HPE Earnings Improve, but Stronger Dollar Obscures Success
Hewlett-Packard Enterprise, reporting its first quarterly earnings since it went independent from PC and printer maker HP Inc. last November, had good and not-so-good financial news March 3.
The latter news first: The Palo Alto, Calif.-based technology pioneer reported that its profit level in its first fiscal quarter fell a whopping 52 percent to $267 million, down from $547 million year- over- year. Those earnings included both negative impacts from a stronger dollar on the international markets and restructuring costs that entail layoffs of about 3,000 employees, announced last year.
Revenue slipped 2.5 percent year-over-year to $12.72 billion in the period that ended Jan. 31, the company said.
It's confusing. The good news: Excluding international pressure against the stronger dollar, revenue rose 4 percent. If you look at it that way, there was more good news. HPE's Q1 was the third consecutive quarter of growth on a constant-currency basis; therefore, both revenue and adjusted profit exceeded Wall Street projections. It simply depends upon which view someone takes.
Stock Was Helped by Earnings Report
HPE shares jumped 7 percent in after-hours trading to about $14.50, so that, too, was good news for the company and its investors.
"We delivered a third consecutive quarter of year-over-year constant currency revenue growth, and excluding the impact of recent [merger] activity, we saw revenue growth in constant currency across every business segment for the first time since 2010," CEO Meg Whitman said during a conference call with analysts.
Encouraging for HPE was the performance of its rebuilt networking division. Sales in networking hardware and software sales grew by 54 percent -- 62 percent on a constant-currency basis. The acquisition last year of wireless equipment maker Aruba Networks (for $3 billion) has made HPE more prominent on the international networking map against competitors such as Cisco Systems, Brocade and Juniper Networks.
The company's enterprise group revenue was flat at $7.1 billion. Servers, an HPE mainstay, saw their revenue fall by 1 percent, but taking away those currency impacts, they grew by 5 percent. Revenue from technical support for servers and networking dropped 9 percent, which included a negative currency impact of 6 percent.
HPE will soon start to see cost savings after it announced the discontinuation of the sales, maintenance and operations of its Helion Public Cloud last October. The service closed down in January. Helion had made little traction in its market share battles with Amazon, IBM, Google, and Microsoft cloud services.
Analyst: Transformation Still 'on Track'
"The transformation for Hewlett Packard Enterprise (HPE) remains on track, shifting resources and investments towards emerging technology areas such as cloud, digital and analytics," analyst Kevin Collupy of industry researcher TBR told eWeek in a media advisory. "However, the transformation process will take time, as it has with industry peer IBM. HPE Services is building up its capabilities to deliver business outcomes around emerging technology areas."
HPE is preparing itself to capture opportunities in the expanding cybersecurity market, Collupy wrote.
"Clients' digital transformations require comprehensive security capabilities to protect organizations' increasing amounts of digital data," Collupy said. "In TBR's Enterprise Security Market Forecast, we estimate worldwide revenue for security hardware, software and managed security services for non-consumer customers will grow at an 11.2 percent rate through 2020.
"With steady demand from enterprise clients around security intelligence, HPE has a significant opportunity to turn around declining revenues."