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  1. #1
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    [EN] Investors might push for HPE sale in light of disappointing outlook

    HPE just forecast that it will see little to no long-term organic growth. The activist hedge funds that have taken stakes in the IT hardware giant can't be pleased.

    Eric Jhonsa
    Oct 20, 2017

    By announcing major job cuts and new capital returns at its Oct. 18 analyst day, Hewlett-Packard Enterprise Co. (HPE) carried out a pair of moves that activist investors often push for after taking stakes in hard-luck companies. And by spinning off its struggling Software and Enterprise Services units earlier this year, HPE had already checked off another commonly-found item on activist wish lists.

    As a result, there are only two big moves that activists often call for which HPE hasn't yet commenced: Overhauling the company's leadership, and pursuing a sale. The first action seems unlikely given the strength of CEO Meg Whitman's reputation -- at least provided Whitman doesn't choose to leave HPE, as some reports indicate she's open to doing.

    Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

    The second action feels more plausible, however, particularly following the disappointing guidance HPE shared at its analyst day.

    On Thursday, HPE shares fell 4.6% to $14.02 after the company forecast it would see only "modest" fiscal 2018 (ends in Oct. 2018) revenue growth for its continuing operations, even after backing out sales to "tier-1" service providers. With tier-1 sales having been in a tailspin this year due to plunging orders from a major cloud client -- believed to be Microsoft Corp. (MSFT) -- that outlook suggests HPE's total revenue growth will be negative. The analyst consensus for HPE's Enterprise Group -- its main reporting segment following the software and services spinoffs -- had called for 1% sales growth.

    In addition, HPE outlined a "long-term financial model" that only calls for 0% to 1% annual organic revenue growth. Sales have been propped up a bit in recent quarters by healthy networking product demand and a string of acquisitions (many hardware-related), but still face tremendous long-term pressure from enterprise adoption of cloud infrastructures that rely heavily on open-source and home-grown server and storage designs.

    Earnings guidance is a little better: HPE expects adjusted EPS of $1.15 to $1.25 versus a $1.18 consensus, and is aiming for 7% to 9% long-term annual EPS growth. But that's made possible in part by the company's HPE Next initiative, which (as outlined during the analyst day) aims to achieve $800 million per year in net savings by the end of fiscal 2020 via efforts to "optimize the workforce" and overhaul IT systems, among other things.

    HPE Next is expected to require $1.1 billion in cash payments, and yield $300 million in cash proceeds from real estate sales. HPE, which has already carried out major job cuts over the last several years, was reported in September to be planning to lay off 5,000 workers, or about a tenth of its workforce.

    Fiscal 2018 EPS will also get a boost from a planned $2 billion in stock buybacks -- good for repurchasing nearly 10% of shares at current levels -- that will be enabled by the adding of another $5 billion to HPE's buyback program. HPE, which forecasts $2.6 billion will be spent on buybacks in fiscal 2017, also hiked its quarterly dividend by 15% to $0.075 per share (2.1% forward yield). The company is now aiming to return 75% of its "normalized" free cash flow (FCF) -- it excludes restructuring costs and various one-time events, and is expected to total $2 billion in fiscal 2018 -- to investors, up from a prior 50%.

    All of these activist-friendly moves come after three prominent hedge funds that have a history of pursuing activist campaigns -- Dan Loeb's Third Point Capital, Jeff Smith's Starboard Value and Barry Rosenstein's Jana Partners -- disclosed sub-1% stakes in HPE. David Einhorn's Greenlight Capital has also taken a small stake, but outside of its GM campaign), has less of a history of going activist. Three of the four funds established initial positions in HPE this year; the other (Starboard) initiated a position in Q3 2016 and added to it in Q2 2017.

    It's possible that the funds in question didn't invest in HPE with plans to launch an activist campaign, and were simply sold on HPE's low multiples and efforts to remake itself as a leaner, hardware-focused, enterprise IT firm. But the timing of their investments does make for quite the coincidence.

    If Third Point, Starboard and Jana do want to push Whitman and HPE's board for big changes, it's hard to imagine them calling for HPE to abandon its current hardware-centric business strategy. That's mostly because the time to do so would've been before HPE spun off most of the rest of its business. If, for example, the funds were to call for a large software acquisition, there would likely be far fewer product synergies available than before HPE's software spinoff.

    Pushing for a sale of HPE, by contrast, seems plausible. Shares trade for less than 12 times the midpoint of HPE's fiscal 2018 EPS guidance range based on its market cap, and around 15 times after accounting for net debt. Oracle Corp. (ORCL) , which sports a $206 billion market cap, employs former HP CEO Mark Hurd as a co-CEO and could (in spite of some server overlap) see HPE as an attractive way to fill out its hardware lineup, is one possibility. Private equity, which has shown a healthy appetite for enterprise tech deals over the last couple of years, is another.

    HPE's size could act as a deterrent to PE firms, though, given that the company's enterprise value (market cap plus net debt) stands at around $30 billion. But we did see Dell get taken private four years ago in a $24 billion deal, and two years later acquire EMC in a $67 billion cash/stock deal. That makes the idea of an HPE private-equity deal look less far-fetched.

    Should Third Point, Jana and Starboard wish to go to war with HPE's management and board in the name of getting the company to pursue "strategic alternatives," chances are we'll find out in a month or two. The window for investors to nominate board candidates for election at HPE's March annual meeting runs from Nov. 22 to Dec. 22.

    While it would be a mistake to predict exactly what, if any, moves the aforementioned funds will call on HPE to make in the coming months, one thing is pretty much a given: They can't be happy about the organic growth outlook the company just provided, and the effect it's having on their HPE positions.

    https://www.thestreet.com/story/1435...activists.html

  2. #2
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    HPE President Antonio Neri lays out HPE NEXT vision

    Flater org, fewer geos, fewer platforms














    http://investors.hpe.com/~/media/Fil...7-hpe-next.pdf

  3. #3
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    HPE Is Exiting the Cloud Server Business

    HPE will stop selling its tier 1 cloud servers.

    Meg Whitman said it could happen. Now it is.

    Barb Darrow
    October 19, 2017

    Hewlett-Packard Enterprise is getting out of the cloud server business. That means it will no longer sell low-end “commodity” servers to large cloud computing customers like Microsoft.

    It has proven to be an exceedingly tough business for traditional hardware makers because while they may sell huge volumes of cloud servers, profits are slim to none. The target customers are companies like Microsoft or Amazon Web Services, each of which can (and do) negotiate huge discounts. Insult to injury, most of these cloud companies go directly to contract manufacturers in Taiwan or China to have servers built to their specifications at low cost. They don’t need or want to pay for name-brand servers.

    On Wednesday, HPE president Antonio Neri said the company will stop selling custom-designed commodity servers to such customers, which HPE calls Tier 1 service providers. It will, however, continue to sell higher-end (and more profitable) servers to them. Neri was speaking at HPE’s analyst day in San Francisco.

    In a follow-up statement, a spokesperson said HPE defines Tier 1 customers as Microsoft, Amazon, Alibaba, Google, Facebook, Apple, TenCent, and Baidu and repeated that the company will keep selling higher margin storage, networking, and “higher value” servers to those customers.

    Still, it’s not clear how many Tier 1 providers will buy higher priced servers or even other brand-name gear when they can specify how they want the hardware built and get it manufactured by lower-cost providers.

    Patrick Moorhead, president of research firm, Moor Insights & Strategy, thinks of all the top server buyers only Microsoft would be likely to do so.

    It’s not all bad news, however. Tier 2 cloud providers and telephone carriers, remain a big target market for branded servers, Moorhead said. “There’s bigger growth in Tier 2 cloud providers than Tier 1,” he said.

    HPE under CEO Meg Whitman continues to push powerful, high-end servers and storage—as well as “converged hardware” that combines both functions—into large corporate accounts. That can be a very profitable business, but the problem is that many of its targeted Fortune 500 accounts are putting more of their own software and data in AWS, Microsoft, or Google clouds. That means they have less need for servers to use in their own data centers. HPE is not alone in this dilemma; the shift also drove IBM to sell its Intel-based server business to Lenovo three years ago.

    HPE’s predecessor company Hewlett-Packard entered the commodity cloud server business three years ago when it signed a deal with Foxconn, the huge Taiwanese contract manufacturer, best known for building Apple iPads and iPods to Apple’s specifications.

    But Whitman as been signaling since early this year that all was not well with the cloud server business. In February she said that first quarter earnings were dinged because a single large customer (which turned out to be Microsoft) unexpectedly cut back on its expected server order. In June, when server sales continued to swoon, Whitman indicated that HPE had to evaluate if it should stay in that business.

    http://fortune.com/2017/10/19/hpe-cloud-servers/

  4. #4
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    HPE Plans Thousands of Job Cuts

    Brian Womack
    September 21, 2017

    Hewlett Packard Enterprise Co. is planning to cut about 10 percent of its staff, or at least 5,000 workers, according to people familiar with the matter, part of a broader effort to pare expenses as competition mounts.

    The reductions are expected to start before the end of the year, said the people, who asked not to be identified because the matter is private. The cuts at the company, which has about 50,000 workers, are likely to affect workers in the U.S. and abroad, including managers, the people said. A Hewlett Packard Enterprise representative didn’t immediately respond to requests for comment.

    Chief Executive Officer Meg Whitman has been jettisoning divisions since 2015, including personal computers, printers, business services and key software units.

    The job cuts “will not create a near -- or long-term -- respite to its structural growth issues,” Bloomberg Intelligence analyst Anand Srinivasan wrote in a note. “These cuts will likely cause charges that may last for one or two quarters. They also don’t address the longer-term sales-growth weakness amid public cloud growth.”

    On a call with analysts earlier this month, Whitman said the Palo Alto, California-based company is benefiting from growing demand across key areas of the business. At the same time, she said she’s pushing to cut “layers” in the organization and become more efficient.

    “With fewer lines of business and clear strategic priorities, we have the opportunity to create an internal structure and operating model that is simpler, nimbler and faster,” she said.

    On the same call, Chief Financial Officer Tim Stonesifer said the company is targeting $1.5 billion in savings over a three-year period.

    https://www.bloomberg.com/news/artic...5-000-job-cuts

  5. #5
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    HPE Global Chief Samuels Is Out

    Whitman Chief Of Staff Hunter Takes Top Channel Job

    Steven Burke
    October 20, 2017

    Hewlett Packard Enterprise Global Channel Chief Denzil Samuels, who has been with HPE for just nine months, is leaving the company and is being replaced by HPE CEO Meg Whitman's channel-savvy chief of staff Paul Hunter.

    Hunter, a 15-year HPE veteran with experience as an HPE business unit and channel sales leader in the United Kingdom, takes the helm with HPE in the midst of the massive Next restructuring.

    HPE President Antonio Neri said in an internal memo that Samuels - a former Salesforce.com and GE Digital channel executive - has decided to leave HPE at the end of the first fiscal quarter Jan. 31 to pursue "other sales-focused opportunities." He said Samuels will help "transition" the Channels and Alliances organization - which was launched last month - to Hunter.

    [RELATED: New HPE Global Channel Chief Hunter On His Relationship With Meg Whitman, His 'Number One Priority' And The Changing Partner Landscape]

    "I’d like to thank Denzil for his strong contributions to the business in FY17 and for setting up the team for ongoing success," said Neri in the memo. At the same time, he said he was "thrilled" to welcome Hunter, who will assume the position effective immediately.

    "Partnership is in our DNA and is one of our company’s three core values," said Neri. "As we double down on the channel and drive more business through this key route, we would entrust this vital organization only to someone we’re sure can get the job done."

    In an interview with CRN, Neri said Hunter - who has worked side by side with Whitman for the last three years - is the right executive to lead the channel sales charge under a new global sales structure..

    "Paul has the (channel) DNA and a deep understanding of the business with our channel partners," said Neri, who worked closely with Hunter during the British native's tenure heading up the channel and personal systems business in the United Kingdom from 2009 to 2014. "He knows all the channel partners cold. He knows the CEOs. Ultimately he likes to win with our channel partners which is the core of our strategy going forward."

    Hunter's chief of staff role, in fact, has put him side-by-side with Whitman in front of all of HPE's top partners around the world. Those relationships with top channel executives along with the confidence of HPE's senior leadership- including Whitman and Neri - will be critical in helping close deals in the sales trenches, said HPE partners.

    Rick Chernick, the CEO of Camera Corner Connecting Point, a Hewlett Packard Enterprise partner in Green Bay, Wis., No. 323 on the 2017 CRN SP500, said Hunter has the all important relationships within the company to make a difference for partners in the sales trenches. "Paul knows what is going on and what needs to be done," said Chernick. "Being close to Meg for as long as he has is a big plus for the channel. I think he is going to have a lot of success. I am very happy for him."

    Kelly Ireland, founder and CEO of Orange, Calif.-based CB Technologies, an HPE Platinum partner, said Hunter's chief of staff role provided him with "ample exposure" to the needs of HPE partners and customers. "With his past experience leading the channel in the UK to his years of being exposed to all levels and aspects of customer, distributor and partner relationships, Paul has the broadest breadth of experience that will be invaluable in taking the channel to the ‘next level," she said.

    Hunter, for his part, pledged to leverage those relationships with Whitman, Neri and the sales leaders to help partners win deals and drive sales growth. "I can help the partners get things done and when there are changes in the company or there are initiatives we want to start I hear them immediately and I have got a seat at the table when we are having discussions about how to go and execute them (with partners)," he said.

    Hunter said his "number one priority" during the next 120 days will be to get out and meet with partners. Furthermore, he said, partners can count on no sudden changes in HPE's channel strategy or direction.

    "One of the real advantages of working with HPE is we have been a predictable partner to work with," said Hunter, noting that the company's 2017 partner satisfaction scores are up compared to a year ago. "Actually the first thing I need to do is not change too much stuff. I think there is a tendency when new leaders get appointed the first thing they want to do is go and change a ton of stuff. That will not be my inclination. My inclination will be to build on what is already working."

    One significant change with Hunter taking the role is he will have responsibility for all route to market programs including ISVs,OEMs and system integrators. That was not the case under Samuels.

    "That is important because as you know the landscape for partners is changing and partners are changing their business models," said Hunter. "There is no one traditional channel partner anymore. There are partners and they have different business models and what they do for customers is changing and we need to have program capabilities that encompass all types of partners with respect to their specializations."

    Hunter said he is particularly excited about the Simplivity and Nimble 100 percent channel sales model. "If we are able to do with Simplivity and Nimble what we have done with Aruba that is huge," he said. "The Aruba business has grown by $1.5 billion in two to three years. If you are able to achieve similar growth with Nimble and Simplivity and apply it to our channel that is huge."

    Hunter said "it is a privilege" to take the top channel job as HPE moves to accelerate partner sales growth under the Next restructuring. He said he couldn't have better training for the new job than working under Whitman.

    "When I came over (from the United Kingdom three years ago) to be (HPE CEO) Meg's (Whitman's) chief of staff it was training for a future leadership role," he said. "I couldn't have gotten better experience than working with Meg and the leadership team in Palo Alto for three years. That set me up for this role to lead the channel team globally. I am privileged to be doing and am really excited about. It is a good time to be a leader in Hewlett Packard Enterprise.I think it is an exciting time for the partners as well."

    http://www.crn.com/news/data-center/...hannel-job.htm

  6. #6
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    UBS downgrades Hewlett Packard Enterprise

    UBS downgrades Hewlett Packard Enterprise (NYSE:HPE) from Buy to Neutral and drops the price target by a dollar to $15.

    UBS also has concerns the company’s streamlining plans could become disruptive, don’t differentiate enough from the competition, and don’t account for the fast than expected market growth for the public cloud.

    https://seekingalpha.com/news/330267...ard-enterprise

  7. #7
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    The Easy Money Has Already Been Made In HP Enterprise

    Shanthi Rexaline
    October 20, 2017

    UBS said in a note Friday easy money has already been made by Hewlett Packard Enterprise Co. Given its view that a pivot to higher-margin revenue will take time, the firm downgraded shares of the company.

    As such, the rating on shares of Hewlett Packard Enterprises went from Buy to Neutral. The firm also nudged down its price target from $16 to $15, reducing its target multiple from 14x to 13x, thereby removing the premium to peers due to less room for earnings growth.

    Inconsistent Operating Results

    Analyst Steven Milunovich noted that CEO Meg Whitman commented at the analyst meeting that the company's shares have risen about 90 percent since the split compared to S&P 500's 26 percent. However, the analyst noted that the much of the upside came from the split and the two subsequent spin-offs, with operating results remaining inconsistent.

    With the stock approaching the price target of UBS, the firm said it is concerned that the streamlining plans could prove disruptive. The firm is also worried that the three-pillar strategy aimed at boosting profitability may not be sufficiently differentiated against larger rivals such as Dell EMC and Cisco Systems, Inc.

    Weakest Of Big 3

    Additionally, the firm said the growth in public cloud is faster than expected. This, according to the firm could pressure Hewlett-Packard Enterprises, which is primarily an on-premises computing company. The firm thinks on-premises computing is at the risk of losing its position, as workloads move to the public cloud.

    Although the company has some attractive cloud offerings, the firm believes Dell EMC and Cisco are better positioned in technology and solutions. With Hewlett-Packard Enterprises relying on partnerships to deliver solutions, the firm sees difficulty in improving margins and delivery risk.

    Underwhelming Analyst Meeting

    The firm views the analyst meeting and the fiscal year 2018 guidance as somewhat underwhelming. Though the 2018 guidance of $1.15-$1.25 was expected, the firm said the amount of streamlining planned in reducing management levels and product SKUs could create execution risk.

    The firm also said the competitive pricing environment makes the upside to the plan unlikely. Further, the firm said it had expected a higher stock buyback than the $20 billion the company announced. The firm doesn't think the company can reach the normalized free cash flow goal of $2 billion until fiscal-year 2020.

    "The long-term revenue growth rate of 0-1% is less than we previously modeled and our confidence that HPE could be a long-term winner is lessened," the firm added.

    https://www.benzinga.com/analyst-rat...-hp-enterprise

  8. #8
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    HPE-Foxconn server joint venture dissolved

    Foxconn seen as likely to enter white-box server market.

    Aaron Lee, Willis Ke
    23 October 2017

    A joint-venture server company established three years ago by Hewlett Packard Enterprise (HPE) and Foxconn Group (Hon Hai) has reportedly been quietly dissolved recently due to the JV's failure to generate expected synergies, and whether the dissolution will prompt Foxconn to venture into the white-box server market is seen as a major potential variable for the market, according to industry sources.

    In 2014, HPE, a spin-off of HP and a globally leading server brand, collaborated with Foxconn, the world's top server motherboard supplier, to set up a joint-venture company dedicated to producing cloud servers, sending shockwaves through the global server sector. At that time, Foxconn chairman Terry Guo said that as the new generation of cloud computing would thoroughly alter the global server market, the JV would subvert the server industry ecosystem.

    HPE was originally expecting to get a slice of the cloud server market by taking advantage of Foxconn's robust manufacturing capability, so as to offset its declining business in the corporate server market. But the expectation was not met well, as the synergies of the JV had yet to be developed due mainly to both partners failing to funnel sufficient resources to support the operation of the JV, the sources said. In addition, high marketing and logistics costs also undermined the JV's pricing competitiveness in the cloud server market, in which customers concern prices more than brand loyalty, the sources said.

    They said the JV closure will pose quite limited impact on HPE due to marginal revenue contribution ratio involved. The impact on Foxconn was even much negligible, as brand server vendors still have to rely on the company to support their server production.

    Now that without a JV with any brand server customer, Foxconn is likely to make forays into the cloud server market, constituting serious potential impact on existing white-box server suppliers. Given Foxconn's tremendous manufacturing capabilities and close ties with firms engaged in cloud services, the sources said, its next move for the server maket may create a huge impact on the white-box server market.

    http://digitimes.com/news/a20171023PD200.html

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