HPE Reports Revenue That Misses Estimates on Server Demand

Nico Grant (Bloomberg) -- Hewlett Packard Enterprise Co. reported sales that fell short of Wall Street estimates, signaling that corporate demand for data-center hardware remains in a slump amid slowing economic growth.

Revenue dropped 9.1% to $7.22 billion, the San Jose, California-based company said Monday in a statement. It marked the fourth consecutive quarter of year-over-year sales declines. Analysts, on average, projected $7.42 billion.

HPE Chief Executive Officer Antonio Neri is trying to increase sales by moving the server maker to a subscription business model. By 2022, all HPE hardware and software will be available as a service or via a pay-per-use model. The company recently bought Cray Inc. to bolster its position in the supercomputer market. HPE has cut expenses, including the size of its workforce, as part of a restructuring meant to modernize the company and boost its profit margin.

Like other makers of servers and storage hardware, HPE has been contending with slowing economic growth and geopolitical tensions around the globe, which generally make businesses more cautious about buying new hardware. Cisco Systems Inc. said this month that customers had slowed down or reduced new purchases due to business uncertainty.

HPE generates about two-thirds of its quarterly revenue from overseas sales.

“Global trade tension is causing uncertainty, which results in longer sales cycles,” Neri said in an interview. He also pointed to other geopolitical factors causing some clients to pause orders.

“We have put the focus on particular areas where we want to grow faster,” Neri said, citing businesses including high-performance computing and the company’s GreenLake hybrid cloud-computing product that lets customers pay for services based on how much they use. “That’s why we’re confident. We have a better portfolio and we have better coverage even though we see weakness in the market.”

HPE shares declined about 4% in extended trading after closing at $17.45 in New York. The stock has increased 32% this year.

“Hewlett Packard Enterprise’s sales growth will likely remain anemic for fiscal 1H amid seasonal weakness and pressured corporate capital spending,” Anand Srinivasan, a Bloomberg Intelligence analyst, said in a note before the results were released.

Server sales dropped 13% to $3.23 billion and storage hardware revenue fell 12% to $848 million in the quarter ended Oct. 31.

Neri reiterated his pledge that the company will deliver 1% to 3% sales growth in the next three years.

HPE posted fiscal fourth-quarter net income of $480 million, or 36 cents a share, from a loss of $757 million, or 53 cents. Profit, excluding some items, was 49 cents a share. Analysts projected 46 cents.

Adjusted profit will be 42 cents to 46 cents per share in the current period. Analysts on average expected 43 cents, according to data compiled by Bloomberg. The company also affirmed its recently issued fiscal 2020 outlook of $1.78 to $1.94 per share.