Cloud Rains on HPE Earnings

Net revenue is down to $11.4 billion for the quarter, and cloud is part of the problem.

Mitch Wagner, Executive Editor, Light Reading

February 24, 2017

4 Min Read
Cloud Rains on HPE Earnings

Hewlett Packard Enterprise has been good to the cloud, but the cloud isn't being good to HPE.

HPE, a leading supplier of cloud infrastructure, reported net revenue of $11.4 billion, down 10% year-over-year, in its quarterly earnings reported Thursday.

CEO Meg Whitman described the results for the first quarter (ending Jan. 31) as mixed, on a conference call with analysts on Thursday. While revenue was bad, earnings per share were good. GAAP earnings per share were $0.16, above the previously provided outlook of $0.03 to $0.07 per share; and non-GAAP diluted net earnings per share were $0.45, near the high end of previously provided outlook of $0.42 to $0.46 per share.

Hewlett Packard Enterprise stock dropped nearly 6% in after-hours trading, to $23.19.

Whitman cited an array of problems -- she referred to "unexpected headwinds" -- as leading to the company's financial woes.

HPE was hurt by significantly reduced demand from a single Tier 1 service provider customer, Whitman said.

HPE had "execution problems," which Whitman took responsibility for, including upper management organizational changes. "It was a lot for the organization to take in," Whitman said. The changes appear to have overloaded many of HPE's top people. "The good news is we've identified the problem and we're fixing it," Whitman said, adding that the company will be in a better position in the future to compete and win.

HPE is focusing on its priorities: Hybrid IT, intelligent edge and services, she said.

Cloud is taking a bite out of HPE's business, but no more than anticipated at the beginning of its fiscal year, Whitman said. The company is focused on more profitable deals, which helped with margins but depressed revenue. HPE has seen strong growth in higher-margin high-performance computing, including the product line from SGI, which HPE acquired last year, as well as mission-critical systems, and upcoming changes should mitigate the decline.

HPE and Dell are the leading cloud infrastructure providers, though they are losing ground to Cisco and Huawei. (See Cisco Gains, Dell & HPE Lose on Cloud Infrastructure - Analyst.)

Revenue was down across the board for HPE: Enterprise group was $6.3 billion, down 12% year-over-year. Server revenue was down 12%, storage down 13%, networking down 33% and technology services down 2%.

Enterprise services revenue was $4 billion, down 11% year-over-year. Software revenue was $721 million, down 8% year-over-year.

Financial services was a bright spot -- $823 million, up 6% year-over-year.

Want to know more about the cloud? Visit Light Reading Enterprise Cloud.

HPE is looking to partnerships to accelerate growth, and its plans to sell its enterprise services business will continue that process, Whitman said. Following the sale she believes HPE will be more of an attractive partner for Accenture, Cap Gemini and Indian firms that previously partnered with HPE cautiously, because they feared HPE as a competitive threat.

HPE spun off its computer services business, employing about 100,00 people, or two thirds of the company staff, and merged it with Computer Science Corp., in late May. It also spun off its enterprise software business and merged it with UK IT specialist Micro Focus, in September. (See HPE Spins Software Business to Micro Focus for $8.8B .)

Whitman was sketchy with details about the depressed revenues incurred due to reduced business from a Tier 1 service provider. The change hit HPE's server business. "They've dramatically decreased their purchasing below commitments they'd previously made to us," Whitman said. She noted that the service provider business isn't high margin for HP, so reduced purchasing depresses revenue but not necessarily margins.

Revenue wasn't the only bad news HPE delivered, as it also adjusted its fiscal 2017 estimates downward by 12 cents per share. It expects GAAP diluted net EPS of $0.60 to $0.70, down from $0.72 to $0.82; and non-GAAP diluted EPS of $1.88 to $1.98, down from $2 to $2.10.

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— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

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About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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