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HPE sales slide, profits evaporate... but think of the future, CEO urges

Component shortages, forex and 'stiff competition' blamed for Q2 crappiness

The long feted turnaround of Hewlett Packard Enterprise has yet to show up after the misfiring tech corp reported another set of quarterly declines, and it’ll surprise no one that cost cutting is going to feature heavily once again.

Revenue from continuing operations dropped 13 per cent to $7.44bn, as all but the Financial Services division posted shrinkage for the three months ended 30 April, albeit in line with company forecasts.

In the enterprise group, server sales fell 14 per cent to $2.99bn; technology services was down 2 per cent to $1.97bn; storage slid 13 per cent to $699m; and networking dived 30 per cent to $582m.

Similarly, the trend in the Software division - the outgoing unit that is about to merge with Micro Focus later this year - was down. Turnover here fell 11 per cent to $685m. Financial Services grew by 11 per cent to $872m.

HPE CEO Meg Whitman - who carved out the PC, print, Enterprise Services (ES) and Software units and oversaw acquisitions including Aruba, SGI, Simplivity and Nimble Storage - sought to put a brave face on the Q2 results.

“These were all the right strategic moves for HPE’s long-term success, but these were not done in a vacuum,” she said on a conference call, “In fact, we’ve been reengineering our company while facing challenging market conditions, including stiff competition, unfavourable foreign exchange movements and industry-wide commodities constraints”.

Competition in servers comes from the ODMs building kit for service providers, the SSD component shortage has been a factor, but for-ex hasn’t moved much of late.

Whitman attributed the revenue slide to “reduced server demand from a single tier one customer and lower license and professional services sales in software”.

She claimed that “despite some current headwinds”, there was plenty to be sanguine about including a 20 per cent lift in HPC revenue, 33 per cent in flash and 32 per cent in wireless networking.

Operating margin fell 2.9 basis points to 2.4 per cent, hit by “structural changes including the year-over-year impact from our H3C divestiture”; the overhead implications of acquired entities; and the rising cost of components that HPE said it was unable to offset with its own price rises due to the hyper competitive, particularly in the US and EMEA.

“Given these margin pressures, we’re taking significant steps to optimise the cost structure of the future HPE and believe we can drive an incremental $200 million to $300 million in costs savings just in the second half of this year,” said Stonesifer.

This will be done with a mix of “tight control over spending and simplifying the organisation through delayering and spend control actions as we become a smaller, more nimble company,” the CFO added.

Expense management was already evident in the Q2 results with total costs and expenses down to $7.26bn from $8.05bn in the year ago period, but this, coupled with interest costs and taxes, left HPE nursing a net loss of $612m, versus a profit of $320m the year before. ®

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