Traditional enterprise server and storage sales are under pressure, and HP Enterprise( HPE ) - Get Reporthasn’t been immune to the downturn.

HPE fell 5.8% in after-hours trading Tuesday to $11.86, and made new 52-week lows, after the IT hardware giant reported January quarter (fiscal first quarter) revenue of $6.95 billion, down 8% annually and missing a $7.21 billion consensus. Non-GAAP EPS of $0.44, which benefited from gross margin growth, spending cuts and stock buybacks, was up 5% and in-line with consensus.

HPE reiterated fiscal 2020 (ends in Oct. 2020) EPS guidance of $1.78 to $1.94. However, citing the impact of “supply chain disruption” on cash conversion cycles, the company cut its fiscal 2020 free cash flow guidance by $300 million to a range of $1.6 billion to $1.8 billion.

In addition, citing uncertainty about the COVID-19 outbreak’s impact on both its supply chain and customer demand, HPE declined to provide an April quarter EPS outlook. And on its earnings call, HPE said its fiscal 2020 revenue is unlikely to be up (the pre-earnings consensus was for revenue to be down 0.8%).

The numbers come after peers Dell Technologies( DELL ) - Get Report, NetApp( NTAP ) - Get Reportand Cisco Systems( CSCO ) - Get Reportalso reported data center hardware sales declines for their January quarters. Regional macro pressures and the passing on of lower memory costs have been headwinds, but so have public cloud infrastructure (IaaS) adoption and a secular shift in IT spending towards software and cloud services.

For its part, HPE said its January quarter sales were hurt by “uneven and unpredictable demand” due to macro uncertainty, as well as component shortages and North American manufacturing capacity constraints caused by consolidation efforts.

After HPE’s call, I once more had a chance to talk with CFO Tarek Robbiati. Here are some notable comments that Robbiati made, slightly edited for clarity.

On the performance of HPE’s Compute (mainstream server) business, and the factors that led Compute revenue to drop 15% even as units rose by a mid-single digit percentage excluding China and “tier-1” cloud service providers.

“The reason why the revenue is down and the units are up excluding tier-1 and China is the pressure on price. It’s not the mix effect on the configuration...but there is price pressure because commodities are down. And therefore, we had to pass on some of that benefit from commodities pricing to customers.

“But when you look at net-net, what has happened, our gross margins between the price and the cost...have gone up across the company by about 230 basis points.”

On whether HPE, like Dell, sees server revenue returning to growth later this year.

“We do expect this trend...between price and cost of commodities to reverse. The reason being, at some point commodity prices will go up again. And therefore, at some point, the price has to be lifted up again. And so, we are...closer to that inflection point.

“And we do so see also...the need to have more and more powerful machines to cater for more and more data-processing. And that is also a positive for the server business.”

On whether -- at a time when public cloud giants continue seeing strong growth -- if HPE has seen any changes in what customers are telling it about cloud adoption.

“It’s the same. I think the important thing here is to understand that what customers are considering is a different experience that is cloud-like on-prem[ise]. And this is why our GreenLake offerings are so successful…[Their orders rose] by 48% in the quarter.”

“There is a great opportunity for us to change the way our customers not just pay for the services, but actually consume IT infrastructure through us on-prem, under their control, which is a major differentiator relative to the cloud.

The cloud continues. There are some workloads it makes sense to go into the cloud with. Others, probably not.”

On how HPE expects the growth rate for the annual revenue run rate (ARR) for its “as-a-service” hardware solutions to trend, following 19% January quarter growth.

“The annual revenue run rate...was up 19% year over year. And if you think about where that is going, the funnel that fuels ARR is the GreenLake orders. The GreenLake orders are at 48%. That’s the funnel that feeds the balance sheet, and revenue is recognized over time and the ARR therefore is recognized over time. As long as the funnel is strong, then ARR will eventually accelerate.

“Now, it doesn’t happen linearly over the course of the year, but it does accelerate. And that’s why we guided we would be driving an annualized revenue run rate for our as-a-service business in the 30% to 40% compounded annual growth rate range [from fiscal 2019 to fiscal 2022].”

On whether HPE (like others) is starting to see DRAM and NAND flash memory prices rise, and how this will impact its gross margin going forward.

“Our gross margins expanded 230 basis points year-over-year in the [past] quarter. And that is a function of the fact that those commodity costs are going down. And though we passed some of those benefits to customers...we didn’t pass as much of the cost [changes] by way of price.

“So that is underpinning our gross margin performance. Having said that, moving forward, we do believe that those commodity costs will increase, and therefore that trend will reverse.”

On where HPE is seeing component supply constraints, and if those constraints are expected to continue through this quarter.

“[The] usual suspects are there [for component constraints]. CPUs, SSDs, pretty much across the board.”

“Much depends on what happens to factories. The complication factor here is coronavirus, and factories are coming more and more online, but not at a 100% capacity utilization...You can [see] all the press releases from various players. They point to a stabilization of the factory/manufacturing environment, with capacity ramping up. [But] we’re not yet at 100% capacity.

“So, how quickly will that happen...there we have some insights. But I do believe the situation remains fluid because of coronavirus. It really depends on what happens with that.”