Following yet another disappointing quarter, Hewlett Packard Enterprise Co. today announced that Chief Executive Meg Whitman will step down Feb. 1.

The departure overshadowed mixed results for HPE’s fiscal fourth quarter and a weaker-than-expected outlook for the current quarter. Investors punished the shares, which fell nearly 7 percent in after-hours trading.

Antonio Neri, who was named president of HPE in June, will replace Whitman, who will remain on the board. A 22-year veteran of the company, Neri was previously executive vice president and general manager of the company’s enterprise group, its largest unit.

Whitman didn’t say what her plans are or her reasons for stepping down less than four months after tweeting in July that she is “fully committed to HPE and plan to remain the company’s CEO.” At the time, the message was meant to put to bed reports that Whitman was actively pursuing the top job at Uber Technologies Inc.

Pressed by analysts for more detail on the company’s earnings call, Whitman would only say that the time is right. “Antonio is ready to take the reins and go the distance,” she said. Noting Neri’s engineering background, she asserted that “the next CEO needs to be a deep technologist. We’ve created a lot of shareholder value – over 220 percent since fall of 2012. He’s going to lead the next stage of value creation.”

Although Whitman accomplished much during her six years as CEO — including orchestrating the historic split of the former Hewlett-Packard Co. into two businesses two years ago — it would be early for her to declare victory. HPE showed its first upward sales momentum in two years last quarter, after a dismal year in which it missed revenue estimates four quarters in a row and suffered two quarters of double-digit revenue declines.

However, today’s results may cast new doubts about the scope of the company’s turnaround. Analyst Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, said the announcement wasn’t a surprise. “The company has been telegraphing her departure for years,” he said. “Promoting Neri to president meant the change was imminent.”

‘Active board member’

Whitman pledged to continue to be an “active board member” of HPE and said she has no intentions of competing against the company. “I’m going to take a little downtime, but there’s not a chance I’ll go to a competitor,” she said. Reflecting on six tumultuous years, Whitman said she inherited a company that was “way too broad and not executing with the right R&D against any of our segments,” which included PCs and printers at the time. With the split into two companies and a renewed focus on software-defined infrastructure, “we’re far more nimble, and I just think a better-run company.”

Wikibon Chief Analyst David Vellante agreed that Whitman confronted huge challenges during her tenure. “She inherited a complete mess,” he said. “She said it would take five years to turn it around, but so much has transpired in five years that she didn’t see coming.” That included HPE’s $8.8 billion spinoff of its software division and divestiture of its enterprise services business. “It’s no secret she was looking for an exit,” Vellante said.

The big question for HPE under Neri is “how do they compete as essentially a reseller of other companies’ technologies?” Vellante said. HPE purposefully exited the cloud business and is competing against a larger rival in Dell Technologies Inc. “So service is the linchpin of its business,” he said. “It needs to thread the needle between [the big system integrators] and the low-margin service guys.”

Still, growth ultimately needs to come from product innovation, but that’s not likely to have an impact anytime soon. “Future HPE value creation will come less from financial transactions – asset sales, spins, capital returns – and more from innovation within the company’s product portfolio, the returns of which are much longer-term in nature,” Morgan Stanley analyst Katy Huberty wrote in a note to clients.

Moorhead said Neri is a good choice as successor. “Antonio has a tremendous amount of customer empathy and understands the technology,” he said. “That’s hard to find in a CEO.”

HPE will need someone who can find some way to recharge growth. Fourth-quarter revenue from operations of $7.66 billion was up from $7.32 billion the year before but slightly below analysts’ consensus estimates of $7.77 billion. Earnings per share of 31 cents beat expectations of 28 cents.

However, the company issued cautious guidance for the first quarter of 2018, saying seasonal factors and unexpected weakness in its storage business are holding down growth prospects. HPE forecast earnings per share of between 20 and 24 cents in the first quarter compared with analyst consensus estimates of 28 cents.

Despite the weaker quarter, HPE held firm on its full-year fiscal 2018 guidance of a $1.15 to $1.25 earnings per share. “We feel very good about 11 percent to 12 percent growth in 2018,” said Chief Financial Officer Tim Stonesifer. “We will be low in Q1 because of seasonality.”

Focus on growth

Whitman said the company is seeing strong growth in its networking and edge computing businesses, and that the core server business has stabilized. HPE purposely set out a strategy last year of exiting the low-margin commodity server market in favor of more lucrative high-performance computing sales. “We are pivoting hard to high-performance service offerings, but we will see some decline in commodity server business as that transition takes hold,” she said.

The company’s acquisition of Nimble Storage Inc. earlier this year is already paying dividends, with sales of the acquired products up 80 percent in the quarter. However, weak performance in its mainstream 3Par storage line in the U.S. dragged down overall revenues to a meager 5 percent growth.

HPE named former Nimble executive Keegan Riley vice president and general manager of its North America storage business in September. “The storage challenge was not having enough specialists in the field. Combining Nimble and 3Par under Keegan Riley will address that,” Whitman said.

HPE reported server revenues of $3.28 billion in storage revenues of $871 million, both of which fell well short of Wikibon Analyst Ralph Finos’ forecast of $3.54 billion and $885 million, respectively. Technology services revenue of $2.02 billion was the bright spot, beating Finos’ forecast of $1.97 billion. Networking sales were also short of his estimates.

Neri spoke about HPE’s growth prospects in an interview on theCUBE, SiliconANGLE Media’s livestreaming studio, last November at HPE’s Discover conference:

Image: HPE