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HP Enterprise (HPE) - Get Hewlett Packard Enterprise Co. (HPE) Report sold off after posting disappointing results and guidance on Wednesday afternoon. Palo Alto Networks (PANW) - Get Palo Alto Networks, Inc. Reportand Box (BOX) - Get Box, Inc. Class A Report went in the opposite direction after releasing market-pleasing numbers around the same time, and Ciena (CIEN) - Get Ciena Corporation Reportdid so after delivering upbeat results on Thursday morning. Here are some thoughts on their reports.

HP Enterprise

Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Reportstill appears to be doing a number on HPE's quarterly sales, and it looks as if CEO Meg Whitman is open to cutting her company's losses rather than trying to keep pushing a boulder uphill.

The IT giant's numbers are a little tough to parse, since they include two months of revenue from its giant Enterprise Services (ES) unit, which was just spun off and merged with Computer Sciences (CSC) . With $2.5 billion in ES revenue recorded prior to the spinoff, and some (but not all) analysts having taken ES out of their quarterly estimates, HPE reported April quarter revenue of $9.9 billion, above a $9.64 billion consensus. Excluding ES, but including software assets that are set to be spun off into a company that HPE will retain a 50.1% stake in, revenue fell 13% annually to $7.4 billion.

Adjusted EPS of $0.35 was in-line with consensus estimates. But EPS from continuing operations (excludes ES) fell 24%, to $0.25. And July quarter EPS guidance of $0.24 to $0.28 is below a $0.31 consensus.

For now, HPE is maintaining fiscal 2017 (ends in October) EPS guidance of $1.46 to $1.56, but there are probably some doubts at this point about its ability to hit that target. Shares fell 6.9% on Thursday to $17.52. They went into earnings close to a 52-week high of $19.16.

Getting attention: HPE's Enterprise Group (EG)--it provides IT hardware and related services, and accounts for the lion's share of HPE's business following the ES spinoff--posted revenue of $6.24 billion, missing a $6.38 billion consensus. Sales fell 7% after adjusting for forex and the May 2016 sale of a 51% stake in Chinese networking hardware firm H3C to a Tsinghua Holdings subsidiary. The decline would've been a little larger if not for HPE's acquisitions of hardware vendors SGI, SimpliVity and Nimble Storage.

EG's server revenue fell 14%, and its storage revenue 13%. Networking, buoyed by a 32% increase in Wi-Fi-related sales--the Aruba Networks acquisition is paying off--and by midsingle-digit Ethernet switching growth, grew 14% after excluding the H3C sale and forex. Software sales totaled $685 million, missing a $743 million consensus and dropping 9% when adjusted for forex and divestitures. License revenue fell 28% (evidence of share loss), and cloud/SaaS revenue rose 4%.

The server and storage weakness, which follows soft first-quarter hardware numbers from IBM (IBM) - Get International Business Machines (IBM) Report and disappointing July quarter guidance from Cisco Systems (CSCO) - Get Cisco Systems, Inc. Report, provide more evidence of the toll that the adoption of cloud infrastructures relying on internal and open-source hardware designs is stinging IT giants. Especially the server pressures, since they have much to do with plunging orders from a "tier-1" cloud giant believed to be Microsoft.

Tech analyst Patrick Moorhead calls HPE's server numbers "troubling," but notes the business isn't doing too badly outside of the tier-1 cloud weakness. He's also pleased with the strong growth seen in HPE's Aruba and all-flash storage array sales (the latter grew 33%), and think they "reflect a lot of what's important in future infrastructure and IoT."

On the earnings call, Whitman forecast sales to its top tier-1 client would continue falling. She added HPE is thinking about paring its efforts to land major cloud firms--a deal with Dropbox was inked last year--noting the business is a low-margin one relative to various enterprise hardware product lines.

There's a logic to such a retreat, given the margin issue and how wedded the likes of Microsoft, Google, Facebook and Amazon are to do-it-yourself hardware strategies. But considering how these companies are accounting for more and more of global IT spend, not meaningfully participating in the tier-1 cloud hardware space does put HPE in a tough spot.

Palo Alto Networks

When an enterprise tech firm blames "sales execution" for weak results and/or guidance, it's often an excuse masking deeper competitive issues. But in the case of the disappointing figures Palo Alto Networks reported three months ago, there was clearly some truth to the explanation, even if intensifying competition from top firewall rival Cisco also played a role.

Palo Alto just reported April quarter revenue of $431.8 million (up 25% annually), billings of $544.1 million (up 12%) and adjusted EPS of $0.61 (up 33%), beating consensus analyst estimates of $412 million, $530.9 million and $0.55. And July quarter guidance for revenue of $481 million to $491 million, billings of $625 million to $645 million and adjusted EPS of $0.78 to $0.80 are favorable at the midpoints to consensus estimates of $485.2 million, $631.2 million and $0.74.

Shares rose 17.2% on Thursday to $138.99. They're still down 8% from where they traded prior to the January quarter report.

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Just as they are for Cisco's security business, booming sales of subscription-based software and services offerings continue to be Palo Alto's biggest growth driver. While product (hardware and software license) revenue rose just 1% last quarter to $164.2 million, subscription and support revenue grew 46% to $267.6 million, with cloud/SaaS subscription revenue rising 55% to $143.2 million.

On its call, Palo Alto mentioned it added over 2,000 customers for another quarter, raising its total base above 39,500 (including 1,200 Global 2000 firms). Over 1,500 clients were added for its popular WildFire malware-protection service, raising the size of its base above 17,000. Strong growth was also reported for the AutoFocus threat intelligence service, the Aperture cloud app security service and the Traps endpoint protection service. That, in turn, helped Palo Alto's deferred revenue balance rise 51% to $1.6 billion.

Importantly, sales productivity is said to have improved sequentially. Prior to Palo Alto's report, I argued the quality of the company's products still left it well-positioned. Those products, along with an improving security IT spending environment (also highlighted by the numbers recently delivered by Fortinet, FireEye, Imperva and others), are already fueling a rebound.


Not too long ago, predictions of Box's destruction at the hands of deep-pocketed rivals such as Microsoft, Google and Amazon were pretty common. Those voices aren't quite as loud now, as Box keeps beating expectations and the differentiated nature of its offerings become better understood.

Box reported revenue of $117.2 million (up 30%), billings of $99.6 million (up 31%) and adjusted EPS of negative $0.13, beating consensus analyst estimates of $114.7 million, $96.4 million and negative $0.14. As is the case for many other cloud software firms getting paid for subscriptions up-front and recording revenue a quarter at a time, free cash flow (FCF) is much better than earnings. FCF improved to $4 million last quarter from negative $16.2 million a year earlier.

July quarter sales guidance of $121 million to $122 million and fiscal 2018 (ends in January 2018) sales guidance of $502 million to $506 million is favorable at the midpoints to consensus estimates of $121.3 million and $502.8 million. Shares rose 9.5% on Thursday, hitting their highest levels since mid-2015.

Box added another 3,000 clients for its enterprise file-sharing/syncing platform, growing its total base to 74,000. The company also reported strong uptake for value-added offerings related to things such as encryption key management, content management, data governance and programming interfaces (APIs) for custom business apps, and claimed a third of its $100,000-plus deals were the result of its partnerships with IBM, AT&T and NTT.

The value-added product growth drives home why critiques of Box as a mere cloud storage provider were misguided. Cloud storage is a commodity, but the software that Box has layered on top of its storage certainly isn't, and the developer ecosystem that it has built for its offerings can't be created overnight either. Microsoft, Citrix Systems and others do provide credible competition, but dislodging the company at a Global 2000 account isn't as simple as offering cheaper storage.


Though many optical component/module vendors have been stung by weak Chinese demand, optical networking hardware provider Ciena is largely immune to the problem, as its latest figures show.

Ciena reported April quarter revenue of $707 million (up 10%) and adjusted EPS of $0.45, easily topping consensus analyst estimates of $695 million and $0.37. July quarter sales guidance of $710 million to $740 million is just slightly above a $723 million consensus at the midpoint. But on its earnings call, Ciena guided for fiscal 2017 (ends in October) revenue growth of 8% to 9%, above a consensus for 7.8% growth.

Shares rose 15.9% on Thursday to $27.19. They were last at these levels in 2013.

Boosting Ciena's top line: Sales of Converged Packet Optical hardware (products supporting both optical networking and Ethernet switching) rose 15%, to $502.1 million. A 24% increase in sales of software and related services to $37.7 million also didn't hurt. North American sales, which still account for over half of all revenue and stem in large part from AT&T and Verizon, grew 7%.

Ciena notes it recorded nearly $100 million in sales during the first half of fiscal 2017 from India, where Internet penetration rates remain relatively low and a 4G buildout only recently started in earnest. The company added strong demand for its Waveserver data center interconnect (DCI) solution helped sales to "web-scale" cloud clients rise 43%; Waveserver may be taking some share from Infinera's (INFN) - Get Infinera Corporation Report CloudXpress DCI solution.

Going forward, Ciena is also hoping to be a major player in the component market via its WaveLogic Ai digital signal processor (DSP), which promises superior programmability relative to rival products and has the backing of optical module vendors such as Lumentum, NeoPhotonics and Oclaro. Sluggish global telecom capex is still a headwind for the company, but it seems better-positioned than many peers.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long CSCO and HPE.