HPE finances tangled up by cabling concerns, but Q3 revenue and profit rose regardless

CEO Neri claims everything-as-a-service offering GreenLake is growing faster than public clouds

HPE has reported strong Q3 2020 results and said they would have been better were it not for problems undertaking cabling and other installation services during the pandemic.

Cabling came up on the company’s earnings in the context of a discussion about the way it will recognise revenue it couldn’t immediately put on the books due to a combination of supply chain issues and difficulties visiting customers to install kit during the COVID-19 pandemic.

Those complications have created a backlog of orders and work that has topped $750m and sparked quite a vivid discussion on the call. CEO Antonio Neri proudly pointed out that the company enjoyed “a very solid quarter in Compute, with 29 per cent quarter-over-quarter growth”. But some of that growth came from reducing backlog. CFO Tarek Robbiati said that after normalising for the effect of backlog, compute and storage grew gross margin, not revenue.

Analysts on the earnings call were keen to clarify whether HPE’s hardware revenue had therefore really grown, or whether the growth in Compute was an oddity caused by revenue arriving in Q3 as the backlog cleared.

Which was when Neri started to talk cabling, explaining that installing high-performance computers “takes many, many weeks. And, obviously, the global pandemic, the COVID, is not allowing us to have a lot of people on-site for cabling and all that as well.”

“And even if we ship it, in many cases … we may have a ship to not invoice,” he said, explaining that even though HPE has built, shipped and installed kit it can’t always recognise the revenue.

“That type of situation gets resolved, generally speaking, with a handful of weeks,” he said. But it won’t be completely resolved at HPE for a while because it still has $250m to $300m of revenue tied up in its backlog.

Neri wasn’t called upon to explain much else about HPE’s Q3 performance, because the company put up some pleasing numbers.

Revenue reached $6.8bn, down 5 per cent year-on-year but up 14 per cent from the previous quarter. Gross profit reached $2.1bn, an 8 per cent jump from the previous quarter. Sales of the company’s everything-as-a-service GreenLake offering popped 82 per cent year-on-year and HPE execs claimed it is growing faster than pure-play public clouds.

HPC sales surged and the Primera storage platform grew 114 per cent year-on-year.

“We remain on track to deliver the annualized net run rate savings of at least $800m by the end of fiscal year 2022, driven by optimizing our workplace site strategy, simplifying our product portfolio and introducing new digital customer engagement models,” Neri said during his prepared opening remarks.

In his closing remarks he declared himself “very pleased with Q3.”

“While much of the uncertainty is still there in the market and the global pandemic is still with us, we actually are cautiously optimistic, and we will see quarter-over-quarter improvements going forward across our businesses,” he concluded.

Investors clearly liked what they heard and didn’t much care about cabling, because HPE shares jumped 8 per cent after markets closed. ®