HPE losses pinned on Intel chip shortages and COVID-19

HPE has reported that its year-on-year revenues for the previous quarter have declined by 8% due to difficulties in its compute business, led primarily by the continued shortage of Intel processors.

Net revenues recorded for the first quarter of 2020 were $6.9 billion, falling from the $7.5 billion recorded during the same period last year. The main culprit was a 15% decline in HPE’s compute business, with “manufacturing capacity constraints” causing income to drop by $3 billion year-on-year.

The company has hinted this is due to several global issues, including the recent worldwide coronavirus outbreak, although HPE’s financial results underperformed against analyst estimates regardless.

The company has also suggested the need to address a string of challenges, including competitive pressures, risks associated with executing HPE’s strategy, as well as unforeseen events such as the spread of the virus.

“HPE’s first-quarter results demonstrate continued progress against our strategic priorities to shift our company to higher-margin and more recurring revenues against a dynamic market backdrop,” said HPE’s president and CEO Antonio Neri.

“While our overall revenue declined for the quarter, primarily due to our Compute business, we grew our ARR by 19 percent and saw profitable growth in key areas of investment, including Intelligent Edge, High Performance Compute, Hyperconverged Infrastructure, Big Data Storage and Operational Services orders.”

“Faced with continued macro uncertainty, I am confident we are managing our business with discipline and focus, taking the right actions, and advancing our pivot to deliver unique edge-to-cloud experiences as a service. We believe the combination will drive long-term profitable growth and strong returns on investment.”

Intel shortages have been present throughout the market for many, many months, with a string of companies previously blaming their poor financial performances on the lack of supply of chips.

The company previously apologised for being unable to meet “strong demand” for its CPUs in November 2019, also pledging to invest in capital expenditure to ramp up production.

Last year, for example, Microsoft blamed Intel for a drop in the sales of Windows machines, while in November, Dell slashed its 2020 forecast over fears that the shortage of Intel chips would continue to lead to declining PC shipments.

While HPE’s compute business suffered, a number of smaller areas of the business saw better fortunes. The intelligent edge division grew 4% year-on-year to record $720 million in revenue, for example, while high-performance compute and mission-critical systems grew 6% year-on-year, hitting $823 million for Q1 2020.

Performance in these areas, however, was not strong enough to offset the losses in areas such as financial services, which declined 6% year-on-year, as well as storage, which was down 7% despite recording $1.3 billion in revenue.