Hewlett Packard Enterprise (HPE) reported this week that the pandemic has blown a hole in its earnings, as shipping backlogs hurt revenues. The company said it is cutting salaries as part of a “cost optimization and prioritization plan.”
HPE disclosed a serious hit to its earnings this week, with net revenue down by 15 percent to $6 billion. The pandemic has caused a major backlog in HPC, storage and compute deliveries to the tune of $1.5 billion.
“Our team is doing everything we can to deliver on these customer orders” the company said. New cost cuttings meanwhile — including changes to its “real estate model” and job cuts will drive a gross $1 billion in savings, it said.
CEO Antonio Neri told investors that: “The impact on HPC was two-fold, was not being able to go to customer sites because customers were locked down like we are and not being able to install and deliver and turn it on. And obviously, the same challenge we have in Compute and Storage with supply chain constraints and capacity because of social distances, and obviously, in the components level that we saw obviously a major disruption.
As a reminder, we ship pretty much three servers every minute. So, when that supply chain stops, it’s pretty significant.
Compute revenue for the firm dropped by 10 percent in this quarter, while its sales in the Intelligent Edge segment fell by 2 percent. Interestingly this segment saw growth of 12 percent YoY in North America, a boost HPE believes occurred due to changes they made to its sales leadership in that region.
The firm is now on the path to protect its “financial foundation”. (HPE’s CFO noted that it has a “robust balance sheet with approximately $10 billion of liquidity and investment-grade credit rating” however, that “gives us flexibility not only to weather the current storm, but to continue to invest”.)
As of the 1st of June ‘short-term’ pay reductions, were applicable, will be forced onto all team members at HPE, the executive cohort at HPE is no exception to these pay cuts and say they will face the highest levels of reduction, but it’s unclear how much the reductions will be; HPE notes it will ‘vary by level.’
Employees who thought they were lucky to work in countries with robust local laws and regulations that protected them from pay cuts may be in for a shock. Neri states that: “For team members who live in countries where pay reductions cannot be mandatory due to local laws and regulations, we are implementing unpaid leaves.”
The Plan to Fix HPE Revenue
To help shore up HPE the board is re-allocating company resources to growth areas such as digitisation and automation.
The cost savings plan will be implemented during the fiscal year of 2022 with HPE hoping that it delivers savings of $800 million by the year’s end.
CFO Tarek Robbiati stated that: “These new cost efficiencies will be captured from simplifying and evolving our product portfolio strategy and go-to-market, cost saving from supply chain optimization, increased penetration of remote customer support, new initiatives to leverage digital marketing and consolidating our real estate footprint.”
Neri notes that: “As a result of the changes to the Company’s workforce, real estate model and for the business process improvements, we estimate gross savings of at least $1 billion and annualized net run rate savings of at least $800 million by fiscal year 22 year end.”
An interesting final note is that Neri told analysts that his expectation is 50 percent of employees will never come back to an office. He believes that offices will be forever changed and that they will be more of a “center of innovation and collaboration, not where you come to do your regular work every day.”