Hewlett Packard Enterprise Co.’s long struggle to rev up new growth engines remains stuck in idle.

The enterprise computing and services company reported a profit before certain costs such as stock compensation of 45 cents a share in the first fiscal quarter ended Jan. 31, up from 41 cents a year ago. But net revenues fell 10 percent, to $11.4 billion, or 4 percent after adjustments for divestitures and currency exchange.

The company cited “significant headwinds” since October, including foreign exchange movements, higher commodities pricing and, not least “some near-term execution issues.” The results, particularly the revenue shortfall, didn’t impress investors. Analysts had called for an adjusted profit of 44 cents a share on a 5 percent decline in revenues, to $12.07 billion.

The Palo Alto, California-based company also reduced its outlook for the second quarter and full year, which may be even more concerning to investors. For the fiscal 2017 second quarter, estimates fell to between a net loss of 3 cents a share to a penny profits, or 41 to 45 cents a share. For the full year, HPE’s forecast for net earnings per share fell to a range of 60 to 70 cents a share from a previous forecast of 72 to 82 cents. The forecast for adjusted profits fell to $1.88 to $1.98 a share from $2 to $2.10.

Shares were plunging more than 6 percent in after-hours trading. During regular trading today, shares had declined about half a percentage point, to $24.66.

“Our performance was mixed,” HPE Chief Executive Meg Whitman admitted on the earnings call, especially in core servers and storage. In particular, purchases by one very large customer, a “tier one service provider,” fell significantly.

Moreover, big changes in organizations in the company as a result of spinning off various operations “disrupted the cadence of our business,” which she said the company is now working to fix. Specifically, Whitman appointed a global head of sales and three new regional sales heads who took time to get their footing. “I probably put more change into this organization in Q1 than I should have,” she said.

Source: HPE

“HPE had a challenging quarter and it appears many things hit at the same time,” Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, told SiliconANGLE. “Time will tell if that tier 1 service provider returns and I think it highlights the lumpiness these large customers provide. HPE can control the execution issues they relayed on their earnings disclosure, and that was a bit of a troubling sign.”

More broadly, Eveline Oehrlich, vice president and research director for infrastructure and operations at Forrester Research Inc., told SiliconANGLE, there’s “a lot of uncertainty with customers” about the new HPE. “They have announced their transformation strategy on their core items such as hybrid IT and intelligent edge,” she said, “but the spin-merger of software and ESS [Enterprise Security Services] has caused many customers to truly ask the question ‘what are they doing?’ and ‘can they survive?’”

HPE’s Enterprise Group, by far the largest at $6.3 billion in revenues, fell 12 percent from a year ago, or 6 percent adjusted for divestitures and currency shifts. Server revenues declined 12 percent, storage revenues were down 13 percent, and networking fell the most, by 33 percent — though it rose 6 percent after adjustments for divestitures and currency. Technology Services revenues declined 2 percent.

On the services side, Enterprise Services revenues fell 11 percent, to $4 billion, or down 6 percent after the same adjustments. Infrastructure Technology Outsourcing revenue fell 8 percent, Application and Business Services by 17 percent (3 percent after adjustments).

During the earnings call, Whitman took pains to note that technology services are “at the core” of HPE’s efforts going forward. She said Ana Pinczuk, former executive vice president and chief product officer of Veritas Technologies, joined HPE last week to lead the technology services business for the support and consulting organizations. (TheCUBE, SiliconANGLE Media’s video studio, interviewed Pinczuk last May.)

HPE has had trouble with technology services ever since it bought EDS in 2008, partly because enterprise outsourcing companies such as Infosys and Wipro were seen as competition, Oehrlich said. “I think Meg is bringing in a new person with significant track record in innovation and engineering without the baggage of the past,” she said. “This could be good as now they can really focus on wrapping their services around the two core strategies – Hybrid IT and Intelligent Edge.”

Software revenues fell 8 percent, to $721 million, or 1 percent after adjustments. License revenues were down 9 percent, or 2 percent after adjustments. Support and professional services fell a similar amount. Software-as-a-service revenues were a minor bright spot, up 4 percent. But Oehrlich noted that “they don’t have the mind-share of the developers and that could be an issue.”

HPE isn’t alone in its struggles in the dawning cloud era. IBM Corp. reported its 19th straight quarter of declining revenues last month. Although IBM has seen success in some emerging new areas — its cloud computing revenues rose 35 percent, to $13.7 billion — investors are disappointed in the lack of overall revenue growth.

HPE faces a big challenge not only from cloud services provided by the likes of Amazon.com Inc. and Microsoft Corp., but also from servers made by Cisco Systems Inc., Dell Technologies and others and storage from the likes of Network Appliance. But those companies could face some of the same market challenges such as flash memory shortages and high prices. “There’s no reason to think the other flash storage players won’t have the same kind of results,” Moorhead said. “We will certainly know when Dell EMC reports.”

Whitman has tried to recharge growth with both divestitures and acquisitions, but they haven’t yet moved the needle much. Last year, its first as an independent company after splitting from HP Inc., HPE spun off its services business, the former Electronic Data Systems Corp., and sold off nearly all of its software holdings in an $8.8 billion sale to Micro Focus International. The company also acquired technical computer maker Silicon Graphics International Corp. and, in January, spent $650 million to buy SimpliVity Corp., a provider of unified server and storage hardware and software for corporate data centers.

Photo courtesy of HPE