Hewlett Packard Enterprise Co (NYSE:HPE) has been in consolidation mode ever since it plunged to record lows at the peak of the COVID-19 pandemic at the start of the year. The stock has continued to trade in a tight trading range on struggling to break out. However, heading into year-end, the stock is showing signs of breaking out.
HPE Transition
The breakout stems from growing confidence about its long-term prospects as it pivots to an edge-to-cloud platform-as-a-service. The transition is part of an ongoing restructuring drive as the company continues to search for a compelling identity following its split from HP in 2014.
HPE generates a good chunk of its revenues from the sale of servers currently being used to fuel the cloud computing spectacle. While the company also generates a good chunk of its revenue from offering storage facilities in the cloud, it faces stiff competition in the burgeoning sector.
Amid the stiff competition, Hewlett Packard has sought to transform its entire portfolio to as-a-Service business by the end of 2022. The company has already embarked on a cost reduction strategy as part of the new plan.
The cloud computing giant hopes to achieve $800 million in annual cost saving over the next three years. In the third quarter, the company reported $646 million in transformation costs. Going forward, more restructuring charges should be expected.
Silver Peak Acquisition
In addition to restructuring, HPE has also turned to acquisitions in a bid to revitalize its long term prospects. The company has already closed a $925 million acquisition of SD-WAN network developer Silver peak.
The acquisition is poised to complement HPE’s Aruba ESP Edge Services Platform. It should strengthen HPE’s prospects in offering a comprehensive edge to cloud networking solutions.
SD-WAN is an important market with tremendous opportunities for growth that should benefit HPE’s strategy going forward. IDC forecasts that the SD-WAN infrastructure market has the potential to grow to a 30.8% compound annual growth rate to reach $5.25 billion.