HPE Reports Declining Sales; Issues Cost-Cutting Plan

Nico Grant (Bloomberg) -- Hewlett Packard Enterprise Co. reported declining sales, and said it would “realign the workforce” and cut costs over the next three years, signaling that the stumbling global economy has dented demand for servers.

Revenue fell 16% to $6 billion in the period ended April 30, the San Jose, California-based company said Thursday in a statement. Analysts, on average, expected $6.19 billion, according to data compiled by Bloomberg. Profit, excluding some items, was 22 cents a share, compared with an average estimate of 28 cents.

The company said it was putting in place a plan to cut costs, with a goal of $1 billion in savings by the end of fiscal 2022. Measures will including simplifying its product portfolio and supply chain as well as changing customer support, marketing efforts and real estate strategies, HPE said in the statement.

“It definitely was a tough quarter by every measure and I’m disappointed in the performance, but I don’t see this as an indication of our capabilities,” Chief Executive Officer Antonio Neri said in an interview. “This was clearly driven by supply chain disruptions because of coronavirus,” including a shortage of chip components from China, disrupted logistics and social-distancing guidelines in some regions.

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Neri said he expected HPE’s sales to “recover sequentially,” with the third quarter posting better results than the second and the fourth improving further. Still, he said, it’s unknown just how bad the economic downturn will be.

HPE withdrew its annual profit forecast last month, citing uncertainty from the Covid-19 pandemic, which has forced millions of people to stay home to prevent the spread of the virus.

Neri has struggled to spark sales growth at the computing and networking company, which has seen year-over-year revenue decline in all but one quarter since the company split from HP Inc. in 2015. Competing with larger hardware rival Dell Technologies Inc. and dominant cloud-computing companies such as Amazon.com Inc. and Microsoft Corp., HPE has hitched its future to edge computing, which distributes data-processing capacity closer to customers rather than at centralized data centers. More immediately, the company has sought to support sales by offering $2 billion of financing for clients trying to preserve cash in the pandemic.

Under the company’s plan to reduce expenses, senior executives including Neri will take 20% to 25% cuts to their base salaries and the board reduced each director’s cash retainer by 25% from July to the end of the fiscal year. The hardware maker will consolidate offices where possible, Neri said. He expects more than half of HPE’s employees won’t return to the office full time, instead dropping in for meetings and collaboration when necessary.

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The number of employees who may lose their jobs under the cost-cutting plan is undetermined, Neri said. The company will spend the next few months working out the details and evaluating how much it can save in other areas.

In the fiscal second quarter, HPE reported falling revenue in all of its business segments. Server sales dropped 20% to $2.64 billion and storage hardware declined 18%. Neri said the company saw “steady” demand from large enterprises while small and mid-sized businesses struggled. HPE wasn’t able to produce as much data center hardware as clients were ordering, he said.

HPE’s shares dropped about 5% in extended trading after closing at $10.36 in New York. The stock has dropped 35% this year.