Summary
2018 has been a disappointing year for hardware companies.
Hewlett Packard Enterprise is cheaply valued.
Dell Technologies’ IPO can act both as a catalyst (to unlock the value) and as a valuation anchor for Hewlett Packard Enterprise.
Hardware companies like Hewlett Packard Enterprise (HPE) are out of favor on Wall Street. Software is king and hardware is viewed as commodity-like. The resulting low valuation is interesting but not a sufficient reason to invest in HPE. You also need a catalyst to unlock the value. Dell’s upcoming IPO can be that catalyst.
Hardware out of favor
Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) in 2015. HPE still has a weight of 7.5% in Invesco S&P Spin-Off ETF (CSD).
Hewlett Packard Enterprise’s enterprise-level servers, storage, and networking gear faces increasing pressure from Cisco Systems (CSCO) and Dell Technologies (DVMT). At the same time, HPE’s cloud-computing business competes with Amazon.com (AMZN), Microsoft (MSFT), and Salesforce.com (CRM).
IT Hardware is considered one of the sectors Amazon is/might be disrupting. Amazon represents an “existential threat” to the traditional enterprise IT hardware industry, according to Bernstein’s Toni Sacconaghi, as “IT organizations have begun to fundamentally change their thinking about tech spending, as companies increasingly eschew running their own datacenter hardware in favor of outsourcing most of this infrastructure to Amazon Web Services, Microsoft Azure, and Google Cloud Platform.”
