HP Enterprise lifts outlook, buoyed by software push

Bloomberg

Hewlett Packard Enterprise Co. gave a forecast for the current quarter that topped some Wall Street estimates, signalling that it’s benefiting from recent cost cuts and a push into software and computer services aimed at lessening its dependence on hardware.
Profit excluding certain costs will be 35 cents to 39 cents a share in the fiscal third quarter, the Palo Alto, California-based company said in a statement. Analysts had projected 36 cents on average, according to data compiled by Bloomberg. Second-quarter revenue and profit also exceeded analysts’ average projections, and HPE shares gained in extended trading following the report. HPE Chief Executive Officer Antonio Neri has sought to diversify the hardware maker from the servers and storage solutions that generate most of its revenue. He’s tried to reshape the company into a hybrid-cloud and networking player by developing offerings for the internet- of-things and boosting its software products.
HPE agreed to buy networking firm Cape Networks in March to boost its networking arm against Cisco Systems Inc., VMware Inc. and Dell Technologies Inc. It also bought software firm Plexxi this month and cloud IT consulting firm RedPixie in April. The strategy is to offer a more holistic suite of offerings to its corporate clients, boost profit margins amid rising hardware memory costs and compete against cloud companies Amazon.com Inc. and Microsoft Corp., which offer a broad array of services over the internet.
“I was the architect of HPE Next,” Neri said in an interview, referring to the company’s program to cut costs. “Now it’s paying off on multiple fronts. The market seems to be better. In the last three months, I and the team went on acquiring things.”
Those acquisitions have helped to boost sales, but Neri said growth rates will “modulate” later this year on tough comparisons. HPE shares were up slightly following the report and forecast. The stock, which has gained 20 percent in the past year, had closed at $17.41 in regular New York trading.
In the second quarter, which ended April 30, revenue rose 9.7 percent to $7.47 billion, from $6.81 billion a year earlier. Analysts had projected $7.4 billion. Profit, excluding some items, was 34 cents a share, exceeding analysts’ estimates of 31 cents. Net income in the recent period was $778 million, or 49 cents.
Neri said HPE had an easier time passing on higher component costs for its servers and data-storage to customers, by raising prices by a few percentage points. That left the company’s Hybrid IT division, which consists of the storage and server businesses, with an operating profit margin of 10.3 percent in the latest period, up from 9.6 percent in the previous quarter.