HPE hit by chip shortage and 'uneven business environment'

Infrastructure vendor plagued by Intel chip issues and coronavirus uncertainty

HPE has suffered declining revenues in Q1 after its compute business was ravaged by Intel's chip shortage and supply chain issues stemming from the coronavirus.

For the quarter ending 31 January, HPE's sales fell by eight per cent year on year to $6.9bn, while earnings from operations sank by 24 per cent to $348m.

Its Compute business, which lumps together datacentre and networking products, was the main problem child for HPE, with revenues falling by 15 per cent year on year to $3bn.

HPE blamed the decline on an "uneven business environment", component supply constraints and disruption from consolidating its manufacturing sites in North America.

Meanwhile, HPE's Intelligent Edge segment, which includes Aruba, wired and wireless networking gear and other edge computing products, was the star performer, with revenues up four per cent to $720m.

Lastly, HPEs High Performance Compute and Mission Critical Systems business swelled by six per cent to $823m.

Speaking to analysts on an earnings call, CEO Antonio Neri said: "We face continued macro uncertainty, which combined with supply the manufacturing constraints impacted our revenue - particularly in Compute. Despite these issues and the current market backdrop, we continue to execute with discipline and make progress against our strategic priorities. We outperformed the market in critical areas like the Intelligent Edge."

HPE took some solace from an improvement in its annual recurring revenues, which ballooned by 19 per cent to $511m. Despite logging double digit declines in earnings from operations, gross profits were up 32.8 per cent on a GAAP basis.

Despite the mixed Q1, Neri told investors that HPE "has done the right things" to improve the company in the long term.

"We have made the company leaner and meaner and at the same time we have taken on big, big, challenges and we have managed to get through it. So, I think for us we can continue to focus on the areas where we see the opportunity to compete and win in higher margins," he said.

HPE did not provide Q2 guidance because there are "too many unknowns" for the company according to Neri.

The firm did however say that its financial performance will recover over the course of 2020.