Can Enterprise Vendors Transition as Well?

People often say they want change, but few actually enjoy it when it happens – especially in business. Unfortunately, the enterprise industry is embarking on the most momentous change in its history and this is raising serious doubts as to the future of many of the sector’s established vendors.

The bad news keeps coming for traditional hardware like servers. In the past week, both IDC and Gartner reported the fifth straight quarter of revenue declines, which is attributed to the increased use of cloud infrastructure over local data center resources. This gives commodity manufacturers, mostly in the Pacific Rim, an edge over the integrated hardware/software providers that have supplied the traditional enterprise for decades. Both firms saw a decline in sales of about 4.5 percent, with total revenue in the neighborhood of $12 million to $12.5 million.

Analysts seem to be particularly worried about HPE, which has been trying to position itself for a changing data center landscape for several years but has frankly made some moves that leave many people puzzled. For one thing, says Seeking Alpha’s Jay Wei, there were the decisions to spin off enterprise software and services to providers like CSC and Micro Focus, leaving HPE itself centered on core server, storage and networking gear – the exact systems that are giving ground to the tighter-margin commodity players.

But sticking with services and software does not seem to be the magic bullet either. Just ask IBM. Big Blue shed its PC and server businesses long before the transition to commodity hardware was a relevant factor in the enterprise, but the company has yet to reverse a sales decline that began six years ago, says Investopedia’s Michael Kramer. HPE is only two years into its post-break-up cycle, and it has already admitted that it is expecting steadily decreasing hardware sales for top-tier companies, one of which is widely believed to be software-developer-turned-cloud-provider Microsoft. (Disclosure: I provide content services for IBM.)

Meanwhile, Dell-EMC is still a question mark following its recent merger. On the one hand, as CIO Dive’s Naomi Eide notes, top executives are at least talking a good game when it comes to helping manage the enterprise transition to a digital business model. On the other, the company is still steeped in integrated server and storage platforms that are clearly not the preferred solutions for large cloud providers. But if the company is successful at becoming a solutions partner, offering a mix of systems, services and expertise, it could very well carve out a unique niche in the age of virtualized, scale-out architectures, which of course may or may not allow the company to maintain its revenue base at current levels.

The old guard of IT infrastructure does have one thing going for it: trust. These are companies with long-standing relationships with enterprise users, channel providers, consultants, integrators and everyone else that works in the distribution chain. With data systems forming the critical element in the future health of the enterprise, it is unlikely that these networks will be cast aside on a whim.

On the other hand, it is becoming quite easy to shift workloads to the cloud, and as experience grows so will the trust in this new form of IT. At this point, any vendor who is attempting to harden their business model against the rise of service-driven workflows and virtual, abstract architectures is making a serious strategic blunder.

Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.