There may be hope yet for Hewlett Packard Enterprises' (HPE) turnaround, after beating analyst estimates on both revenue and earnings per share.
The company reported revenue of $7.8 billion in the third quarter after market close on Tuesday, a 4% increase from a year before.
The Palo Alto-based information technology company, which was spun off from the parent Hewlett-Packard company in 2015, focuses on cloud computing and software, with a lot of pressure to compete in a crowded space.
The strength in the earnings results was reported to be mainly related to the company's Hybrid IT systems and its Intelligent Edge segments which reported just over $7 billion in revenue, accounting for 80% of the revenue generated in the quarter.
Analysts were positive on the focus on the hybrid IT segment.
"The company is making progress on its turnaround, and we were encouraged that sales growth continues to exceed management's long-term target growth rate," Deutsche Bank AG director of equity research Sherri Scribner wrote in a note on August 28. "The improved profitability was also a positive sign, with HPE seeing multiple tailwinds supporting margin expansion, particularly in the Hybrid IT segment."
The Intelligent Edge segment, which includes the company's networking and data enterprise businesses under Aruba Networks, is the main area of focus moving forward that is already gaining traction according to CEO Anonio Neri.
"We plan to invest $4 billion in this segment over the next four years," he declared. "We see a world that is acentric, cloud-enabled and data driven, and our portfolio of Intelligent Edge solutions is resonating with customers."
He noted that in the past quarter the company agreed to major deals with Caesars Entertainment and the University of Arkansas where the Aruba system "will completely replace the existing networking system, including software and security."
To be sure, reliance on these two segments make the business heavily concentrated and segments like PointNext IT, the company's IT professional services segment, actually reported decreased revenue.
"We believe structural changes are impacting the server and storage markets, which will lead to slower growth for IT hardware companies versus historical rates," Scribner explained, noting significant risks to HPE's legacy business segments.
Further, as Real Money's Eric Jhonsa notes, the company's guidance for the next quarter remains smack dab in the middle of analyst estimations and a shakeup at the top of the ranks as the company continues a turnaround is cause for caution on its long term prospects.
