HPE Earnings Preview: Revenues And Margins May Improve In Q1

by Trefis Team
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HP Enterprise (NYSE:HPE) is set to release its fiscal Q1 2018 earnings on Thursday, February 22. The company continues to focus on high-end enterprise hardware and customer services, and building its core portfolio of services for hybrid cloud infrastructure to bolster its revenues. In the previous quarter, HPE reported top-line improvement as revenues from Networking, Core Servers, and Technology Services grew. We expect that this trend continued in Q1, and revenues from the Enterprise group and Technology Services grew. We have created an interactive dashboard that illustrates our expectations for Q1’18. You can modify drivers such as revenues from each division, net income margin and share count to see how the EPS will be affected in Q1 2018.

For Q1’18:

  • HPE is exiting the custom commoditized Tier -1 server market and is now focusing on core servers, which have higher average prices and margins. The company recently launched the most secure industry standard server and Edgeline Converged Systems, which addresses the industrial IoT domain. We expect the company to report higher margins in the coming quarters due to these new launches, while its revenues will likely decline as it exits the commoditized server business.
  • The company’s storage revenues have grown in the last few quarters, though that was primarily due to inorganic growth. Its acquisition of Nimble has resulted in solid growth as global DRAM prices have been on the rise due to higher DRAM content in hybrid IT systems and significant under-supply of PC DRAM as well as a slowdown in capacity expansions. As a result, we expect revenues to improve in Q1.
  • With the focus on Internet Of things, we expect that its technology services revenues are expected to grow marginally in Q1.

At present, our $14 price estimate for HPE is slightly below the current market price.

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