HPE’s Enterprise Revenue Slumps 13% in Q2

The weak performance of HPE's key business stirs concerns about whether CEO Meg Whitman's growth strategy will pay off.
Matthew HellerJune 2, 2017
HPE’s Enterprise Revenue Slumps 13% in Q2

It may take longer than expected to turn Hewlett Packard Enterprise into the high-flying, high-end computing equipment company that CEO Meg Whitman has envisioned.

For the second quarter, HPE reported revenue of $9.9 billion, beating analysts’ expectations of $9.64 billion. Excluding one-time items, it matched estimates with earnings of 35 cents per share.

But revenue from HPE’s biggest business — the enterprise group that sells servers, networking and data storage equipment to companies — fell 13% from a year ago, to $6.24 billion, with server sales down by 14%, to $2.99 billion, networking revenue falling 30%, to $582 million, and storage sales off by 13%, to $699 million.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

As the San Jose Mercury News reports, Whitman has “pegged HPE’s future” to the “backroom,” high-end equipment sold by the enterprise group, but like other corporate computing companies, HPE is facing rising component costs and weaker demand from its core business customers.

The enterprise group generates about 62% of total revenue. “We saw strength in major components of our growth strategy, including high-performance compute, Aruba, all-flash storage and technology services,” Whitman said in a news release.

“While we still have much more work to do, HPE’s Q2 results give me confidence that our efforts are delivering for customers and partners,” she added.

But on news of the earnings, HPE shares fell 6.8% to $17.52 in trading Thursday. The stock had climbed 8.5% this year, slightly outperforming the 7.7% gain in the S&P 500 .SPX.

“It is really hard to find good news here,” Rob Enderle, director of tech research firm the Enderle Group,” told the Mercury News. “HPE is looking a tad too much like a train wreck. Yes, they sort of fell within guidance, but in a strengthening market they seem to be weakening. We are now well past the point where a turnaround from Whitman should have produced strong results.”

HPE also swung from a profit of $320 million to a net loss of $612 million, due in part to charges and taxes associated with the sale of its services and consulting business to Computer Sciences.