HPE Turns Around Q3 2017 Revenue, but Profits Shrink

HPE said that for Q3 2017 it had raked in $8.2 billion in revenue, an increase of 3 percent year-to-year. But net income takes a hit due to company reorganizations.

HPE.HQ

Hewlett-Packard Enterprise managed to turn around an important aspect of its quarterly business report, but it still has some work to do in other financial departments.

The venerable IT pioneer only three months ago had reported a steep drop in quarterly revenue from its frontline enterprise hardware business, the one that that makes and markets server, networking and storage hardware--in other words, the most important items it sells worldwide.

On Sept. 5, however, HPE said that for Q3 2017 it had raked in $8.2 billion in revenue, an increase of 3 percent year-to-year--6 percent when adjusted for divestitures and currency. When all was said and done, HPE showed a profit of $200 million.

That equated to 15 cents per share as compared to $1.43 per share a year ago--a 90 percent dropoff. Still, profit is profit, and black ink commands red ink, so it was a positive quarter nonetheless.

A good portion of the revenue increase can be connected to a key storage acquisition of last April, when HPE added all-flash array maker Nimble Storage for $1.1 billion. Nimble already had accumulated its own loyal following of several thousand enterprise customers.

The short-term outlook will be of interest to investors and IT industry watchers. For the fiscal 2017 fourth quarter, Hewlett Packard Enterprise estimates GAAP diluted net earnings per share to be flat to 4 cents and non-GAAP diluted net EPS to be in the range of 26 cents to 30 cents per share. The company blamed the lack of profits on separation costs, restructuring charges and others.

HPE, HPI, Micro Focus and their services arm, DXC, have been in the inexpensive and time-consuming process of splitting into four separate business entities during the last two to three years, and those costs impact each of their bottom lines in some fashion.

The company said that the Micro Focus transaction alone would impact HPE's fiscal 2017 diluted net EPS by about 13 cents per share.

Fiscal 2017 third-quarter segment details:

  • Enterprise Group revenue was $6.8 billion, up 3 percent year over year; servers revenue was down 1 percent, flat when adjusted for currency; storage revenue was up 11 percent; networking revenue was up 16 percent; and technology services revenue was up 1 percent.  
  • Software revenue was $718 million, down 3 percent year over year; license revenue was up 2 percent, up 5 percent when adjusted for divestitures and currency; support revenue was down 2 percent; professional services revenue was down 23 percent; and software-as-a-service (SaaS) revenue was up 7 percent.
  • Financial Services revenue was $897 million, up 10 percent year over year; net portfolio assets were up 2 percent; and financing volume was down 8 percent. The business delivered an operating margin of 7.8 percent.

Stephanie Long, data center research analyst at Technology Business Research, Inc. said in a media advisory that her firm believes the increase in overall revenue can be attributed to "HPE's efforts in laying the groundwork for success, because it finalized the spin-merges of many of its software assets and Enterprise Services (ES), while making strategic acquisitions including that of Niara, SimpliVity, Nimble, and most recently, the pending acquisition of Cloud Technology Partners (CTP)."

While progress is being made, Long said, "HPE still has work to do from a profitability standpoint, as the vendor experienced margin declines year-to-year in an increasingly commoditizing infrastructure market."

Storage revenue increases were due in part to 30 percent year-to-year gains in its all-flash portfolio, which includes Nimble Storage assets while HPE's networking business continues to reap the positive rewards of its Aruba business, reinforced by its Niara buy, Long said.

"HPE's server business was hindered by ongoing declines in tier-1 sales, but this was partially offset by increases in blade server sales, resulting in 1 percent year-to-year revenue declines for the quarter, Long said.

"HPE noted on its earnings call that the increases in blade server sales are due in part to customers purchasing blades to become 'synergy ready,'" she said.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...