Hewlett Packard Enterprise Co.’s stock rose as much as 8% in after-hours trading Tuesday after it reported earnings that beat Wall Street estimates, but the company warned of softness in compute and storage markets in the third quarter.
The results, which included a dip in revenue, further illustrate the difficulties hardware-makers face amid weakening global economies and uncertainty over the U.S.-China trade war. NetApp Inc.’s NTAP, -0.11% disappointing results earlier this month raised alarms among many analysts.
Trade tensions have contributing to uneven demand in enterprise IT sales, HPE Chief Financial Officer Tarek Robbiati told analysts in a conference call after the results were released. Customers, he said, are taking longer to decide their investment strategy.
“It’s time we called for a new reality. The days of [robust growth] in 2017-8 are no longer applicable,” Robbiati told MarketWatch in a phone interview. “Sales cycles are elongated. The bigger the [IT] deal, the more scrutiny the deal gets.”
The San Jose, Calif.-based company HPE, -0.08% reported non-GAAP earnings of 45 cents a share. But its revenue slid 7% year-over-year to $7.22 billion. Analysts polled by FactSet expected earnings of 40 cents a share and revenue of $7.275 billion.
Sales for several key product segments declined. Server sales were down 12% and storage hardware slipped 5% compared with the same quarter a year ago.
Revenue for Hybrid IT, which includes the company’s servers and storage-hardware products, led the way at $5.5 billion, as HPE continues its transition to become a software-as-a-service company by 2022. HPE’s Nimble Storage improved 21% year-over-year when adjusted for currency.
“We are transitioning the [product] portfolio to higher-margin offerings,” HPE CEO Antonio Neri said during the conference call, noting improvements in gross margins to 33.9%, up 340 basis points from a year earlier. The company raised full-year guidance to $1.72 to $1.76 a share, excluding certain items. Analysts polled by Refinitiv are expecting $1.68 a share.
Volatile results are nothing new for HPE, which was formed in November 2015 after it split from Hewlett-Packard Co. Along the way, it has acquired flash manufacturer Nimble Storage for $1.2 billion in 2017 and in May announced plans to buy supercomputing firm Cray for $1.3 billion. Last year, HPE rolled out GreenLake Hybrid Cloud, a cloud-management service that is interoperable with Amazon.com Inc.’s AMZN, -0.40% Amazon Web Services, Alphabet Inc.’s GOOGL, -0.03% GOOG, -0.09% Google Cloud and Microsoft Corp.’s MSFT, +0.21% Azure.
“HPE continues to drive solid profits and growth in select high-growth areas like edge compute and networking, and HPC [high-performance computing],” Patrick Moorhead, principal analyst at Moor Insights & Strategy, told MarketWatch. “Now the company needs to focus on increasing the size of those growth areas to drive overall revenue growth. [SaaS] very well could be that catalyst.”