioning themselves as end-to-end infrastructure providers for the modern enterprise, from core on-prem and cloud data centers to the edge.
Customers “need a technology partner that has the expertise, the tools, and a flexible delivery model to help them harness the power of their data across all their clouds and edges,” Neri said. “HPE is uniquely positioned to meet these needs and provide a consistent cloud-like experience for apps and data everywhere.”
Robbins has been repositioning Cisco in hopes of making it less dependent on hardware sales and more on software and services.
In the shorter term, however, what will help the overall market is less uncertainty and more “clarity,” Robbins told analysts earlier this month:
“If you just go around the world right now and you look at what's happening in Hong Kong, you look at the China-US trade situation, you look at what's going on in DC, you've got Brexit, you've got uncertainty in Latin America.” If these issues “get resolved, then you could see some of the uncertainty removed… Business confidence just suffers when there's lack of clarity, and there's been lack of clarity for so long that I think it finally just came into play.”