HPE Projects Strong Profit on Continued Cost Cuts

HPE raised its profit forecast for the year on greater cost-cutting measures, topping most analysts’ estimates, according to Bloomberg. Executives said, however, that trade tension between the U.S. and China has created greater uncertainty.

Profit, excluding some items, will be $1.62 a share to $1.72 a share in fiscal 2019, an increase of 6 cents per share from the company’s guidance announced in February. Analysts, on average, projected $1.64.

Sales fell 4.3% from a year earlier to $7.15 billion in the period that ended April 30, the company said in a statement. Analysts projected $7.4 billion. Adjusted profit was 42 cents a share compared with analysts’ average estimate of 36 cents.

CEO Antonio Neri is trying to make the company a key hardware vendor for big-data needs, seeking to take advantage of technology trends from artificial intelligence to the internet of things. HPE said last week it would acquire Cray in a deal valued at $1.4 billion. What may prove more consequential is the U.S.-China trade war, which threatens to curb HPE’s revenue and raise some component costs.

HPE’s sales have contracted on a year-over-year basis every quarter but one since 2017, and Neri has been keen to reverse that trend betting $4 billion on edge computing. The company “demonstrated traction in critical areas for our customers that delivered strong margin improvement, EPS above our outlook and solid cash flow,“ Neri said in the statement. “We continue to make important strategic moves that further enhance our competitive position and ability to better serve our customers in a hybrid world.“

The U.S.-China trade war is creating “uncertainty“ for the hardware maker, which reported declining revenue from China in the quarter, executives said during a conference call with analysts. HPE generates revenue and profit from a joint venture in China that sells its products, H3C Technologies. Tsinghua Holdings owns 51% of the company. The joint venture under performed expectations in the quarter, HPE executives said. The company also may have to pay more for some assembly costs as well as minor components that come from China, such as batteries and electronics.