HPE juggles order boom, supply bottleneck amid Q3 growth

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HPE executives raised their fiscal forth quarter and full-year outlooks even as they expect supply challenges to continue into next year.

Hewlett Packard Enterprise (HPE) in its fiscal third quarter (ended July 31) faced both the highs and lows of the new normal in technology sectors: It experienced great demand and increased orders for its products, but also continued to suffer from supply chain constraints for the components needed to power those products, resulting in price increases for its own customers.

The company reported revenue of $6.9 billion, which was up slightly from the fiscal third quarter of 2020, and earnings-per-share of 47 cents, a figure which soundly beat analyst expectations of 42 cents EPS.

HPE CEO and President Antonio Neri also said during the company’s quarterly earnings call that orders during the quarter “were up strong double digits year over year,” and that order volume so far in 2021 has increased 11%.

“We were able to deliver these results while mitigating against industry-wide supply constraints by taking proactive inventory measures and working closely with our suppliers,” Neri said. Those inventory management efforts allowed HPE to maintain $1.3 billion in inventory on hand to meet immediate customer needs, and Neri emphasized that the company has not seen incidents of customers canceling unmet orders, as customers have been understanding about the supply constraints affecting many industries worldwide.

“The impact of the pandemic continues to accelerate what we predicted years ago as a shift to an edge-centric, cloud-enabled, data-driven world. Now more than ever there is a greater need for secure connectivity, faster insights from data, and cloud experiences everywhere.”

Neri said the company saw particular strength in its edge-to-cloud offerings during the quarter, posting record numbers for its intelligent edge products, a portion of the business which posted 27% year-over-year revenue growth to about $867 million. 

“Strong customer demand for secure connectivity has generated a backlog five times greater than at the close of Q3 last year, as customers increasingly look for solutions to collect, connect, analyze, and act on data at the edge,” Neri said, according to the Motley Fool earnings transcript. “We are leaning into this demand and continue to invest and innovate at the edge.”

As evidence of that investment, Neri noted that HPE recently launched new security capabilities, and AI and IoT features for its Aruba Edge Services Platform that are aimed at helping enterprise It manager to more easily extend their full network capabilities from the edge to the cloud. These efforts came amid the company’s ongoing $4 billion investment in intelligent edge, efforts which began in 2018.

In the high-performance computing segment, HPE also saw strong demand and revenue, Neri said. The company’s high-performance computing and mission-critical systems business recorded $741 million in revenue during the quarter, a year-over-year increase of 11%. The company just announced a $2 billion, 10-year deal with the U.S. National Security Agency to deliver high-performance computing using the, which is another product that saw increased demand during the fiscal third quarter.

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Still, supply constraints may continue to challenge HPE, as Neri and HPE CFO Tarek Robbiati suggested that the company will be dealing with supply issues until at least the middle of next year. Raising prices was a move the company needed to make, along with its inventory management measures, they said.

These ongoing issues didn’t stop the company from raising its outlook for the current quarter. Robbiati said, “For Q4 '21, we expect revenue to be above our normal sequential seasonality from Q3 and are comfortable with current consensus levels. For Q4 '21, we expect GAAP diluted net EPS of $0.14 to $0.22 and non-GAAP diluted net EPS of $0.44 to $0.52,” both of which are higher than earlier estimates. Meanwhile, for the rest of 2021, HPE raised its GAAP diluted net EPS outlook to $0.80 to $0.88 from $0.60 to $0.72, and its non-GAAP diluted net EPS outlook to $1.88 to $1.96 from $1.82 to $1.94.