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Is HPE’s Next Initiative Improving Its Operating Margins?

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Operating margin trends

Hewlett Packard Enterprise’s (HPE) operating margins have improved over the past few quarters as it has focused on cutting costs through its HPE Next initiative. Its operating margin expanded from 7.7% in the first quarter of fiscal 2018 to 8.6% in the second quarter and 9.6% in the third quarter. In the fourth quarter of fiscal 2018, HPE’s operating margin reached 10.1%, compared with 8.2% in fiscal 2017’s fourth quarter.

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HPE Next aims to save costs

Hewlett Packard Enterprise’s HPE Next initiative, launched during the third quarter of fiscal 2017, could help the company save approximately $1.5 billion over the next three years. HPE Next aims to simplify the company’s organizational structure and redesign business processes to improve margins and sell wide-margin products to Tier-1 customers. HPE plans to focus on operations in 76 countries, which account for 99.5% of its revenue. Cost savings through the HPE Next program and share repurchases are expected to boost HPE’s earnings in future quarters.

HPE’s efforts to cut costs

To cut costs, HPE CEO Antonio Neri is reportedly trying to reduce the company’s workforce, global footprint, and supply chain to curb expenses. The company is also making efforts to acquire and diversify into wider-margin businesses. For instance, HPE’s recent purchase of AI and analytics software maker BlueData Software could expand HPE’s margins.

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