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HPE boss bemoans Brexit impact

Talking to analysts about the latest results HPE CEO Meg Whitman bemoaned the impact of Brexit

While much of the attention was focused on the better than expected earnings and revenues in HPE’s Q3 2017 results, there were some interesting nuggets from HPE CEO Meg Whitman and CFO Tim Stonesifer in the vendor’s earnings conference call with analysts afterwards.

In terms of business units, Enterprise Group revenue grew 3% with an 11% in storage revenue and networking revenue up 16%. Software - which has now been spun out of the HPE business in a merger with Micro Focus - declined 3% while financial services revenue grew by 10%.

From a UK perspective, one of the most intriguing aspects involved Whitman’s comments on the effects of Brexit. Whatever some politicians might say about the benefits of leaving the EU, she confirmed there had been a pause in demand in the UK market after the EU referendum. “I think we are still feeling some after-effects from Brexit, because it’s not clear exactly how this is all going to work,” Whitman confessed. “So I would say, the UK market is a bit challenged for us.”

With public sector spending also being cut back “quite dramatically”, she admitted “the UK is not one of our stronger markets”. While it was an important market, the rest of Western Europe, the US, Canada, Latin America and Asia were “all outperforming the UK right now”.

On the subject of the server business, Whitman was “cautiously optimistic” but there were a number of challenges in the market, such as commodity pressure, currency and a competitive pricing environment. She admitted that sales of commodity servers to major cloud customers were “a headwind for us. It’s a very lumpy business with not much profit attached to it”. She added that HPE needed “to figure out what the long-term answer is on Cloudline. And so we are evaluating that right now”.

It also emerged during the call that much of the growth in the server business was driven by an increase in the average selling price rather than units. Stonesifer told Oppenheimer analyst Ittai Kidron: “If you are talking servers it’s ASP driven, so I’ll just leave it at that.”

Whitman suggested that the emergence of HPE Next would lead to a significant reduction in configurations, markets and layers in the customer-facing organisation. Reducing the number of SKUs and options would make it easier to sell, and faster to configure.

The vendor would also reduce the number of markets it operated in. “Like most companies, a small number of countries account for the vast majority of revenue and profit and will account for the growth in our industry over the next five to ten years,” Whitman told analysts, “and we want to make sure we are allocating the resources correctly to the largest countries with the countries that have the most growth and profit potential for us.”

Also noteworthy was that HPE Financial Services recorded its fifth consecutive quarter of year over year growth. Stonesifer said the growth was being “driven by lease conversions and an increase in operating lease mix”. The increased operating lease mix contributed to a decline in operating profit to 7.8%. While revenue was up, volume was down 8% “due to lower indirect business”.

Stonesifer added that financial services was of strategic important to customers “as flexible consumption pricing models gain momentum”.

A full transcript of the conference call can be found at Seeking Alpha .

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