On the whole, enterprise hardware and software firms have shared very different numbers and commentary since October.
A long list of enterprise server, storage and networking hardware suppliers, including IBM (IBM) , Cisco Systems (CSCO) , NetApp (NTAP) , Pure Storage (PSTG) and most recently HP Enterprise (HPE) , have shared (to varying degrees) disappointing hardware sales figures and/or guidance over the last several weeks.
On Monday, HPE, whose shares are down about 8% post-earnings, reported its October quarter revenue fell 9% annually, a bigger decline than the July quarter's 7% drop. HPE's Hybrid IT segment, which covers servers, storage and IT services, saw revenue drop 11% to $5.67 billion, while its Intelligent Edge segment, which covers networking gear, saw revenue drop 6% to $723 million.
Cisco, for its part, reported two weeks ago that its Infrastructure Platforms segment, which covers the company's core hardware businesses and related software, saw revenue drop 1% annually in its October quarter. The company also disclosed that its enterprise product orders fell 5% annually, as did its "commercial" orders, which involve small and mid-sized businesses.
Around the same time, NetApp reported its October quarter revenue fell 10%, with product (storage and software) revenue dropping 16%. The company also guided for its fiscal 2020 (ends in April 2020) revenue to drop 8%.
And last month, IBM reported its Systems (hardware and operating system) revenue fell a worse-than-expected 14.7% in Q3. Big Blue's Q4 Systems growth should be stronger thanks to the recent launch of its z15 mainframe, but it's worth noting that Q3 saw sales declines not only for mainframes, but for IBM's Power servers (down 29%) and storage products (down 4%).
A recurring message as enterprise hardware firms discuss their recent sales pressures: Macro headwinds are affecting deal closings. Cisco and NetApp have mentioned it on their earnings calls, and HPE did the same on Monday, with CEO Antonio Neri stating that "trade tensions and geopolitical factors continue to cause business uncertainty, particularly [for] larger enterprise deals."
But as enterprise hardware vendors keep reporting macro pressures, their software peers are still reporting strong growth, while often stating that macro headwinds are limited or non-existent.
Microsoft (MSFT) is a good case in point: The software giant comfortably beat September quarter estimates last month on the back of 14% revenue growth, and offered a solid December quarter outlook outside of its gaming business, which is affected by console cyclicality. Microsoft recorded 30% commercial bookings growth, and CFO Amy Hood suggested on the earnings call that macro issues aren't having a major impact.
SAP (SAP) did note that it's seeing some macro challenges in Asia, and among German automotive and manufacturing clients. But the company still reported 10% Q3 constant currency (CC) revenue growth and reiterated full-year guidance for cloud and software revenue to grow 8.5% to 10% in CC.
Along similar lines, Salesforce.com (CRM) , which reports on Dec. 3, said at last week's Investor Day that manufacturers "are certainly feeling the pinch" from macro and trade uncertainty, but added that such uncertainty "really hasn't affected our business" due to projects involving Salesforce's software being corporate priorities. In addition, cloud software vendors such as ServiceNow (NOW) and Anaplan (PLAN) have indicated on their calls that they're not seeing any macro headwinds.
Top public cloud services platforms are also still seeing strong growth, while giving no indication that macro headwinds are a significant problem. Though a little below analyst estimates, Amazon.com's (AMZN) AWS revenue still rose 35% in Q3 to $9 billion. Microsoft reported 59% Azure growth, and Alphabet (GOOGL) indicated that the Google Cloud Platform (GCP) contributed strongly to the 39% growth recorded by its Google Other reporting segment.
Given how differently major enterprise software and public cloud players are performing relative to their enterprise hardware peers, it's fair to say that whatever macro pressures that happen to be currently affecting IT spending aren't affecting all types of spending equally.
It might also be fair to say that issues other than macro pressures are also hurting enterprise hardware spending. Specifically, cloud infrastructure adoption and (as highlighted by industry estimates) an ongoing shift in IT spending towards software, security and cloud services, and away from on-premise hardware and traditional IT services.
In some ways, the numbers shared by Cisco are telling here. While Cisco's Infrastructure Platforms revenue fell 1%, its Applications segment, which covers many of its software businesses, grew 6%. And its Security segment, which covers a variety of security hardware, software and cloud services, grew 22%.
Though Cisco's enterprise sales may indeed be getting stung by macro pressures, those pressures seem to be having much less of an impact on the parts of its business that are on the right side of secular IT spending trends.
And more generally speaking, while investors shouldn't lose sight of valuations either -- many enterprise software firms still trade at elevated multiples, while their hardware peers often carry much more subdued valuations -- one also can't lose sight of where CIOs are choosing to spend more money and where they're often choosing to spend less.