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HPE's first standalone year ticks most boxes – except Donald Trump's

More jobs going, or going offshore, even if cash stash comes home tax-free

Hewlett Packard Enterprise (HPE) has posted its first full-year results as a discrete entity and says it has ticked most of the boxes it said it would when it spun itself out and then started selling bits of itself off.

The headline figures for Q4 aren't brilliant: revenue was US$12.5bn, down 7.7 per cent year on year. GAAP non-diluted earnings per share were $0.18, rather lower than the previous outlook of $0.44 to $0.49. If you use non-GAAP accounting, that number was $0.61 and a little towards the upper end of guidance. Cash flow from operations was up 44 per cent to $2.2 billion.

The latter number, and the company's pleasure at announcing it more net cash to hand than it's had since 2009 – a cool $7.3bn - needs to be seen in light of remarks made later in the earnings call about Q1 being the worst cash-generating period of the year. It's also the period during which the company makes bonus payments to staff.

For the full year, HPE hauled in $50.1bn, down four per cent in from the previous year but up two points when you factor in currency fluctuations and the sale of various assets. Earnings per share were $1.82, down from $2.09 last year.

President and CEO Meg Whitman said the result “is proof that we’re on the right course” as the company now “has the ability to better respond to the constantly evolving marketplace, while generating long-term value for shareholders. The leadership team can dive more deeply into products, have more time to spend with customers and partners, and can constantly develop our strategy.”

Whitman made that assessment because key products such as “high performance compute, Cloudline servers, all-flash storage, converged systems, mission critical systems, and networking with Aruba” all grew during FY 2016.

The same goes for converged and hyperconverged systems, both of which Whitman called out as examples of HPE's success.

She also opined that edge computing will soon take off and that HPE's portfolio of networking and server products will help it to become “The IT in IoT.”

She was also bullish on the prospect of HPE's technology services offering, which she says is performing well, growing nicely and offers a pleasing margin. Except in the UK, “due to a persistent slowing in the … public sector business.”

But Whitman sees upside for HPE as divesting the majority of its services business means its remaining people-for-hire business is no longer seen as as a threat by the likes of PWC, Accenture or India-based technology consultancies. With competitive tension gone, Whitman feels such companies will soon help HPE to sell more kit. Which it needs to: core server sales are soft and blade servers were down, although Whitman said the forthcoming “Synergy” composable infrastructure range should sort that out.

HPE FY 16 Financial data

HPE's first year, in numbers

The company's earnings call also made several mentions of ongoing cost-cutting and right-sizing as a tactic to improve margins and boost profits. Chief financial officer Tim Stonesifer also mentioned the company's plan to put more people in low-wages locations has now reached 51 per cent of headcount, still short of the company's 60 per cent goal.

Which doesn't sound like HPE is paying much attention to United States president-elect Donald Trump's wish to return jobs to America.

Stonesifer also failed to directly answer a question about Trump's plan to allow US companies to repatriate cash held offshore. The USA currently taxes cash brought in from abroad, even if it a US-based multinational paid tax on it overseas. Many US companies therefore keep their cash offshore, a situation Trump has decried as depriving them of capital. Asked if a change to that policy would see HPE bring cash home to invest at home, as Trump hopes, Stonesifer said only that HPE would maintain its current capital allocation policies and pointed to recent higher-than-expected returns to shareholders.

The overall tone of the call was the HPE's leadership thinks it has done pretty well in its first year as a standalone entity, while also quietly putting in place the products and structures that will enable acceleration.

Which is not to say the company is home free: HPE is not alone in contesting the converged systems and all-flash storage markets that it says are doing well. Indeed, a vendor that couldn't report 100 per cent growth in all-flash arrays is currently more remarkable than one that can, such is interest in the technology.

Whitman also admitted the company needs to become more steady saying that “The first-half was faster growth, lower margin; second-half of the year was lower growth, higher margin; and now we’ve got to drive down the middle of the highway for next year.” Good luck with that, given the Q1 problems mentioned above.

Some of the company's plans will emerge next week at the HPE Discover event in London, which Whitman said would feature “exciting product announcements across hybrid IT and the intelligent edge”. ®

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