HPE hopes COVID-19 clouds will pass as UK limb's sales down for third year in a row

Why does it always rain on me?

Hewlett Packard Enterprise's UK operations were already feeling the squeeze before the COVID-19 pandemic made enterprises tighten spending on traditional infrastructure, according to the latest financial accounts.

For the year ended 31 October 2019 [PDF], turnover was down 6 per cent to £1.043bn – the third straight year of shrinkage following the break-up of the group in 2015 when the PC and printer biz went its own way, followed by Enterprise Services and Software.

The latest sales drop was a "result of the continued challenging economic environment and pressure of a fiercely competitive and evolving market in which the company operates. The company is continuing to launch certain initiatives that aim to generate revenue growth in future years, improving our service delivery for higher quality and lower cost," the Companies House filing stated.

One of those initiatives is GreenLake, a service delivery mechanism akin to the consumption-based converged infrastructure model. It includes servers, storage, networking, the OS, hypervisor, applications, and services.

HPE wants to sell its entire portfolio as a service from 2022 but as of 2018, just 5 per cent of its kit was sold under a services contract.

Gross profit dropped to £166m from £268m in prior year, "predominantly attributed to an unfavourable foreign exchange movement and the reduction in revenue". Happily, perhaps, this downward pressure was eased by a £32m drop in restructuring costs – redundancies and real estate rationalisation – from the year before to £9.998m.

"In 2019 the company continued with several cost reduction programs that the directors believe will benefit the company in the future," the accounts stated. "The directors recognise that achieving the balance of long-term and short-term objectives is key to future profitability. This profitability allows the company to reinvest in new and emerging business opportunities and is highly correlated to generating cash which brings more flexibility to the business at a lower cost."

HPE has bet the farm on edge computing, and hybrid IT is another area of considerable focus. That said, local R&D spending fell during the year from £16.1m to £10.969m.

The average headcount for UK ops went up in the year by 58 people to 2,160.

Distribution costs, admin expenses, and exceptional items (those reduced restructuring costs and impairment of assets held for sale) led to a net loss of £3.32m versus a profit of £41.4m in fiscal '18.

This is third year of declining revenues for HPE's UK ops since former CEO Meg Whitman's big break-up began. The pressure on the top-line sales figure is unlikely to relent, given the speedier adoption of cloud services that the work-from-home trend has caused, with a slowdown in enterprise's spending on legacy tech including servers, storage, and networking.

Nevertheless, HPE said in the accounts "the likelihood of a significant impact from COVID-19 is seen as low for Hewlett-Packard Limited".

According to Canalys, customers' orders rained down on the cloud infrastructure vendors in Q1 and Q2. And Gartner earlier this week said it expects no let-up in that pattern.

"There will be a continued push of cloud spending as an outcome of the coronavirus pandemic," said Gartner research veep Sid Nag. "When enterprises were compelled to move their applications to the public cloud as a result of the pandemic, they realised the true benefits of public cloud so it is unlikely that they will change course."

He added that in the "recovery and rebound phase, CIOs are recognising that they don't need to bring workloads back on premises, which will further increase cloud spending and drive new applications around cloud-hosted collaborations that incorporate emerging technologies."

IDC reckoned in January that around 70 per cent of workloads (in APJ) would remain on-premise until 2022, but with everything that has happened since, that mix must have changed somewhat. We have, of course, asked IDC that question. ®