Things are up and to the right again at Hewlett-Packard Enterprise Co. as the big computing vendor reported fiscal third-quarter results that easily beat analyst estimates and its own forecasts.

Net revenue rose 4 percent, to $7.8 billion, from the prior-year period, though up only 1 percent when adjusted for currency. HPE’s net profit, however, more than doubled, to $451 million, and earnings per share of 44 cents were well above the high end of the company’s forecast range of 35 to 39 cents.

HPE’s profit benefited from favorable currency exchange rates, but it said that factor won’t be as significant in future earnings results. It raised its profit forecast for the year to $1.50 to $1.55 per share, up from earlier forecasts of $1.40 to $1.50.

The results marked the third consecutive quarter of growth for the company following five years of shrinkage thanks in part to divestitures. “This is meaningful given that it had such a long string of declines,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

Investors responded with mild approval, bidding HPE shares up nearly 1.5 percent in after-hours trading. In regular trading, they closed up 1.8 percent, to $16.74 a share.

On the analysts’ call, executives expressed confidence that the company is beginning to reap the fruits of HPE Next. Begun last year, that program aims to remove about $750 million in costs in 2018 by streamlining operations, reducing management overhead and cutting back on its variety of product configurations.

The impact was evident in the cost of sales, which rose less than 1.5 percent, and administrative expenses that dropped from a year ago. “HPE Next will drive some nice improvements in FY19,” said outgoing Chief Financial Officer Tim Stonesifer, who is leaving the company at the end of October for unspecified reasons. He’ll be replaced by Tarek Robbiati, who most recently was CFO of Sprint Corp.

“HPE does seem to be achieving a better mix of products and services of value to enterprise customers,” said Charles King, president and principal analyst at Pund-IT Inc. “That should comfort the company’s shareholders, who have been beaten up a bit over the past couple of quarters.” HPE’s stock price is up 13 percent this year, although below its early March high.

Transition complete

The impact of HPE’s three-year transition in which it rid itself of its services business and much of its software portfolio, appears to be helping the company achieve its aim of boosting operating profit margins, which grew sharply to 9.6 percent from 6.9 percent a year ago. “We’re focused on improving compute margins and we no longer face significant headwinds from commodity costs,” Stonesifer said.

The company is also benefiting from a bit of a resurgence in on-premises computing as some customers move workloads back from the cloud. “Enterprises appear to be leading the charge in repatriating data and workloads they once migrated to the cloud,” King said. “HPE is well-positioned to follow that trend.”

Revenue in HPE’s high-growth hyperconverged and Synergy product lines were up by triple-digit percentages. Synergy is a type of so-called “composable infrastructure” in which on-premises capacity is provisioned and billed on a cloud-like pay-as-you-go basis. The growth in Synergy sales was a marked improvement over the 40 percent growth, the company reported in the first first quarter.

More than 1,600 customers have signed on for one of the company’s composable offerings, said Chief Executive Antonio Neri (pictured). HPE’s “intelligent edge” products, which primarily consist of Aruba Networks equipment and services, grew 8 percent on a currency-adjusted basis, with the services component up 14 percent.

Growth wasn’t across the board, however. Storage revenue rose only 1 percent, but executives attributed the weak performance to seasonal factors and sales cycles. HPE is “very confident about our ability to grow storage revenue,” Neri said. Sales in the Americas region, which constitutes 40 percent of HPE’s net revenue, declined 3 percent largely on a dropoff in sales to the largest “hyperscale” cloud providers, a segment the company is intentionally deemphasizing.

The company recently announced that it will plow $4 billion into edge computing over the next four years as it seeks to take advantage of the next great growth area in information technology infrastructure. “If the sunny projections around edge solution sales pan out, HPE should do very well,” King said.

Photo: SiliconANGLE