Hewlett Packard Enterprise Co. (HPE) saw its stock gain 55% in 2016, following a year of restructuring focusing on trimming down its core business. HPE’s Chief Executive Meg Whitman spearheaded the move following the Palo Alto-based firm’s separation from PC and printing giant HP Inc. (HPQ) in November 2015.
Over the past year, HPE spunoff and merged both its software business and enterprise IT services arm in deals worth $8.8 billion and $8.5 billion respectively.
Trim Down Drives Returns
Investors foresee the massive selloffs as allowing the firm to better customize its main businesses and lower costs. Shareholders hope the restructuring will improve profitability and drive returns in the form of dividends and share repurchases.
By selling of its non-core businesses, HPE is now positioned with significant cash to invest in high-growth markets. Target markets include high performance computing (HPC), the private cloud, all-flash data centers and hyperconverged computing. HPE plans to leverage the high-growth hybrid cloud space, facilitating enterprises’ move from on-site storage to the digitalized public cloud. HPE will focus on the services segment in the hybrid IT space, foreseeing a current $116 billion market opportunity to grow at 3% to 4% each year.
Analysts see HPE’s new investments, including its buyout of HPC firm Silicon Graphics in a deal worth $275 million, and its industrial Internet of Things (IoT) partnership with GE Digital as materializing in 2017. With SGI, HPE will take on its $500 million in annual revenues, aiming to generate additional returns from the big data management and analytics segment, which is set to grow at an annual CAGR of 6% to 8%, says the IDC. As part of the larger Intelligent Edge segment, HPE projects the industrial IoT market, worth $14 billion, will grow at a rate of 15% per year. (See also: HPE Sees Growth in HPC Market.)
How Far on Restructuring?
Some analysts, however, are asking how long Whitman’s restructuring can carry HPE until investors demand more significant returns. In the firm’s most recent fiscal 2016 fourth-quarter earnings, HPE posted mixed results, with a revenue decline of 7%, missing analysts projections and non-GAAP EPS of $0.61 matching the consensus. Investors will be waiting on whether Whitman can follow through with her promise due “drive growth down the middle of the highway,” balancing the improvement of margins and the establishment of faster growth in 2017. (See also: HPE Reports Mixed Fiscal Q4 Earnings.)