Hewlett Packard Enterprise Navigates Pandemic with Resilience and Transformation

Hewlett Packard Enterprise (HPE) has navigated the challenges of the COVID-19 pandemic with resilience, leveraging its strategic pivot towards as-a-service offerings and cloud solutions. Despite the disruptions, the company delivered solid financial results in fiscal year 2021, demonstrating the strength of its diversified business model and the success of its ongoing transformation efforts.

Financial Highlights

In fiscal 2021, HPE reported net revenue of $27.8 billion, representing a 3.0% increase (1.0% on a constant currency basis) compared to the prior year. This growth was driven by improvements in the overall demand environment, a strong order backlog, incremental revenue from acquisitions, and favorable currency fluctuations.

Gross profit margin increased by 2.3 percentage points to 33.7%, reflecting strong pricing discipline, cost savings from transformation programs, and a continued shift towards higher-margin software-rich offerings. Operating profit margin also improved significantly, rising 5.3 percentage points to 4.1%, due to the company’s strong operational execution and the absence of a goodwill impairment charge recorded in the prior year.

HPE generated $5.9 billion in cash flow from operations, including $2.2 billion from the resolution of the Itanium litigation. Excluding the litigation judgment, free cash flow was $1.6 billion, up $991 million from the previous year, driven by higher earnings and improved working capital management.

The company’s Annualized Revenue Run-rate (ARR), a key metric for its as-a-service business, grew 36% year-over-year to $796 million, reflecting strong momentum in HPE GreenLake Cloud Services and other software-as-a-service offerings.

Navigating the Pandemic and Accelerating Transformation

The COVID-19 pandemic has had a significant impact on HPE’s operations, but the company has responded with agility and resilience. While the global health crisis continues to present challenges, HPE believes the pandemic has also accelerated several trends that align with its strategic priorities, including the growing demand for edge computing, cloud-based solutions, and data analytics.

To address these evolving market dynamics, HPE is accelerating growth in its strategic focus areas, such as the Intelligent Edge and High-Performance Computing and Artificial Intelligence (HPC & AI) businesses, while also strengthening its core Compute and Storage offerings. The company is doubling down on key growth areas and rapidly pivoting towards a cloud-based, as-a-service business model.

Segment Performance

Compute: Net revenue was largely unchanged from the prior year, as improvements in the demand environment were offset by supply chain constraints and lower unit shipments. Earnings from operations as a percentage of revenue increased by 2.6 percentage points, driven by favorable pricing, cost savings, and operational efficiencies.

HPC & AI: Net revenue grew 2.7% (1.8% on a constant currency basis), as the challenges faced in the prior year due to the pandemic receded, and demand for HPC and Edge Compute solutions improved. Earnings from operations as a percentage of revenue decreased by 1.9 percentage points, due to higher costs and investments in the business.

Storage: Net revenue increased by 1.7% (-0.1% on a constant currency basis), led by growth in Storage services and the Zerto acquisition, as well as a continued shift towards higher-margin software-defined offerings. Earnings from operations as a percentage of revenue decreased by 1.1 percentage points, as higher operating expenses offset the benefits of a favorable product mix and improved operational efficiency.

Intelligent Edge: Net revenue grew 15.1% (12.8% on a constant currency basis), driven by strong demand for products and services, the addition of revenue from the Silver Peak acquisition, and favorable currency fluctuations. Earnings from operations as a percentage of revenue increased by 3.4 percentage points, due to lower product and operating costs.

Financial Services (FS): Net revenue increased by 1.5% (-0.9% on a constant currency basis), primarily due to favorable currency fluctuations, partially offset by lower rental and asset management revenue. Earnings from operations as a percentage of revenue increased by 3.0 percentage points, reflecting lower borrowing costs.

Corporate Investments and Other: Net revenue increased by 4.5% (2.5% on a constant currency basis), driven by growth in the Communications and Media Solutions and Software businesses. Losses from operations as a percentage of revenue decreased by 8.9 percentage points, due to improved service delivery and overhead efficiencies.

Liquidity and Capital Resources

HPE maintained a strong liquidity position, with $4.3 billion in cash, cash equivalents, and restricted cash as of the end of fiscal 2021. The company’s free cash flow, excluding the Itanium litigation judgment, was $1.6 billion, up significantly from the prior year.

HPE’s total debt decreased from $15.9 billion to $13.4 billion, and the company had $6.0 billion in available borrowing resources as of the end of the fiscal year. The company’s weighted-average interest rate on its debt declined from 3.2% to 2.9%.

Outlook and Strategic Priorities

Looking ahead, HPE is well-positioned to capitalize on the trends accelerated by the pandemic, such as the growing demand for edge computing, cloud-based solutions, and data analytics. The company’s strategic pivot towards as-a-service offerings and its focus on high-growth areas like Intelligent Edge and HPC & AI are expected to drive continued momentum.

HPE’s transformation efforts, including the cost optimization and prioritization plan and the HPE Next initiative, are expected to further improve the company’s cost structure, channel execution, and alignment with its strategic goals. The company will continue to invest in product innovation and operational efficiency to maintain its competitive edge and meet the evolving needs of its customers.

Overall, Hewlett Packard Enterprise has demonstrated its resilience and adaptability in the face of the pandemic. By accelerating its strategic transformation, the company is well-positioned to capitalize on the changing market dynamics and deliver long-term value for its shareholders.