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Free of software boat anchor and chain around its neck, HPE sees profits inch upward

Meanwhile, Meg gives the dirt on Uber courtship

By Shaun Nichols, 6 Sep 2017

HPE is showing signs that its turnaround is picking up, as the enterprise IT giant raised its revenues – and on Tuesday talked up a future without its software business.

For the three months to July 31, HPE's third quarter of the 2017 fiscal year is as follows:

  • Revenues of $8.2bn were up 3 per cent from Q3 2016. This was well ahead of the $7.49bn analysts had estimated.
  • Net earnings (GAAP) were $165m, and $497m non-GAAP when taking out things like restructuring and separation costs. In the year-ago quarter, HPE reported $2.27bn (GAAP) and $840 non-GAAP.
  • Earnings per share (non-GAAP) were $0.30, topping analyst estimates of $0.26.
  • Enterprise Group revenues were $6.79bn, up 3 per cent. Within the group, Server revenues were down 1 per cent, while Networking revenue was up 16 per cent and Storage revenue was up 11 per cent.
  • The now spun-off Software group reported $718m in revenue, down three per cent year-over-year. HPE notes that without Software, the corp as a whole would have grown revenues by six per cent instead of the three per cent it reported.
  • Financial Services revenue of $897m was up 10 per cent year-over-year.

CEO Meg Whitman, not surprisingly, talked up the particularly strong returns from the networking and storage groups, as well as a spinoff of the software business that returned some $8.8bn to HPE.

"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," Whitman said.

"There's more work to do, but we are on the right track."

Whitman also addressed the reports that she had been pursued by Uber for its since-filled CEO position. The HPE boss admitted that taking over the dial-a-ride frat house (of which she is an investor) was a tempting prospect, but said she is now dedicated to staying in her current role.

"I thought it was a very interesting business model. It is similar to eBay in many ways, and the growth prospect reminded me of eBay in many ways," Whitman told analysts.

"It has nothing to do with HPE. I have dedicated the past six years of my life to this company and there is more work to do."

Meanwhile, analysts say that while the Q3 results were encouraging, there are still weak points in HPE's lineup.

"Of concern could be the 1 per cent decline in Server revenue, traditionally a strong point for HPE, but not in the last few quarters," noted Patrick Moorhead, president of Moor Insights and Strategy.

"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 per cent."

Still, investors were pleasantly surprised by the strong returns, and HPE stock was up 4.7 per cent in after-hours trading at $14.70. ®

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