HPE’s earnings reveal a shift back to less pricey servers

Hewlett Packard Enterprise (HPE) has reported revenue of $7.9bn for the fourth quarter of 2022, up 7%. Its compute business reported revenue of $3.7bn, up 16% from the prior-year period, and storage revenue was $1.3bn, up 4%. Its intelligent edge business reported revenue of $965m, up 18%.

However, growth in its financial services arm was flat, with revenue of $857m, while revenue in its high-performance computing and artificial intelligence business declined by 14% to $862m.

Over the last three years, HPE has been on a plan to reduce costs, which has seen a reduction in headcount and efficiency improvements. It has also been trying to address the chip supply chain crisis by selling more expensive product, to increase the average unit price (AUP). 

Discussing the latest results, HPE chief financial officer Tarek Robbiati said the company had completed its restructuring. “We are now entering a very different phase of the company, one where the combination of our right-sized cost structure and substantial order book is expected to deliver profitable growth that is increasingly recurring at higher margins as our as-a-service transformation continues to unfold,” he said.

To tackle the backlog caused by the supply chain crisis, Robbiati revealed during the previous quarter’s earnings call that the company had begun engineering new products that were less dependent on the components experiencing shortages and was “steering demand” toward those products. As such, it focused on selling products in its compute business with a higher average unit price. Robbiati said HPE was also multi-sourcing the most constrained components to enable it to work through the backlog.

According to the transcript of this latest earnings call, posted on Seeking Alpha, HPE is set to reverse its decision to focus on higher-end products. Asked about growth in the company’s compute business, Robbiati said: “We ended the year with record quarterly revenues of $3.7bn. This is a 22% year-over-year growth at constant currency. Unit growth was 4% and AUP was an increase in the high teens.” He said the operating margin for the compute business was almost 15% – the highest it has ever been.

Robbiati said HPE’s customers were buying “richer configs” to run their private clouds and to power various workloads, data types and applications. But as the supply chain issues ease, he said: “We believe as supply continues to ease, there will be the need for us to adjust our pricing down to continue to grow the business moving forward.”

For HPE’s customers, this means the company anticipates that it will need to reduce the average unit price of its hardware to meet greater demand for lower-priced IT equipment. With memory prices continuing to fall, Robbiati said HPE is well placed to pass on these component savings to customers by being “extremely reactive and dynamic with pricing”.