Hewlett Packard Enterprise Co.'s Deal With Samsung Is a Win-Win

By Markets Fool.com

Much of the news coming out of the HP Enterprise (NYSE: HPE) camp of late has revolved around CEO Ginni Rometty's bold spinoff and merger agreements, and rightfully so. Combined, the agreements to spin off and then merge its struggling enterprise services unit with Computer Sciences Corp. (NYSE: CSC) and do the same with much of its software division with U.K.-based Micro Focus (NASDAQOTH: MCFUF)have a total value estimated at $17.3 billion.

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In addition to unlocking value from the soon-to-be-former divisions, a critical component of Whitman's spinoff plan is to take "another important step in achieving the vision of creating a faster-growing, higher-margin, stronger cash flow company." The spinoffs will leave HP Enterprise better aligned with its core competencies of providing secure, hybrid IT solutions including software-driven infrastructures for the world's data centers, delivered via the cloud.

Included in a leaner, meaner HP Enterprise is targeting the world's telecoms, many of which are still utilizing outdated infrastructures and networks not based in the cloud. Now, with the assistance of longtime partner Samsung (NASDAQOTH: SSNLF), HP Enterprise is tackling this skyrocketing market with an industry-specific suite of solutions.

Image source: HP Enterprise.

Welcome aboard

In December of last year, HP Enterprise introduced its OpenNFV Solution Portal, which is comprised of an open network functions virtualization (NFV) platform to provide the world's communication service providers (CSPs) with what amounts to a one-stop shopping alternative. At the time, HP Enterprise already boasted "more than 60 Open NFV [network functions virtualization] partners."

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The goal is to offer CSP customers an easier, more cost effective means of "accelerating their (CSCs) journey to the telco cloud" by implementing NFV and virtual network functions (VNFs). VNFs are essentially integrated apps on an NFV foundation. The OpenNFV gives developers access to the platform to add new innovations, which are then tested and verified by HP Enterprise. After a CSC opts for one of the many NFV alternatives, HP Enterprise facilitates the implementation.

Now the 60-plus existing OpenNFV partners can count South Korean-based tech giant Samsung among HP Enterprise's bevy of solution providers. Samsung brings a lot to the OpenNFV table, including an existing carrier network, a "commercially proven NFV solution" introduced in 2015, and its long history of expertise in the telecom industry.

The two sides have agreed that Samsung will "take the lead" in offering VNFs to mobile networks -- something it knows a little something about as the world's leading smartphone manufacturer -- while HP Enterprise will manage the NFV transition. Finally, the partners plan to work on a joint marketing strategy to deliver "ready-to-install" third-party alternatives for CSCs.

What's the big deal?

The effort that HP Enterprise and now its partners including Samsung are focusing on the telecom NFV market may seem a bit overblown given it generated a meager $2.7 billion in revenue last year. However, according to one NFV industry report, the telecom industry is nearing widespread adoption of solutions like HP Enterprise's and those of its partners.

The shift in the telecom industry from a hardware to a software focus is driving the expected change to NFV platforms, which will result in a whopping 42% compound annual growth rate (CAGR) between now and 2020. By then, the market will have mushroomed to an estimated $15.5 billion in sales.

With Samsung joining the NFV team, particularly the joint marketing and sales efforts that are planned, HP Enterprise is poised to jump-start its Enterprise Group sales. After adjusting for divestitures and currency, HP Enterprise's key unit reported flat revenue year over year last quarter.

Considering its plans to spin off and merge Enterprise Services with CSC and the "non-core assets" of its Software unit to Micro Focus, the growth of its Enterprise Group isn't a nicety. Rather, it's a necessity. Thankfully for shareholders, HP Enterprise's latest deal -- particularly thanks to its industry-specific approach -- is another step in the right direction.

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