Hewlett Packard Enterprise (HPE) is slashing executive compensation, reducing headcount and adjusting its real estate model to cut the enterprise technology company's operating costs. HPE did not disclose how many employees the layoffs will impact.
The changes come amid falling revenues at HPE. The company blames the weakness on the coronavirus pandemic and the associated economic fallout. Despite the challenges, there are some promising partner-related business developments within HPE -- including the company's growing HPE GreenLake and Intelligent Edge businesses, along with a renewed small business server push for channel partners.
Still, HPE's latest financial results reveal the overall business challenges. Net revenue was $6.0 billion in Q2 of fiscal 2020, down 16 percent for Q2 of fiscal 2019, the company disclosed May 21. Moreover, HPE had a $821 million net loss in Q2 2020, compared to a $419 million net profit in Q2 of 2019i. Despite the weak quarterly results, HPE also pointed to a strong order backlog.
The layoffs come as enterprise hardware giants struggle to maintain sales amid the coronavirus pandemic and resulting economic fallout. IBM also announced layoffs today, and Dell Technologies froze new hires, raises and promotions until the end of the fiscal year, Bloomberg says. Dell's move mirrors recent steps at sibling company VMware.
HPE Q2 2020 Revenues: Servers, Storage Plummet
Here's a look at revenue within each of HPE's business segments:
- Intelligent Edge revenue was $665 million, down 2% year over year when adjusted for currency -- though the company says it is gaining market share in both campus switching and WLAN markets, while significantly improving profit margins.
- Compute revenue was $2.6 billion, down 19% year over year when adjusted for currency. HPE blamed the decline mainly on component shortages and supply chain disruptions from the pandemic.
- High Performance Compute & Mission Critical Systems (HPC & MCS) revenue was $589 million, down 18% year over year when adjusted for currency. Revenue was impacted by COVID-19-related delays in installations and customer acceptance resulting in elevated backlog that should flow into the second half of the year, HPE asserts.
- Storage revenue was $1.1 billion, down 16% year over year when adjusted for currency. Here again, the company pointed to coronavirus-related supply chain issues.
- Advisory & Professional Services (A&PS) revenue was $237 million, down 8% year over year when adjusted for currency.
- Financial Services revenue was $833 million, down 5% year over year when adjusted for currency.
HPE Business Performance: CEO Perspective
In a prepared statement about the business turbulence and HPE's corrective measures, CEO Antonio Neri said:
“The global economic lockdowns since February significantly impacted our fiscal Q2 financial performance. We exited Q2 with $1.5 billion dollars in orders across the portfolio, representing two times the average historical backlog
Despite challenging circumstances, HPE GreenLake, our as-a-service offering, gained traction with 17% ARR growth and our Intelligent Edge business grew 12% in North America outperforming the market while expanding margins.
We are taking decisive steps to navigate the near term uncertainty, while ensuring we align resources to priority growth areas so that we are well positioned to accelerate our edge-to-cloud strategy and address the needs of our customers in a post-COVID-19 world."
No doubt, HPE has been shifting to an "everything as a service" strategy. The problem: Much of the effort involves hardware as a service (HaaS), which is far more difficult to monetize in a predictable, recurring way compared to software as a service (SaaS).
HPE Slashes Executive Compensation
Amid the challenges, HPE's board on May 19, 2020, approved a plan that calls for:
- 25 percent pay cuts for Neri and of each executive VP;
- 20 percent pay cuts for each senior VP;
- certain board of director compensation cuts.
Those reductions are effective July 1, 2020 through the remainder of fiscal 2020.
HPE also approved a plan that will "realign the workforce to areas of growth, including measures to simplify and evolve its product portfolio strategy, go-to-market configurations, supply chain structures, digital customer support model and marketing experiences, and real estate strategies."
Read between the lines, and that realignment plan typically means layoffs are coming. A spokesperson for HPE said the exact headcount cuts have yet to be determined, Fortune reports.