Component shortages: HPE pushes up some hardware prices and as if by magic, reports 'record' gross margin in Q3

Average unit prices climbed mid-to-high single digits, confirms chief beanie

Hewlett Packard says it filed record gross margins for its latest financial quarter after increasing prices for hardware including servers and networking kit in response to industry-wide component shortages.

The biz last night reported sales of $6.897bn for its Q3 ended 31 July versus $6.816bn a year ago - representing a rise of one per cent. This was still down on the $7.217bn HPE achieved in the same quarter of pre-pandemic 2019.

The largest division remained Compute, which recorded turnover of $3.104bn, down 9 per cent year-on-year. CFO Tarek Robbiati said this reflected normal seasonality “despite previously anticipated supply chain tightness”.

Intelligent Edge, HPE's strategically important unit, sold $867m worth of networking gear, up a whopping 23 per cent, which, along with HPC and Mission Critical Services (itself up 9 per cent to $741m) was one of two areas that actually grew beyond the sales reported in Q3 of HPE’s fiscal 2019.

“Switching was up over 20 per cent year-over-year, whereas wireless LAN experienced more acute supply constraints and was up mid-single-digits,” said the CFO.

“We have, in this context where you have a constrained supply environment, to be very careful around managing to price. And we have taken action that is translating in this record level of gross margin of 34.7 per cent,” he added. A year ago, HPE's gross margin was 30.5 per cent.

Many networking businesses bemoaned the component conundrum this year, with Arista's CEO Jayshree Ullal, for example, saying she had never witnessed a situation like in during her career, caused by massive demand for silicon. Cisco reckons shortages are here until next year.

Robbiati added:

“AUP (average unit price) was up to mid-to-high single-digits quarter-on-quarter reflecting pass-through of commodity costs and richer configurations. As always, configurations that are richer play a big role in the AUP, but also pricing in this case. And units were flat quarter-over-quarter, given some expected supply chain constraints. So we feel pretty good about performance in computing.

“In the environment that we're operating in, the demand is very solid and with the supply constraints. We don't see them ending before the first half of calendar year '22. So we just have to navigate this as the capacity of all our manufacturing partners is not back to pre-pandemic levels, and that will still take a good 2 to 3 quarters," said the CFO.

HPE's storage business was up 1 per cent to $1.176bn but way down on the same quarter two years ago when turnover was $1.255bn. Financial Services was flat at $844m and the remainder of group's revenues was comprised of corporate investments.

Annualised run rate for HPE Greenlake grew by a third to $705m. HPE intends to sell all of its kit as a service from next year.

Total costs and expenses fell to $6.615bn from $6.8bn, primarily via a reduction in the cost of goods manufactured. This partially offset by rise in selling, general and admin. Operating profit came in at $282m from $12m a year ago.

Lifted by tax indemnification and related adjustments and earnings from equity interests, net profit was $393m versus $9m a year ago. This compares favourably to the $134m loss HPE made in Q3 2019. ®

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