HPE reported generally lower results for its fiscal second quarter to end April, greatly hit by the global economic lockdowns enacted since February. HPE GreenLake provided a boost to the company, as did its Intelligent Edge Business in North America. But to help navigate the tough times, HPE started a new plan to reduce costs and prioritise investments and resources. Under the three-year Cost Optimization and Prioritization Plan, to run through fiscal year 2022, HPE aims to generate gross savings of at least USD 1.0 billion, with annualised net run-rate savings of at least USD 800 million. It also expects cash funding payments of USD 1-1.3 billion.
To address the impact of the pandemic in the shorter term, the base salaries of certain executives, namely the CEO and all EVPs, will be reduced by 25 percent. The base salary of all SVPs will be lowered by 20 percent. Also, the company will reduce by 25 percent the portion of the annual USD 100,000 cash retainer to which each director is entitled, from 1 July to the remainder of this fiscal year.
Finally, HPE has withdrawn any full-year guidance it had, and will not be any forecast for the moment.
Net revenue for the quarter reached USD 6.0 billion, down 16 percent from the year before and 15 percent when adjusted for currency effects. HPE said the decline was mainly driven by supply chain constraints and delays in customer acceptance, resulting in significantly higher levels of backlog, particularly in Compute, HPC & MCS and Storage. CEO Antonio Neri said the company exited the quarter with twice its average historical backlog, with USD 1.5 billion worth of orders across its portfolio.
The annualised run-rate (ARR) went up 17 percent to USD 520 million. This means HPE is reiterating its 2019 Securities Analyst Meeting ARR guidance of 30-40 percent compounded ARR from fiscal 2019 to fiscal 2022.
Earnings for the quarter sank to a loss of USD 0.64 from a gain of 0.30, including a one-off negative impact of USD 0.67 for a non-cash write-down of legacy goodwill. Adjusted EPS almost halved, to USD 0.22 from 0.42. The figure excludes after-tax adjustments of USD 1.1 billion and USD 0.86 per diluted EPS, mainly related to amortization of intangible assets and transformation costs. HPE's free cash flow went to a negative USD 402 million from a positive USD 402 million, with the cash flow from operations declining to USD 100 million from 987 million.
Looking at the segments, revenue at Intelligent Edge slipped 2 percent to USD 665 million but at North America, growth went to 12 percent. HPE said that it was gaining market share in both campus switching and WLAN markets, and lifting profit margins.
At Compute, revenue went 19 percent lower to USD 2.6 billion at constant exchange rates, with the operating profit margin off at 4.7 percent from 9.3 percent. Pressure mainly came from coronavirus-driven component shortages and supply chain disruptions.
At Storage, revenues went down 16 percent to USD 1.1 billion. Pressure here came also from component shortages and supply chain disruptions caused by the covid-19 pandemic. Big Data managed to show positive momentum, with revenues jumping 61 percent when adjusted for currency effects. Nimble Services revenue was also up, growing 20 percent as customers added high-margin value-added services.
