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June 2, 2017

HPE sales, revenues, profits decline – but it’s all part of the plan, says CEO Meg Whitman

Total Q2 revenue was $9.9 billion.

By Ellie Burns

HPE CEO Meg Whitman is trying her best to put a positive spin on her company’s second quarter results, stating that progress has been made in order “to compete and win well into the future” despite posting another set of quarterly declines.

All divisions bar Financial services declined for the three months ending 30th April, with revenue from continuing operations dropping 13% to $7.44bn. Explaining these dissapointing results, Whitman said:

“Revenue from continuing operations of $7.4 billion was down 5% year-over-year when adjusted for divestitures and currency, driven mainly by reduced server demand from a single Tier 1 customer, and lower license and professional services sales in software.”

Sales have continued to slide for HPE with the enterprise group seeing server sales fall 14% to $2.99bn, with technology services down 2% to $1.97bn. Networking took a major hit, diving 30% to $582m, while storage fell 13% to $699m.

Much of the same declines were also reported in Software business, which is headed for a spin-merger with Micro Focus later this year. The division was down 11 to $685m.

However, for Whitman, progress has been made. For the CEO, the quartely decline was in line with the company’s forecast and is all part of the larger future strategy. Whitman said:

“These were all the right strategic moves for HPE’s long-term success, but these were not done in a vacuum.”

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“We’ve been reengineering our company while facing challenging market conditions, including stiff competition, unfavourable foreign exchange movements and industry-wide commodities constraints.”

HPE sales, revenues, profits decline – but it’s all part of the plan, says CEO Meg Whitman

The reengineering of HPE has seen the company spin out its Enterprise Services business in a merger with CSC – with the resulting DXC Technology recently having its own share of problems following a number of cost-cutting exercises.

Later this year HPE will also complete the spin-merger of its software business with Micro Focus, with both transactions hoping to net Whitman and HPE more than $20 billion in value based on current stock prices.

With a nod to recent acquisitions including SGI, SimpliVity and Nimble, Whitman tried to highlight the positives among the poor Q2 results:

“During the past year and a half, we’ve made significant progress in strengthening HPE to compete and win well into the future.  We are focused on becoming a smaller, nimbler, and financially stronger company that is more committed to customers and partners than ever before. We continued to make progress in Q2, and we delivered non-GAAP net diluted EPS of $0.35, at the mid-point of our previously provided outlook.  And just as important, we also saw growth in key areas that are core to HPE’s future.”

There were, as HPE put it, pockets of growth and some favourable figures – HPC revenue went up 20%, with flash seeing 33% growth and wireless networking up 32%.

However, the company is set to tighten its belt once again, with the operating margin falling 2.9 basis points to 2.4%. This was apparently due to “structural changes including year-over-year impact from our H3C divestiture”, as well as the overhead implications of acquisitions and the rising cost of components which HPE was unable to offset with its own prices. Gently alluding to the fact that major cost –cutting is on its way, Whitman said:

“We’re taking a fresh look at the cost structure for the new HPE.  As a smaller company, it should be much easier to spot opportunities to optimize the business, streamline processes and reduce cost.  We believe we can take out another $200 to $300 million in cost in just the second half of this fiscal year.”

HPE has already achieved significant savings with total costs and expenses down to $7.26bn from $8.05bn last year. However, this number alongside taxes and interest left HPE with a net loss of $615m, a number which sits in contrast to the $320m profit last year.

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