HP Enterprise (HPE) reported fiscal first-quarter results that missed our revenue estimates while non-GAAP EPS came in at the high end of management’s range, largely due to cost reduction programs that the company implemented. Although HP Enterprise reported year-over-year declines across all of its operating segments, we continue to think management is doing a decent job of strategically positioning the company in the face of a dramatically changing operating environment due to the emergence of the public cloud. However, management issued EPS guidance for the fiscal second quarter that was lower than we expected while also reducing its full-year guidance for fiscal 2017. As a result, we are lowering our fair value estimate to $22 per share from $23 per share and, we would encourage investors to wait for a wider margin of safety before investing in this no-moat company.
Revenue in the fiscal first quarter was $11.4 billion, which represented a 10% year-over-year decrease and a 9% decrease sequentially. The Enterprise Group declined by 12% year over year as servers and storage reported low-double-digit declines. Management indicated the large decline was the result of currency headwinds, commodities pricing constraints, and execution issues. However, the company’s all-flash storage portfolio grew by nearly 30% year over year, which we view as a positive given this is a key growth area for the company. Further, networking revenue was up 6% year over year when adjusted for divestitures and foreign exchange effects.
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