HPE's Q2 stung by COVID-19 economic fallout, misses estimates

HPE did say it was making progress on its as-a-service pivot and exited the second quarter with twice the usual order backlog. The company is cutting executive salaries and looking to realign its workforce to focus on growth areas.
Written by Larry Dignan, Contributor

Hewlett Packard Enterprise's fiscal second quarter fell short of expectations due to "the global economic lockdowns since February," but did say it exited the quarter with strong order backlog. HPE added that it plans to reorganize around its growth areas and create a cost structure for the "new normal" with digitization and automation.

HPE reported a second quarter loss of 64 cents a share on revenue of $6 billion, down 16% from a year ago. Non-GAAP earnings for the quarter checked in at 22 cents a share.

Wall Street was expecting HPE to report fiscal second quarter revenue of $6.29 billion with non-GAAP earnings of 29 cents a share.

During the quarter, HPE wrestled with the COVID-19 economic fallout and revamped its operating model as well as launched financing programs for customers.

CEO Antonio Neri said:

The global economic lockdowns since February significantly impacted our fiscal Q2 financial performance. We exited Q2 with $1.5 billion dollars in orders across the portfolio, representing two times the average historical backlog.

Backlog is the price of firm orders related to fiscal 2020 second quarter and prior quarters for which work has not been performed or goods have not been delivered as of April, 30 2020.  

Neri said HPE GreenLake also appeared to be seeing strong demand with its Intelligent Edge unit delivering growth of 12% in North America.

In the quarter, HPE said it was hit by "supply chain constraints and delays in customer acceptance." Orders in compute, high performance computing and storage were delayed.

HPE struggled across all units:

  • Intelligent Edge revenue was down 2% from a year ago to $665 million, but HPE said it was gaining share in campus switching and WLAN.
  • Compute revenue was $2.6 billion, down 19% from a year ago. Component shortages and supply chain issues hampered HPE.
  • HPC revenue was $589 million, down 18% from a year ago.
  • Storage revenue was $1.1 billion, down 16% from a year ago.

Due to the performance, HPE outlined salary cuts for executives and board markets as well as job cuts. Base salaries of Neri as well as executive vice presidents will take a base salary cut of 25%. Senior vice presidents base salary will be cut by 20%. The board will also take a 25% cut in its annual cash retainer beginning July 1.

As for the job cuts, HPE said it would "realign the workforce to areas of growth." HPE said it would simplify its product portfolio, marketing, supply chain, customer support and real estate strategies. HPE said the plan will run through fiscal 2022 and aim to save at least $1 billion with an annualized savings run rate of at least $800 million by the end of fiscal 2022.

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