HPE Reports Net Loss of $821 MM in Q2 2020

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HPE Reports Net Loss of $821 MM in Q2 2020

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Hewlett Packard Enterprise (NYSE: HPQ) on 21st May 2020 announced the result for the second quarter of 2020, the period of this quarter ended on 30th April 2020. COVID-19 has badly affected the business of the company, revenue has declined by 15.95% and suffered a net loss of $821 million.

Financial Highlights of Q2 2020 Result

  1. Revenue: Company was able to generate revenue of $6,009 million in Q2 2020, decline by 15.95% from $7,150 million in Q2 2019.
  2. Total cost and expenses: Total cost and expenses occurred by HPE in Q2 2020 were $6,843 million, up by 1.8% from $6,716 million in the same period of 2019.
  3. Selling, general and administrative expenses: Selling, general, and administrative expenses in the second quarter of 2020 was $1,109 million, decreased by 8.6% from $1,214 million in the second quarter of 2020.
  4. Research and Development expenses: HPE has spent $450 million for research and development in Q2 2020, down by 1.5% from $457 million in Q2 2019.
  5. Gross Profit: Gross profit earned by the company in Q2 of this year was $1,914 million, down by 16.9% compared to $2,305 million in Q2 of the previous year.
  6. Gross Profit Margin: HPE’s gross profit margin in the second quarter of 2020 and 2019 was 31.9% and 32.2% respectively.
  7. Cash and cash equivalent: Cash and cash equivalent at the end of Q2 2020 was $5,131 million.
  8. Net Profit: HPE has suffered a net loss of $821 million in Q2 2020, compared to a profit of $419 million earned in Q2 2019.
  9. Diluted EPS: Diluted EPS for the second quarter of 2020 was ($0.64) compared to $0.30 in the second quarter of 2019.
  10. Dividend: HPE has paid a cash dividend of $0.1200 per share in Q2 2020, up by 6.6% from $0.1125 paid in Q2 2019.
Source: Business Quant

Segment Information

The company operates its business in seven different segments, revenues in all the segments have declined.

  1. Compute: This segment contributed the highest revenue amongst all the segments. Revenue generated by this segment was $2640 million in Q2 2020, down by 20% from $3318 million in Q2 2019. Revenue in this segment have declined due to supply chain disruption because of which company was unable to fulfill the need of the customer.
  2. High-Performance Compute & Mission Critical Systems (HPC & MCS): Revenue generated by this segment in Q2 2020 was $589 million declined by 18% from $721 million in Q2 2020. Revenue in this segment was impacted as COVID-19 caused delays in installation and acceptance from customers. Pending the working of this quarter will now be complete in the next quarter.
  3. Storage: Storage segment was able to generate revenue of $1,086 million in the second quarter of 2020, down by 18% from $1,318 million in the second quarter of 2019. Revenue in this segment was impacted due to supply chain disruption and shortage in components. Growth in big data with help company to increase revenue, big data has witnessed a growth of 61% over a year.
  4. Advisory & Professional Services (A&PS): This segment generated revenue in the second quarter of this year was $237 million, declined by 9% compared to $260 million in second quarter of previous year. This segment deals with infrastructure and operational services sales.
  5. Intelligent edge: Intelligent edge segment revenue in Q2 2020 was $665 million, down by 3% from $685 million in the second quarter of 2019. The company claims that this segment has seen an increase in market share of campus switching and the WLAN market despite a challenging business environment.
  6. Financial service: This segment earns revenue of $833 million in the second quarter of 2020, down by 8% from $896 million in the second quarter of 2019.
  7. Corporate Investment: Corporate Investment segment contributed the lowest revenue amongst all the segments but has witnessed negative revenue growth of just 1%. In Q2 2020, revenue generated by this segment was $124 million compared to $124 million earned in Q2 2019.

Cost Optimization Plan to Boost Liquidity

Due to the COVID-19 crisis, the financial of the company has been impacted. Company has decided the cost optimization plan to increase its liquidity. On 19th May 2020, the board of directors has decided to cut 25% of base salary of the chief executive officer and each executive officer at the executive vice president level. The base salary of each executive office at the senior vice president level will be cut by 20%. The Board of directors has also decided to reduce 25% of the cash retainer of $100,000 which is provided to each director. Cut is the base salary that will begin from 1st July 2020. For the countries where pay reduction is not permitted, the unpaid leave will be granted to the employees in those countries.

The Board of directors has also decided to focus on the company’s investment and the employees to critical areas of growth such as measures to simplify and evolve its product portfolio strategy, go-to-market configurations, supply chain structures, digital customer support model and marketing experiences, and real estate strategies. The company is expecting the implementation of this plan by 2022. HPE believes that this plan, if implemented successfully will result in an annual saving of $800 million and provide business process improvement of $1 billion. To achieve the cash saving, HPE estimates that it will require cash funds between $1 billion to $1.3 billion.

Final Take

On 6th April 2020, HPE filled 8K to withdraw the guidance for the fiscal year 2020 due to uncertainty caused by COVID-19, so full guidance of next quarter is not available. Cost-cutting measures taken by the HPE should help the company survive in the crisis. As both demand and supply side are affected, so it possible that HPE may report negative revenue growth in the next quarter compared to the same period year ago.

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