M+E Connections

Hewlett Packard Enterprise’s planned spin-off and merger transactions, designed to further narrow the company’s focus on data storage, networking services and servers, are running “on schedule and on budget,” according to company CFO Tim Stonesifer.

The company in early November filed its initial Form 10 and S4 SEC filings for the plan to spin off its Enterprise Services Business and merge it with Computer Sciences Corp., he said on a Nov. 22 earnings call for the fourth quarter, ended Oct. 31. Hewlett Packard Enterprise expects to file the final registration statements in late February and it’s “on track” to complete the transaction by April 1, he said.

Meanwhile, the planned spin-off and merger of Hewlett Packard Enterprise’s non-core software assets with U.K. technology company Micro Focus is also “progressing as planned and we continue to anticipate the transaction closing” on about Aug. 31, he said.

The update came as Hewlett Packard Enterprise reported weaker fourth-quarter results than it did in the quarter a year earlier, due to weaker demand for networking and storage. Revenue fell 7% to $12.5 billion, while profit tumbled to $302 million, or 18 cents a share, from $1.4 billion, or 75 cents a share, in the fourth quarter of 2015.

Revenue in the company’s core Enterprise Group fell 9% to $6.7 billion as server revenue dropped 7%, storage revenue fell 5%, networking revenue tumbled 34%, and Technology Services revenue dipped 4%.

But, when factoring in divestitures and currency, revenue from Technology Services – the company’s “highest-margin business” – increased 2%, representing the second-straight quarter of growth, Stonesifer said.

Storage revenue declined 3% when factoring in divestitures and currency, he said. There was “continued contraction in the legacy portfolio” of products, but revenue from the “higher-margin converged storage portfolio” inched up 1% and that now represents 56% of the total storage product mix, he said. Revenue from traditional storage declined 11% as it was “particularly challenged by weakness in entry storage,” he said.

Networking revenue was flat when factoring in divestitures and currency, he said. But, “encouragingly,” revenue from enterprise wireless LAN solutions provided by the Aruba Networks division that it bought last year grew 13% and continued to take market share, he said, adding: “We should see this growth in Aruba accelerate next quarter, as we had some installations in the quarter pushed out into Q1” of the new fiscal year.

Enterprise Services revenue dropped 6% to $4.7 billion, while software revenue fell 6% to $903 million. But Financial Services revenue inched up 2% to $814 million. “Encouragingly, the renewal rate for high-margin support contracts improved three points year-over-year” to more than 90%, Stonesifer said. Software as a service (SaaS) had another record quarter with 11% revenue growth, he said.

The company still expects to report fiscal year 2017 diluted earnings per share of $2 to $2.10 for the combined HPE as it stands today and $1.25 to $1.35 for the future version of HPE after the transactions are finalized, he said.

During its first year as a standalone company, following the decision to split the enterprise business off from the Hewlett Packard computer business now called HP Inc., Hewlett Packard Enterprise “delivered the business performance we promised, fulfilled our commitment to introduce groundbreaking innovation, and began to transform the company through strategic changes designed to enable even better focus, flexibility and financial performance,” CEO Meg Whitman said on the call. Its “success” in 2016 offered “proof that we’re on the right course,” she said.

Whitman added: “While there is always more work to do, our go-to-market motion is strong and our increase confidence is really paying off. We saw growth this year in key areas of the portfolio, including high performance compute, Cloudline servers, all-flash storage, converged systems, mission critical systems, and networking with Aruba.”

Following the return to growth that Technology Services saw in the past two quarters of the year, she said “we expect that momentum to continue” into 2017.