HPE highlights poor UK performance as revenue falls again
UK credited with driving 'weak' performance in Europe as HPE plans cuts of up to $300m this year
Hewlett Packard Enterprise (HPE) has singled out the UK for its weak performance in Europe after its revenue dropped in Q2.
For the three months ending 30 April, HPE reported a global revenue of $7.4bn, down 13 per cent on the same period last year.
While not detailing revenue in specific geographic regions, on an earnings call, a transcript of which can be found on Seeking Alpha, HPE CFO Tim Stonesifer said the UK was chiefly to blame for difficulties in Europe.
"Revenue in Europe continue to be weak, driven by the UK, although strong results in Germany helped the region," he said.
HPE again referred to a mystery tier-one customer in its server business as a major contributor to the revenue drop, as it did when it published its Q1 results earlier this year.
CEO Meg Whitman said that if this customer is taken out of the equation, HPE would have actually reported a revenue increase of one per cent for Q2.
Pushed further for more details by analysts, Whitman divulged more information than on the Q1 earnings call - saying the customer was a significant enough size to dramatically effect revenue over the coming months.
At the time of the Q1 call, Forbes speculated that the customer could be one of the big public cloud providers Microsoft, Google, or Amazon Web Services.
"Tier-one service provider is a segment that we entered maybe 18 months [or] two years ago and we are heavily dependent on one customer," she said. "We anticipate [that customer's] purchases to [continue to] decline and so this tier-one rationale, or the way we talk about it, is going to continue for the next couple of quarters because it's a pretty big number.
"We're doing a couple things. One is we're thinking hard about what the future strategy is for tier one. We continue to get new tier-one customers, but this is low-calorie business so we need to think through whether it makes sense to continue that business or are we better off putting our selling resources and our R&D resources against more margin-rich sustainable profitability."
HPE's server revenue declined 14 per cent year on year in the quarter to just under $3bn, but taking the tier-one customer out of the equation brings the decline to just one per cent.
Pricing and costs savings
HPE was one of a number of vendors to hike prices last year, in the UK specifically after the EU Referendum.
On the earnings call, Stonesifer opened up on effect of these price rises, claiming they have not brought as much success to HPE as expected.
"From a pricing point, we did go out with global price increases, but the results were mixed," he said.
"We saw some traction in APJ and those came in in line with what we thought they would. We did not gain as much traction as we had anticipated in the Americas, particularly in the US, and that is driven by some very difficult competitive behaviours and challenges.
"We saw those same types of competitive dynamics in EMEA as well. So the overall pricing mitigation that we talked about came in lighter than we had expected."
Because of the difficultly regarding pricing and commodities, HPE will look to make savings of between $200m and $300m in the second half of this year - as it integrates Nimble and SimpliVity and adjusts for life after the spin mergers of its software and services groups.
"The pricing environment was also increasingly difficult and hindered our ability to raise prices as an offset. We anticipate the impact from commodities will remain significant in the near term, but we believe we can begin to mitigate it as we move towards the end of the year," Stonesifer said.
"Given these margin pressures, we're taking significant steps to optimise the cost structure of the future HPE and believe we can drive an incremental $200m to $300m in cost savings in just the second half of this year.
"These savings will be a combination of tight control over spending and simplifying the organisation through de-layering and spend-control actions as we become a smaller, more nimble company."
Pushed on where these cuts will come from, Stonesifer said that around half will come from "stuff like policies [and] stuff like travel", with the other half related to labour.
Within the labour cuts, he said half the savings will come from cutting contractors and the other half will come from "evaluating the restructuring" of HPE.