HPE's Whitman Struggles in Shift to Smaller Size, Cloud Pressure

Brian Womack (Bloomberg) -- Hewlett Packard Enterprise Co.’s Meg Whitman, who has been working to transform the company into a more efficient corporate-technology provider, is being thwarted by rising supply costs and aggressive cloud rivals.

Whitman on Thursday cut the company’s adjusted profit forecast for the current fiscal year, missing analysts’ estimates. At the same time, Hewlett Packard Enterprise reported sales that missed projections for the third consecutive quarter. Though citing some challenges beyond her control, Whitman said she pushed some executives too hard while the information technology provider frees itself of underperforming businesses and finds new growth opportunities.

“New people, new jobs, some market pressure, and separation -- and we just might have overloaded the troops just a tad here,” the chief executive officer said in an interview. Going forward, “I feel really good about the strategy, and we’ve just got to power through commodities and foreign exchange and get everyone settled in for the new company.”

While shrinking the company to make it more nimble,  Whitman is battling rising competition from cloud-based technology providers that let customers access computing power without having to buy their own servers and storage gear. She has been acquiring companies to help with growth, but is struggling against rivals such as Amazon.com Inc., which saw cloud revenue jump 47 percent in its last quarter, and Microsoft Corp., which reported sales almost doubled on its cloud product.

Profit, excluding some items, will be 41 cents to 45 cents a share in the current quarter, the Palo Alto, California-based company said in a statement. Analysts projected 47 cents, according to data compiled by Bloomberg. The company also reduced its annual forecast to $1.88 to $1.98 a share. Analysts estimated $2.03.

The shares fell as much as 6.7 percent in extended trading after closing at $24.66 in New York.

Sales Decline

Revenue declined 10 percent to $11.4 billion in the quarter ended Jan. 31 compared with the average analysts’ projection of $12.07 billion. Sales in the key Enterprise Group -- which includes servers and storage gear -- dropped 12 percent to $6.3 billion. The business reported declines of 9 percent in the previous quarter and 8 percent in the period before that.

In the enterprise unit, server sales fell 12 percent from a year earlier while storage revenue declined 13 percent. Networking sales dropped 33 percent.

The company cited currency fluctuations, higher commodities prices on items such as memory chips for servers and “near-term execution issues” in reducing its forecast. In addition, Whitman said sales of tech gear were hampered by a customer that is a tier-1 service provider, a reference to a public cloud company. She didn’t identify the customer.

“They have dramatically decreased their purchasing below commitments thatthey had made to us,” she said during a conference call with analysts.

Company Changes

Whitman said the company has reshaped the Enterprise Group to focus more on hybrid information technology products and services that incorporate cloud-based computing.

While the changes were important for future success, it was a lot for the organization to handle, she said.

This year, Hewlett Packard Enterprise should wrap up two multibillion-dollar deals unveiled in 2016. In September, the company said it was spinning off and merging some software assets in a deal with U.K.-based Micro Focus International Plc. Last May, HPE said it would combine its technology-services division with Computer Sciences Corp.

At the same time, HPE has been buying other companies, including Niara Inc., which uses machine learning and data analytics to find security threats. Terms of the Niara deal were undisclosed. The company also announced plans last month to acquire Cloud Cruiser, which helps companies manage technology assets. It recently spent about $650 million on technology gear maker Simplivity.

HPE reported quarterly profit, before certain items, of 45 cents a share compared with analysts’ average estimate of 44 cents, according to data compiled by Bloomberg. Net income was $267 million, or 16 cents a share, little changed from $267 million, or 15 cents, a year earlier.