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HPE Revenues Decline In First Stand-Alone Quarter

Hewlett Packard Enterprise reported a decline in revenue for its first stand-alone quarter. Declines hit all segments except for networking which was boosted by last year's acquisition of Aruba Networks. HPE also provided a progress report on planned job cuts.
7 Tech Jobs Hardest Hit By Layoffs In 2015
7 Tech Jobs Hardest Hit By Layoffs In 2015
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Hewlett-Packard Enterprise, or HP Enterprise's first quarter reported as an independent company marked a revenue decline of 3% year-over-year to $12.7 billion, with diluted net earnings per share of 15 cents, down from 30 cents in the same period a year ago.

CEO Meg Whitman told analysts during a conference call March 3 that while revenue was up 4% on a constant currency basis, the company was being cautious in its full year guidance due to some uncertainty in the US market.

"I think we are just a little concerned about the macroeconomic environment," Whitman told analysts during the call. "We saw a slowdown in the US in the last three weeks of January."

Those economic conditions have been a concern across the industry over the past few months, with earnings reports from data visualization company Tableau and career information social network LinkedIn disappointing investors and leading to stock sell-offs.

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HPE's first quarter also felt the impact of two big events:

  • First, the company has a new identity -- the enterprise-focused half that split off from the PC and printers company in November, and is only reporting its first quarter as an independent company this week.
  • HPE is also one of several traditional IT industry companies dealing with an industry transition to cloud-based systems that is eroding revenues and profits for the traditional business lines.

Analyst firm Technology Business Research Inc. (TBRI) said HPE's results for the quarter underscored "both the opportunities and challenges inherent in a market undergoing significant technological and competitive disruption."

HPE is not the only company grappling with these changes.

"Akin to peers including Cisco, Dell, and Lenovo, HPE faces continually increasing attrition to public cloud resources and software-mediated functionality," said TBRI analysts Krista Macomber and Kathleen Kilbourn in a post-earnings call report.

The report further noted that, while HPE server revenues declined by 1%, storage declined by 3%, software declined by 10%, and services declined by 6%, the company's May 2015 acquisition of wireless networking vendor Aruba Networks drove networking revenue up 54% year-over-year for the first quarter.

"As traditional infrastructure management and outsourcing offerings become commoditized, HPE joins a number of peers ranging from IBM to CSC in the challenge of growing strategic solutions revenues fast enough to offset the rate of decline in legacy businesses," the TBRI analysts said in their report. "But HPE's focus on adopting a more centralized and unified sales approach, and more closely aligning its software and services competencies with high-value areas such as consulting and new as-a-service delivery models during 2016, will help to accelerate this transition."

Layoff Update

HPE will also be delivering on promised layoffs in the year ahead. In September 2015, the company said that HPE planned to cut an additional 25,000 to 30,000 jobs.

Whitman provided an update on those plans during the March 3 call with analysts.

"We also continue to make progress on our cost structure by exiting high-cost data centers, improving low-cost location mix and rebalancing our workforce," she said.

Executive vice president and CFO Timothy Stonesifer provided analysts with a first quarter update on those plans during the quarterly earnings conference call.

"As far as how many folks that we've taken out so far, it will be 3,000 in the first quarter," he said, answering an analyst's question.

Stonesifer said that HPE now has approximately 45% of the company's workforce in low-cost locations "and are well on our way to our longer term goal of 60%."