From Foe To Friend: HP Partners With Microsoft Azure

  • A month after announcing it was shutting its cloud operations, Hewlett Packard has announced that it will now become a preferred partner to Microsoft Azure.
  • The deal will involve HPE becoming a reseller of Azure, which is potentially lucrative for Microsoft given HPE's massive enterprise customer base.
  • The HPE deal should give Azure extra growth runways over the coming years.

From being a top competitor to Microsoft (NASDAQ:MSFT) Azure cloud platform, HEWLETT PKD ENT (NYSE:HPE) will now become a key partner. During the pre-split company’s FQ4 earnings call, which was as its last, HP chief executive Meg Whitman disclosed that Microsoft Azure  "will become a preferred public cloud partner" for the company. Though the exact details of the partnership will be provided later during the week. To return the favor, HPE will "serve as a preferred provider of Microsoft infrastructure and services for its hybrid cloud offerings."

It’s important to note that the new Azure/HP partnership is a much deeper level of cloud cooperation than the ongoing arrangement between HPE and Amazon (NASDAQ:AMZN) cloud, AWS. The partnership between HPE and Microsoft involves HPE actually becoming a reseller of Azure, which should have a large and immediate impact on the cloud’s growth given HPE’s still-massive enterprise sales as well as extensive IT services workforce. In the case of AWS, HP simply offers support for the cloud but does not directly resell the cloud service. This means that effectively HPE will not be reselling cloud services by two rival vendors, which could potentially complicate matters for the companies.

The new deal has come just one month after HPE announced that it was going to shut down its HP Helion Eucalyptus cloud service operations after facing severe competition from well-established cloud players including Azure, which is currently the second-largest cloud vendor, and AWS, the largest player. HPE’s on-premise IT service operations have been badly pressured by cloud adoption. HPQ’s enterprise services division which will be under the new HPE fell 9% Y/Y to $5 billion.

HP Partnership Could Prove More Lucrative Than Rackspace Alliance

Microsoft had struck a similar Azure partnership with Rackspace Hosting, the leading provider of managed cloud services. Rackspace Hosting (NYSE:RAX) now offers managed cloud service directly to Azure customers, and has also become a re-seller of Azure. The deal seems to be working well for both companies, as evidenced by Microsoft’s recent earnings announcement including the fact that Azure had recorded more than 100% Y/Y growth during the last quarter, after having fallen to double digit growth the previous quarter, though Microsoft did not provide any hard figures. Meanwhile, Rackspace managed to comfortably beat both top and bottom line estimates during its latest earnings call, after several disappointing quarters of sub-par growth. Offering managed support services for Azure encourages customers with no prior experience in public cloud operations to join Azure with the help of Rackspace’s fanatical support.

HP’s enterprise services are much bigger than Rackspace’s. Rackspace reported revenue of $508.9 million during the last quarter, or about one-tenth the size of HP’s enterprise services division. The HP deal is therefore a potentially much more lucrative deal for Microsoft than the Rackspace partnership.

Microsoft has one of the most complete, if not the most complete, hybrid cloud strategies of all the major cloud vendors, which could explain why the cloud platform has consistently managed to maintain triple-digit growth for years now. Microsoft applies an agnostic cloud approach that allows companies to build hybrid clouds and shift workloads between Azure and rival clouds such as Salesforce (NYSE:CRM) and, lately, Red Hat (NYSE:RHT), with no vendor lock-in. That’s also the reason why Microsoft dropped the Windows moniker from Azure to signal that even rival operating systems were welcome to the party and not just Windows OS and its cohorts.

Microsoft’s hybrid cloud strategy has been working well, and the HPE deal could prove to be one of the best the company has struck. The deal should help Azure maintain its impressive growth over the coming years.

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