HPQ HP Inc

By Don Clark and Kim Nash 

Hewlett Packard Enterprise Co. sent reassuring signals about corporate technology demand, though currency issues continued to weigh on its revenue.

The Silicon Valley company, reporting its first quarterly results since it split in November from printer and personal computer maker HP Inc., on Thursday said net income in its first fiscal quarter fell 52%, including restructuring costs. Revenue declined 2.5%.

Excluding the effects of a stronger dollar, however, the company said revenue rose 4%--the third consecutive quarter of growth on a constant currency basis--and both revenue and adjusted profit beat Wall Street expectations.

HP Enterprise shares jumped 6% after hours.

"We had a strong quarter," said Meg Whitman, the company's chief executive, in an interview. "As I look back, I see separating this company was so much the right thing to do."

Jitters about corporate technology demand emerged in the fourth-quarter results of several big technology vendors. Intel Corp., for example, said in January that fourth-quarter revenue from its data center group rose only 5% in the period ended in December, down from a 12% growth rate in the third period.

The following month, networking equipment giant Cisco Systems Inc. said it had seen customers holding off purchases in January in reaction to turmoil in the stock market.

Ms. Whitman said HP Enterprise had sensed the same pattern in January, particularly in North America. But business began to pick up in February as the second fiscal quarter began, she said.

The company reaffirmed its financial guidance for the fiscal year.

Some technology buyers sounded similarly upbeat. Avnet Inc., a big electronics distributor, expects overall technology spending in 2016 to be slightly up or flat, said Steve Phillips, its chief information officer.

Western Union Co. expects to increase technology spending this year, as it has each year since 2013, said David Thompson, executive vice president of global operations and technology and CIO. It plans to invest in areas such as digital payments technology and cybersecurity analytics software.

Market watchers aren't expecting a boom. Gartner Inc., for example, in early February projected total information- technology spending in 2016 would grow 0.6%, compared with a 5.8% decline in 2015.

But the contrast between HP Enterprise's results and Wall Street's worries was dramatic. "The investment community was bracing for potentially disappointing results," said Toni Sacconaghi, an analyst at Sanford C. Bernstein.

The former enterprise technology businesses of Hewlett-Packard Co. were widely expected to be more profitable than its PC and printing operations, which make up the core of HP Inc.'s business. That newly separate company last week said earnings from continuing operations declined 16% in the first fiscal quarter on revenue that fell 12% from the year-earlier period.

HP Enterprise is the largest maker of server systems, accounting for about a third of the global market. The company on Thursday said first-quarter server revenue fell 1%, but improved by 5% on a constant currency basis.

Ms. Whitman said the most active purchasers of those computers remain large Web companies. "They are buying," she said.

Some other hardware businesses grew at a much faster clip, particularly some data-storage systems based on flash memory chips rather than disks, Ms. Whitman said. Sales in networking equipment soared 54%, buoyed by the $3 billion acquisition last year of wireless equipment maker Aruba Networks.

Weak spots for the company include technology services such as product support. Revenue in that business declined 9%, while technology outsourcing revenue was 8% lower. Revenue from software fell 10%.

In all, HP Enterprise reported first-quarter net income of $267 million, or 15 cents a share, down from $547 million, or 30 cents a share, a year earlier. Revenue declined to $12.72 billion from $13.05 billion.

Excluding restructuring charges, costs related to its separation and other items, the company said adjusted per-share earnings came to 41 cents. Analysts on that basis had projected earnings of 31 cents on revenue of $12.7 billion, according to Thomson Reuters.

For the second quarter, the company forecast per-share earnings of 39 cents to 43 cents. Analysts polled by Thomson Reuters expected per-share profit of 42 cents.

--Tess Stynes contributed to this article.

Write to Tess Stynes at tess.stynes@wsj.com

(END) Dow Jones Newswires

March 03, 2016 19:27 ET (00:27 GMT)

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