Putting it bluntly, Hewlett Packard Enterprise (NYSE:HPE)isn't what it used to be. At one point it was a powerhouse in the business computing arena. But the advent of cloud computing made it much easier for other technology companies to enter the tech-services fray.

Hewlett Packard Enterprise did respond to the shift, for the record. After splitting with its consumer-oriented computer and printing division (now called HP) in 2015 so each arm could better focus on its particular customers, Hewlett Packard Enterprise has continued to narrow its focus. Of the fiscal fourth quarter's $7.2 billion worth of revenue, nearly 80% was driven by hybrid IT products that unite public and private cloud computing solutions. In the meantime, the company has drilled even further into the hybrid IT arena with its considerable R&D work on the "edge computing" front, where physical hardware meets digital data. It now plans on selling this hardware and software combination on a subscription basis, making it even easier for information technologists to purchase the tools they need.

The challenge for investors is that the company's growth is expected to stabilize in the low single digits for the next three years. And even then, there's not much of a defensive moat around the hybrid IT and edge computing technologies Hewlett Packard Enterprise has developed and now doubled down on.

New technology is forcing adaptation

Don't let the jargon intimidate you. Hybrid IT is simply the use of public (off-site) and private (on-site) networks. As it turns out, not everything has to be stored or calculated remotely.

Photograph of technology assmebly line's robotic arm

Image Source: Getty Images.

Edge computing is also a fairly simple idea. Rather than send data gathered in one place -- say, by a sensor -- to a cloud-based server bank somewhere else only to then send processed data back to its original source, number-crunching takes place where it's initially gathered. This approach doesn't consume valuable bandwidth, and it's generally faster. Indeed, edge computing is critical to the nascent Internet of Things movement, as it will let devices like a HVAC system, a factory's production line, or even a delivery driver perform autonomously without constantly sending and receiving information via the cloud.

It's this sliver of the market where Hewlett Packard Enterprise sees its biggest and best opportunity: assisting enterprise-level customers in managing such infrastructure. As Phil Davis, President of HPE's hybrid IT unit, alluded to attendees at a mid-2019 industry conference: "You want to be able to analyze and act on data at the edge, while increasingly leveraging the power of artificial intelligence to automate the action on that data." Davis added that by 2023, enterprises will create 70% of their actionable data at the edge rather than in a remote cloud.

That rhetoric surfaced in conjunction with the company's public decision to begin offering subscription-based access to its hybrid IT and edge computing services. Hewlett Packard Enterprise then took a big step further down that road in December when it officially unveiled the interface that will let its subscription customers manage their entire company-based hybrid IT service.

It all seems like a strategic shift in the right direction. But there's more to the story for investors mulling a move into HPE while shares are trading at less than nine times next year's projected earnings.

Two things not to like about the strategy

Given the backdrop, Hewlett Packard Enterprise's new strategy makes enough sense. Hybrid IT solutions (and edge computing in particular) solve a lot of problems introduced by the advent of digital clouds, and subscriptions are the new norm within the tech world. There are two potential pitfalls lurking within Hewlett Packard Enterprise's new ultra-focused strategy, though.

One of those pitfalls is the simple fact that there's little preventing another technology company from competing head to head with the company. As Morningstar analysts penned in October, "We do not expect HPE to gain a long-term competitive advantage over peers that offer similar portfolios or pure-play companies focused on a sole aspect of HPE's offerings." HPE arguably has an edge with its edge-to-cloud capabilities, but other players could still readily invade the space too. (Nicholas Rossolillo looked at several edge computing names in August that could easily throw a wrench in Hewlett Packard Enterprise's works.)

The other reason would-be buyers may want to be cautious? For all the cheerleading the company has done regarding its reinvention, per its most recent guidance update Hewlett Packard Enterprise is still only modeling annual revenue growth of between 1% and 3% through fiscal 2022. That's on par with the sort of tepid growth utility companies tend to produce.

Too much risk for too little reward

Don't misread the message. Given its somewhat limited options, HP Enterprise is making a smart move, perhaps the only move it can feasibly make at this time. The current competitive landscape all but requires the company to take on a different selling approach that limits growth. And its edge computing offering addresses a complex problem many enterprise-level organizations are increasingly facing, with few other direct solutions available just yet. The company will probably continue attracting enough customers to remain viable, while changing nothing at all could prove problematic.

There's just not enough growth potential on the table compared to prospective competitive risks, however, to choose HPE over most other stocks in the technology sector right now. In fact, as potent as its hybrid IT product and service lineup may be, it would be nice to see the company diversify its product portfolio a little more, rather than doubling down on a competitive market that already makes up four-fifths of its revenue. There's such a thing as being too focused, particularly when your chief revenue drives are increasingly looking like a commodity.