Hewlett Packard Enterprise slumps on poor sales, weak forecast

Instead of sliding comfortably toward the weekend, Hewlett Packard Enterprise just slid Friday, with the tech giant’s shares falling more than 10 percent following a disappointing quarterly report and outlook.

HPE fell to as low as $22.10 a share as investors showed their disappointment with the company’s fiscal first-quarter results. Late Thursday, HPE reported a profit of 16 cents a share on revenue of $11.41 billion, compared to earnings of 15 cents a share on $12.72 billion in sales a year ago.

Excluding one-time items, the earned 45 cents a share. By that measure, HPE’s topped the 44-cents-a-share estimate forecast by analysts surveyed by Thomson Reuters, but the company’s sales fell short of analysts’ expectations of $12.07 billion.

Adding to the day’s negative sentiment was HPE cutting its earnings outlook for the year by 12 cents a share. HPE now expects to earn between $1.88 and $1.98 a share, excluding one-time items, for its full fiscal year.

HPE Chief Executive Meg Whitman said the company is dealing with “several factors” that are affecting its performance. Those include foreign currency exchange rates, increases in the prices of commodity technology products such as DRAM memory, and what appears to be a tough market for its main server and storage products among its core service provider and enterprise business customers.

Patrick Moorhead, a computer industry analyst with Moor Insights & Strategy, called HPE’s quarter “challenging” as many things hit the company all at the same time.

“Time will tell if that ‘Tier 1′ service provider (customer) returns,’ and I think it highlights the lumpiness these large customers provide,” Moorhead said.

HPE said sales of servers in its first quarter fell by 12 percent from the year-ago period, while storage revenue declined by 13 percent.

The results also suggest that HPE is having a harder go of it on its own more than a year after it split off from the old Hewlett-Packard. The other part of that company, HP, took on responsibility for personal computers and printing services and reported its own, upbeat quarterly results on Wednesday.

Part of Whitman’s strategy for HPE focuses around spinning off its software and services businesses in order to concentrate on data-center technologies. This strategy runs counter to that of much of the tech industry that is putting more emphasis on cloud-based services and software.

Rob Enderle, president of technology research firm the Enderle Group, referred to the words of one of Silicon Valley’s tech legends when assessing the direction Whitman is taking HPE.

“Aggressive cost cutting and layoffs are preserving the bottom line somewhat, but clearly destroying top line performance,” Enderle said. “As Andy Grove is famous for saying, you can’t cut yourself out of problems like this and given their declining outlook things are expected to get worse.”

Photo: Hewlett Packard Enterprise Chief Executive Meg Whitman is seen in this November 2010 photo in Universal City, Calif.  (Dai Sugano/Mercury News)


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