Oct 23, 2017 1:06 PM PT

HPE gives up the battle for tier 1 data center customers

HPE bows to the reality that ‘white box’ vendors have it beat. It will no longer try to sell commodity hardware to tier 1 customers such as Amazon, Facebook and Google.

A few weeks back I told you how white box vendors, those Chinese-made, unbranded server vendors that compete with HP Enterprise and Dell EMC, were taking a sizable chunk of the business from the brand-name vendors.

Well, now HPE has made it official and announced it will no longer try to sell commodity hardware — the cheap, low-end servers used in abundance in public-facing data centers — to tier 1 customers like Amazon, Facebook, Google and Microsoft. 

HPE president Antonio Neri made the announcement at HPE’s analyst day event last week. He added that HPE would continue to sell higher-end servers to those vendors.

It’s not an original strategy. Oracle made the same move in 2010 when it acquired Sun Microsystems. One of the first announcements Larry Ellison made was that Oracle would not pursue the low-end commodity market, and he’s been true to that word. The company doesn’t sell a lot of Exadata, Exalogic and other network appliances, but when it does they are massively decked out with lots of CPU cores, memory, flash storage, and traditional storage, and they sell in the millions.

Also, to a point, IBM did the same thing when it unloaded its x86 server business to Lenovo in 2015. IBM had been paring down its commodity businesses for some time, and that was just the latest. The company’s hardware business is now confined to z Series mainframes and Power-based servers, which, like the Oracle servers, don’t sell in massive numbers, but they are very high end and very expensive. 

The move also reflects HPE’s continued efforts to pare down its business and focus on the more profitable lines. It sold off its software business to U.K. software giant Micro Focus (that Autonomy purchase really worked out well for them, didn’t it?) and sold off its services division to independent services giant CSC.

It’s not like HPE was spinning its wheels in the cloud infrastructure market. According to Synergy Research, HPE held an 11.5 percent market share of cloud infrastructure servers in Q4 of 2016, a respectable showing.

Chinese 'white box' makers gaining a foothold in the U.S.

But it’s a crowded market with low margins and a lot of competition, and the Chinese are gaining more and more of a foothold in the U.S. Companies such as Quanta and SuperMicro are becoming real competitors. And they are perfectly willing to live with single-digit profit margins, whereas their American competitors are not.

I like to read one of the last computer print publications out there, called CPU, or Computer Power User. It’s for geeks like me who prefer to build their own PC. Amid all the ads for water cooling and colored lighting, I regularly see full-page ads from SuperMicro, offering things like all-flash storage arrays and ultra-dense compute racks. 

SuperMicro isn’t foolish. They know that CPU’s readers are system builders. They are going where the influencers are. I expect to see more from its competitors before I see ads from Dell EMC and HPE. 

So, how long before you have a “white box” server in your data center?