UPDATED 19:24 EDT / NOVEMBER 25 2019

INFRA

HPE stock falls on fourth-quarter revenue miss

Updated:

Hewlett Packard Enterprise Co.’s stock fell more than 4% in after-hours trading Monday after the company reported fourth-quarter revenue that fell short of expectations.

The provider of enterprise hardware and software reported a profit before certain costs such as stock compensation of 49 cents per share on revenue of $7.22 billion, down 9% from the same period a year ago. Wall Street was looking for a 46-cent profit on revenue of $7.4 billion.

HPE also reported its full fiscal-year results, with a $1.77-per-share profit on revenue of $29.1 billion. Wall Street had earlier forecast full-year earnings of $1.74 per share on revenue of $29.3 billion.

Update: Investors were even more bearish Tuesday, knocking shares down almost 9%.

The big problem for HPE was its traditional hardware business, Hybrid IT, which includes sales of its servers, storage and networking equipment. Hybrid IT reported revenue of $5.67 billion, down 11% from a year ago and lower than the analyst consensus forecast of $5.74 billion. Compute revenue, which includes the company’s hardware sales and makes up 13% of HPE’s total revenue, fell 13%.

Results from HPE’s other businesses were mixed. Intelligent edge revenue came to $723 million, while financial services reported revenue of $878 million, down from the $939 million it reported last year. On the other hand, Nimble Storage revenue rose 2%, while Nimble services and Pointnext professional services revenue stayed flat. Aruba services revenue jumped 17%, while Aruba product revenue was down 7%.

The results come at a time when the company is desperately trying to transform its business model. HPE Chief Executive Officer Antonio Neri (pictured) has previously said he wants to deliver all of the company’s products “as a service” by 2022, and today he insisted it was making good progress in that direction.

“I am confident in our ability to drive sustainable, profitable growth as we continue to shift our portfolio to higher-value, software-defined solutions and execute our pivot to offering everything as a service by 2022,” Neri said. “Our strategy to deliver an edge-to-cloud platform-as-a-service is unmatched in the industry.”

That’s a pretty bold claim, since most companies that have switched from a consumption-based business model to subscription pricing struggle to maintain their profits during that transformation. But Neri said in an interview with CNBC that “tariffs and geopolitical uncertainty” plus the “deflationary side of the commodities” were to blame for the disappointing results this quarter. He added that the company continues to see longer sales cycles with its bigger deals.

Pund-IT Inc. analyst Charles King told SiliconANGLE he didn’t share Neri’s optimism about the company’s outlook going forward, at least not in the short term. He said HPE’s revenue miss wasn’t a surprise as most data center vendors are struggling to meet sales targets at present, and all point to similar challenges such as the economic and geopolitical uncertainties that have led to longer sales cycles.

“Unless the root causes of those uncertainties, like the US/China trade imbroglio, Brexit and the Trump impeachment are settled in fairly short order, HPE’s optimistic outlook may be little more than wishful thinking,” King said. “That said, I hate to be a Grinch this time of year so I hope HPE’s sunny expectations are blindingly spot on.”

Other analysts were more positive, however. Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that HPE’s growth in strategic businesses such as Aruba Services and Apollo was encouraging, pointing to a positive long-term revenue strategy.

“For HPE, I believe the future is all about its differentiation and execution in the hybrid cloud and ‘everything as a service’ about which I am optimistic,” Moorhead said. “The industry is out of the ‘drunken sailor mode’ where ‘everything was going to the public cloud or perish’ and enterprises are more pragmatic in that many will keep a lot of data in an on-premise cloud model. This makes HPE’s newly introduced Kubernetes container platform vital to its success.”

Moorhead was talking about the new HPE Container Platform, unveiled at the KubeCon 2019 conference in San Diego earlier this month. That platform is based on the distributed processing technology HPE picked up when it acquired BlueData Software Inc. last year and the storage expertise it acquired with its recent purchase of MapR Technologies Inc. The platform is aimed at helping organizations move their legacy business applications to the cloud, the company said at the time.

HPE also provided guidance for the next quarter and its next fiscal year. For the first quarter, it’s expecting earnings of between 42 and 46 cents per share, better than the analyst estimate of 42 cents. For the full year, HPE expects earnings of between $1.78 per share and $1.94 per share, in line with Wall Street’s average estimate of earnings of $1.85 per share.

Photo: HPE

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