Though Hewlett Packard Enterprise's (HPE - Get Report) second-quarter results reflected issues with its server unit and competitive pricing, CEO Meg Whitman said the company's massive corporate restructuring will soon produce a leaner and more-focused company.
Shares of HPE dropped 2%, to $18.40, after the market close on Wednesday. The company earned 35 cents per share, in line with forecasts. However, HPE said it expects to earn $0.24 to $0.28 per share in the third quarter, compared to Wall Street expectations of $0.31.
"I'd say we have largely overcome most of the execution issues," Whitman said of the major changes at HPE.
Whitman said the deal was more complex than its prior breakup with consumer-focused personal computer and printer company HP Inc. (HPQ) in 2015.
"The first time it was separating the siblings," she said of the split with HP. "Now we had to merge with a cousin."
HPE still has to close the books on another complicated deal. The company is spinning off software operations and merging the business with Micro Focus International plc in a transaction valued at approximately $8.8 billion.
Moody's analyst Richard Lane said that HPE's issues had more to do with a competitive pricing environment, costs of commodities and a large server customer than with Whitman's turnaround.
"Hewlett Packard Enterprise's Q2 results reflect ongoing supply shortages and higher prices for memory chips, a key component for its servers and storage devices," Lane said in an email.
"Most key competitors continue to feel the impact from these higher commodity costs, which will likely persist over the next two quarters," Lane added. "Exacerbating HPE's weak revenue was lower demand from its largest hyperscale server customer, while other server-based revenue was slightly up."
Jim Cramer and the Action Alerts PLUS team said they are confident in HPE's long-term outlook. "We are not surprised to see the sluggish results on HPE's main businesses (we have kept the position small)--recall that Cisco (CSCO - Get Report) and IBM (IBM - Get Report) both saw similar weakness," they wrote. Get a free trial subscription to Action Alerts PLUS.
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