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Stock Analyst Update

Meg Whitman Leaves Slimmed-Down HPE

The rise of current president Antonio Neri to the CEO role may signify a continued focus on fostering innovation and product development.

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In a surprising move,  Hewlett Packard Enterprise (HPE) announced CEO Meg Whitman will step down and will be replaced by the firm’s current President, Antonio Neri, on Feb. 1, 2018. While we believe it will be difficult to replace Meg Whitman’s vast business experience, the assignment of Neri, who brings a solid background in technology, may signify a further focus on fostering innovation and product development for the much slimmer firm competing in an IT infrastructure market facing secular headwinds. Despite soft first-quarter fiscal 2018 guidance, Hewlett Packard Enterprise maintained its non-GAAP EPS range of $1.15-$1.25 outlook for full year as the firm is starting to see some price stabilization in the DRAM market, while its HPE Next restructuring program shifts into high gear. All things considered, we are maintaining our $16 fair value estimate for no-moat Hewlett Packard Enterprise. Despite a 6% pullback in aftermarket action, we recommend potential investors to seek a wider margin safety for this high uncertainty name.

Net revenue was $7.7 billion, up 5% year over year, while organic net revenue grew 11%, excluding Microsoft contract and adjusting for currency. As Hewlett Packard Enterprise exits its low-margin, high-volume Microsoft contract, the firm expects a negative impact on the top line to linger well into fiscal 2019 and possibly early 2020. Servers revenue (excluding Microsoft) was up 6% in constant currency, thanks to contribution from the SGI acquisition and the Synergy product line. While storage revenue was up by 5% due to contribution from the Nimble acquisition, Hewlett Packard cited sales execution challenges with its 3Par product line in U.S. On the upside, networking grew at a very healthy 21% year-over-year rate thanks to Aruba. HPE noted Aruba was able to pull through wired networking products. While positive, we think Aruba’s wired portfolio is facing a serious challenge from Cisco’s newly released Catalyst 9,000 campus product line.

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Ilya Kundozerov does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.