HPE beats Q3 expectations

CEO Meg Whitman expressed confidence in HPE's server business and also addressed her talks with Uber, asserting, "I actually am not going anywhere."
Written by Stephanie Condon, Senior Writer

HPE published its third quarter financial results Tuesday, beating market expectations.

The company reported Q3 non-GAAP earnings of 30 cents a share on revenue of $8.2 billion.

Wall Street was looking for third quarter non-GAAP earnings of 26 cents a share on $7.49 billion in revenue.


"The results of the third quarter are an encouraging sign of the progress we are making," HPE CEO Meg Whitman said in a statement. "With better execution we drove overall revenue growth, exceeded our EPS targets and improved our operating margins sequentially, all while completing the spin-merge of our Software business. There's more work to do, but we are on the right track."

HPE announced earlier in the week it had completed the sale of its software business.


Enterprise Group revenue was $6.8 billion, up 3 percent year-over- year. Within that segment, Servers revenue was down 1 percent, while 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. Within that, License revenue was up 2 percent, 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.

Analyst Patrick Moorhead, founder of Moor Insights & Strategy, said that HPE had a good quarter "right when they needed it." One concern, he noted, would be the 1 percent decline in server revenue -- traditionally a strong point for HPE, but not in the few quarters.

"The last two quarters of server declines can be attributed from not taking high revenue- low margin public cloud business and this is still the hangover from that as HPE reported that non Tier 1 server sales were up 12 percent," he said.

While the server business was slightly down, Whitman said on a conference call on Tuesday that HPE is "cautiously optimistic about our server business." The business has improved, she said, in part because of better execution, particularly in the Americas, well as as a stronger portfolio.

HPE, she said, has worked hard to pivot to faster growing, more profitable areas in the server business and is now seeing momentum with HPE Synergy, Gen10 and other initiatives. The company expects that shift to continue paying off, leaving HPE "feeling much better about that core business," Whitman said.

For the the full 2017 fiscal year, HPE is adjusting its non-GAAP diluted net earnings per share outlook to a range of $1.36 to $1.40 from a prior range of $1.46 to $1.56, reflecting the successful separation of the Software business.

On the call Tuesday, Whitman also addressed her talks to with Uber to potentially join the ride-hailing company as CEO. While Whitman was reportedly on Uber's short list of candidates, the embattled company last week named Expedia CEO Dara Khosrowshahi as its new chief executive.

"I was called in very late in the Uber search," Whitman said, noting that the company's business model is "very interesting" to her, in part because of its similarities to the eBay business model.

"In the end, it wasn't really the right thing," she said, calling HPE "quite special in its own right."

"I've dedicated the last six years of my life to this company, and there's lots more work to do," Whitman added. "I actually am not going anywhere."

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