Hewlett Packard Enterprise Co. is emerging from an aggressive effort to slim down, reporting stronger-than-projected quarterly sales on healthier demand for servers and storage gear that help run data centers.
Revenue rose 2.5% to $8.2 billion in the fiscal third quarter, marking the first time in five quarters the corporate technology company beat analysts’ sales estimates. Adjusted profit was 30 cents a share, the Palo Alto, Calif.-based company said last week in a statement.
Net income for the quarter was $165 million, compared with a net loss of $612 million in the same quarter last year.
In the face of competition from cloud computing providers, CEO Meg Whitman has spent much of the past two years shrinking her company, trying to make it more responsive to key markets. That process began with the split from HP Inc., the maker of printers and computers, in late 2015, and continued this year by separating from its large services and software businesses. She can already point to steadier demand for the remaining products.
“Overall, it’s nice to see revenue on the core business move to growth,” said David Heger, an analyst at Edward Jones & Co. The stock has gained 4.4% this year.
Profit excluding some costs will be 26 cents to 30 cents a share in the current quarter, HPE said in the statement. The company reduced its fiscal year outlook to account for the separation of the software business, saying adjusted profit will be $1.36 to $1.40 a share.
The sales increase “will help alleviate investor concerns on the viability” of the reshaped company, said Shannon Cross, an analyst at Cross Research.
Revenue in the storage business rose 11% in the fiscal third quarter, which ended July 31. Sales of servers—the computing engine for data centers—declined 1%. Networking business revenue rose 16%, said HPE, which will be featured in the upcoming edition of the B2B E-Commerce 300, available in October.
For the first nine months of fiscal 2017 ended July 31, HPE reported:
- Total sales of $23.21 billion, down 7.3% from $25.05 billion in the same period last year.
- Gross profit of $7.96 billion down 12.4% from $9.09 billion, resulting in a gross profit margin of 33.3%, down from 36.3%.
- Net loss of $180 million, compared with net income of $2.86 billion in the first nine months of 2016.
To produce net new revenue, or revenue that is incremental to sales completed offline, HPE developed a system of teaming its e-commerce professionals with sales reps to educate customers on how they benefit from ordering online, vice president of business-to-business e-commerce Martin Rohde said at a conference last spring. That, along with making more complex products available for online purchase, he adds, has helped to win more customers over to e-commerce.
HPE is selling about 50% of its products through e-commerce, Rohde said. This includes products sold by its Enterprise Online Store, where buyers can configure and order large complex systems like network servers with multiple blades or server modules for computing and data storage; and its Parts Store for ordering replacement parts. HPE also provides an online marketplace where buyers can view information on HPE products and click to the e-commerce sites of resellers and other channel partners to purchase products and services. Rohde didn’t provide more details on HPE’s e-commerce sales.
During the Q3 earnings call with analysts, Whitman said the company is benefiting from growing demand across key areas of the business, including servers. At the same time, she is pushing to cut “layers” in the organization and become more efficient.
With “fewer lines of business and clear strategic priorities, we have the opportunity to create an internal structure and operating model that is simpler, nimbler and faster,” she said.
Chief financial officer Tim Stonesifer said the company is targeting $1.5 billion in gross savings over a three-year period.
While narrowing the company’s focus, Whitman has kept making acquisitions. On Sept. 5, HPE announced it would buy Cloud Technology Partners, which helps businesses transition some of their applications to providers such as Amazon.com Inc.’s Amazon Web Services.
The planned purchase follows other deals in the past year, including the acquisition of Nimble Storage—valued at about $1 billion and adding to HPE’s lineup of products that help customers with data storage. Whitman said in June that deals were set to “become a bigger part of our strategy.”
Whitman’s leadership of the company has come under scrutiny. In June, HPE stirred speculation about succession planning after it promoted Antonio Neri—a longtime executive—to the role of president. Whitman, who took over in September 2011 after the ouster of Leo Apotheker, said in 2013 that it would take five years to turn around the company.
That speculation was only heightened when Whitman was said to be a candidate to take the CEO role at Uber Technologies Inc. She publicly withdrew from consideration via a Twitter post, but then her name resurfaced last month as a leading candidate. Ultimately, Uber last week chose Dara Khosrowshahi, then Expedia Inc.’s CEO, for its top job.
Asked during the conference call about Uber’s CEO search, Whitman said HPE has “lots more work to do, and I actually am not going anywhere.”
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