HPE Hits More 'Headwinds', Suffers Another Revenue Decline

Revenue in HPE's enterprise group division fell nearly 13 percent to $6.24 billion in the quarter ended April 30 — the steepest decline in several quarters. HPC and storage did well, however.

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Not-so-good quarterly earnings reports are becoming a regular happening at Hewlett Packard Enterprise.

The venerable IT pioneer again reported a steep drop in quarterly revenue from its frontline enterprise hardware business, the one that that makes and markets server, networking and storage hardware--in other words, the most important items it sells worldwide.

In its Q2 2017 report issued May 31, the company again described strong market "headwinds" as being detrimental to its bottom line. Those winds, when itemized, are comprised of intense international competition, a strong dollar versus other currencies and so-so demand.

Revenue in HPE's enterprise group division fell nearly 13 percent to $6.24 billion in the quarter ended April 30 — the steepest decline in several quarters. Server revenue alone slipped 14 percent to $2.99 billion; networking revenue dived 30 percent.

Net Loss of $612 Million in the Quarter

Overall, the company showed a net loss of $612 million in the second quarter that ended April 30. A year ago, HPE reported a profit of $320 million, or 18 cents per share.

HPE said revenue from continuing operations for the quarter was $7.45 billion, a 13 per cent decline from the same period a year earlier. Combined Q2 net revenue was $9.9 billion, which was below the $10.1 billion that analysts surveyed by Bloomberg had projected.

HPE's software revenue fell 11 per cent year over year to $685 million. Its financial services revenue, however, was a positive story, with income growing 11 per cent to $872 million.

HPE isn't the only conventional all-purpose IT products and services provider that's treading financial water lately. Dell EMC, IBM and Cisco Systems are also facing similar market challenges as smaller, more specialized companies are finding traction in their own sectors.

Nimble Storage Buy an Asset

During the Q2 time frame, HPE added to its successful storage business by acquiring all-flash array maker Nimble Storage for $1.1 billion, which had accumulated its own loyal following.

A strong dollar has eroded the value of HPE's overseas revenue. HPE said that it banks more than 60 percent of its revenue from nations other than the United States.

Despite the revenue issues, HPE's shares have climbed 8.5 percent this year, slightly outperforming the S&P 500 index's 7.7 percent gain.

HPE finalized the so-called spin-merger of its enterprise services business during the quarter (March 20) and is planning to finalize the spin-merge of its software business in September, adding further complexities to its portfolio realignment efforts, TBR analyst Stephanie Long said in a media advisory.

Spin-Merger with CSC Complicated Matters

The spin-merger turned its enterprise services segment into a new entity following a merger with consultancy CSC. That new company is DXC Technology (NYSE: DXC; $67.95; market capitalization: $19.3 billion).  

"While acquisitions greatly enhance HPE's existing infrastructure portfolio and position HPE well to address evolving infrastructure demands, and spin-merges sharpen HPE's infrastructure focus, this high degree of change in a short time span hindered revenue performance," Long said. "However, TBR believes HPE is focused on the long term and recognizes the near-term challenges such massive portfolio changes will create.

"TBR believes restructuring efforts are hindering HPE's EG and Software performance as portfolio pieces are shifted to better reflect HPE's go-forward strategy. Slower demand from tier-1 customers again hindered EG's server revenue performance in CY1Q17, marking the second quarter of this headwind.

"However, HPE's high-performance computing (HPC) business and its all-flash solutions were bright spots for EG, both of which experienced year-to-year revenue gains. TBR believes near-term revenue challenges will persist but HPE remains committed to its strategy to drive long-term revenue gains," Long said.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...