HPE posts steep revenue decline in key servers business

(Reuters) - Hewlett Packard Enterprise Co HPE.N on Wednesday reported a steep fall in revenue from its biggest business that sells servers, networking and data storage equipment to companies, hurt by tepid demand and a strong dollar.

A trader passes by the post where Hewlett Packard Enterprise Co., is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 25, 2016. REUTERS/Brendan McDermid

Shares of Palo Alto, California-based HPE fell nearly 2 percent to $18.48 in extended trading.

Revenue in HPE’s enterprise group division, made up largely of servers and other hardware products, fell 13 percent in the second quarter ended April 30, marking the steepest decline since the company was created in 2015 from the breakup of Hewlett-Packard Co.

Under Chief Executive Meg Whitman, HPE has inked a string of deals to sharpen its focus on the enterprise group business, which generates about 62 percent of total revenue.

The company has sold its consulting and outsourcing services unit and signed a deal to sell its software division. Last month, it bought data storage provider Nimble Storage Inc for about $1 billion.

HPE’s servers revenue dipped 14 percent in the quarter — also a record fall — while networking revenue plunged 30 percent.

Demand for servers has slowed in recent months as companies increasingly buy non-branded servers that are assembled together and cost less than machines sold by HPE and peers including Dell Technologies DVMT.N and IBM IBM.N.

HPE’s profit margins have been hurt by stiff pricing competition as well as higher commodities costs, the company said on a call with analysts.

The results follow weak earnings reports from other big technology vendors including Cisco Systems CSCO.O and IBM, which have also faced lackluster demand.

A strong dollar has eroded the value of HPE’s overseas revenue, which makes up over 60 percent of total revenue.

HPE, however, backed its forecast for fiscal 2017 adjusted earnings of $1.46-$1.56 per share.

The company reported a net loss of $612 million, or 37 cents per share in the second quarter, compared to a profit of $320 million, or 18 cents per share, a year earlier.

The loss largely reflects tax-related expenses associated with the sale of HPE’s technology services business.

Excluding items, the company earned 35 cents per share, in line with analysts’ average estimate, according to Thomson Reuters I/B/E/S.

HPE reported revenue of $9.9 billion, beating analysts’ expectations of $9.64 billion.

Revenue from HPE’s financial services unit jumped 11 percent to $872 million.

The company's shares had climbed 8.5 percent this year, slightly outperforming the 7.7 percent gain in the S&P 500 .SPX.

Reporting by Pushkala A in Bengaluru; Editing by Sai Sachin Ravikumar