Latest Hewlett Packard Earnings Serve as Microcosm for the Channel

On Tuesday, HP Inc. and HPE disclosed their latest quarterly earnings. There were one or two small surprises, but overall, the results continue to indicate a trend the channel is all too familiar with: traditional hardware sales across the board are declining. HP Inc.’s strategy to offset that is to beef up its subscription models, hoping that printing-as-a-service and compute-as-a-service will take off. As for HPE, it’s continuing to shed superfluous business units and focus on emerging technology such as all-flash and high performance computing.

HP Inc.

There actually was a slight uptick in PC sales for HP Inc. last quarter, which provided a watery ray of sunshine in yet another depressing forecast for the company. Printer sales continue to decline, and the 2017 outlook is grim.

HP Inc. reported $12.5 billion in sales in its quarter ending Oct. 31, a 2 percent year-over-year increase. It’s the first time the company reported an increase in sales since its split from HPE last year.

But while HP’s sales of laptops, desktops and other PC equipment stood up against the declining market, revenue in its printing business dropped 8 percent year over year. Sales of printing supplies shrunk 12 percent in its latest quarter, to $2.8 billion. In October, the company announced plans to cut up to 4,000 jobs in an attempt to offset costs.

HP’s planned $1 billion acquisition of Samsung’s printing business will hopefully help it capture some of the copier market, but that deal isn’t expected to close until the second half of 2017.

HP Inc. CEO Dion Weisler told analysts that there’s been an uptick in printing-as-a-service revenues, though he declined to put a number to the growth. Still, he said the company doesn’t anticipate the ink supplies unit really stabilizing until the end of next year. He categorized the overall printing market as “challenging,” calling it the “new normal.”

HPE

It’s been a year since Meg Whitman separated HP’s PC and printer business from the rest of the company, renamed Hewlett Packard Enterprise, and that year has been full of acquisitions and divestitures she hopes will help it maintain market share in the new digital era.

Some of the company’s software business will be spun off and merged with UK-based Micro Focus, and a similar move is planned to spin off HPE’s enterprise services unit to Computer Sciences. In August, the company announced its intentions to acquire Silicon Graphics International (SGI) to boost its offerings in high performance servers, storage and software. Whitman’s “stay lean and nimble” strategy stands in stark contrast to that of Michael Dell, who acquired EMC this year for $67 billion to create Dell Technologies.

Since the split, HPE’s share price has risen 60 percent. But its most recent earnings report shows that declining sales in more traditional business lines like data center and networking technology continue to impact revenue, which dropped 7 percent last quarter. Growing sectors such as flash-based storage, high performance computing and Wi-Fi equipment are not yet strong enough to offset that decline, but Whitman is investing heavily in those areas. This spring, Whitman announced that the Hewlett Packard Ventures program, also known as Pathfinder, would invest $100 million this year in startups that focus on big data, security, and the cloud and data center 

In a call with analysts, Whitman said she’d shifted strategies midway through 2016 toward profitability and away from revenue growth. “First half [of 2016] was faster growth, lower margins, second half of the year was lower growth, higher margin,” she said. “Now we’ve got to drive down the middle of the highway for next year.”

Whitman still projected an optimistic outlook for 2017, including a 1 to 2 percent growth in server sales.