Hewlett Packard Enterprise (HPE) is picking up the pieces from a rocky Q2 due to supply chain issues related to the coronavirus pandemic. While HPE works its way through a backlog of orders, executives are headed for a pay cut and the workforce will be trimmed.
During Thursday's second quarter earnings call, CEO Antonio Neri said supply chain issues, particularly for data center hardware, led to a 16% drop in revenue to $6 billion compared to 7.15 billion a year ago. Analysts surveyed by FactSet had expected adjusted earnings of 30 cents a share on sales of $6.33 billion. Excluding some items, HPE reported earnings of 22 cents a share, down from adjusted earnings of 42 cents a share a year ago.
"Effective July 1st, we will implement a short-term pay reduction for all team members where it is legally permitted through October 31, 202," Neri said, according to a Seeking Alpha transcript. "My executive team and I will take the highest percentage of reduction. Beyond us, the amount of reduction will vary by level. For team members who live in countries where pay productions cannot be mandatory due to local laws and regulations, we are implementing unpaid leaves."
In addition, Neri said HPE was implementing cost containment measures across the company, restricting external hiring through the end of the fiscal year and putting a hold on salary increases.
"Additionally, our board of directors have voluntary decided to forgo a percentage of its cash compensation for the remainder of the fiscal year 2020 to demonstrate its commitment to Hewlett Packard Enterprise, as we focus on preserving liquidity and improve our position to deliver for our customers now and in the future," Neri said.
According to a story by Bloomberg, HPE's senior executives will see their base salaries reduced by 20% to 25% while the board reduced each director's cash retainer by 25% from July to the end of the fiscal year. As of last year, HPE had 61,000 employees, but HPE executives say didn't on the earnings call say how many jobs would be cut.
Neri said HPE was quick to react in regards to sending its employees to work from home at the onset of the coronavirus pandemic, but now he expects more than half of them won't be returning to their office spaces.
"The office will look completely different, which means our offices will be more center of innovation and collaboration, not where you come to do your regular work every day," Neri said. "And that requires resizing our real estate footprint."
Similar to its HPE Next initiative from a few years ago, HPE is embarking on a three-year plan to reduce expenses and streamline operations across its various verticals.. The cost cutting plan has a goal of $1 billion in savings by the end of fiscal 2020.
Prior to Thursday's earnings report, HPE pulled its third quarter and full-year guidance. Neri is optimistic that the supply chain issues have been largely resolved, and that the company will post improved results over the next two quarters.
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HPE's Q2 numbers
In the second quarter HPE's revenue was down across all of its business verticals. Server sales were down 20% to $2.64 billion while storage hardware decreased by 18%.
"As a reminder, we ship pretty much three servers every minute," Neri said. "So when that supply chain stops, it’s pretty significant."
Intelligent edge revenue was down 2% year-over-year to $665 million, but Tarek Robbiati, HPE's executive vice president and chief financial officer, said HPE posted more than 12% year-over-year growth in North America.
HPE's compute revenue came in at $2.6 billion, which was a decrease of 19% from a year ago while high-performance compute and mission-critical systems revenue of $589 million was down 18% over the same time frame. HPE's storage revenue came in at $1.1 billion, which marked a 16% decrease from a year ago.
"As the world emerges from the global pandemic, business continuity will depend on solutions that advance IT resiliency, empower remote workforces securely, extend connectivity, reinvigorate customer engagement and enable business model evolution," Neri said. "These realities mean that the digital transformation will be more critical than ever. This is why we must accelerate our strategy to deliver everything as-a-service (from) edge to cloud."