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How Is HPE’s Next Initiative Boosting Its Operating Margins?

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HPE’s operating margin

Hewlett Packard Enterprise (HPE) has been expanding its operating margins for the past five quarters owing to cost-saving measures through its HPE Next Initiative as well as its improved supply chain. In Q2, operating margins expanded 70 basis points from 8.2% in Q2 2018 to 8.9% in Q2 2019 but remained flat from Q1 2019.

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Margin drivers

Notably, the company has shifted to high-margin areas such as hyper-converged and composable infrastructure, which is boosting its margins. The portfolio shift, along with supply chain efficiencies and improvements in manufacturing overhead added to the margins. The company’s constant focus on its HPE Next initiative, which was launched during the third quarter of fiscal 2017, is also helping the company to save on costs and increasing margins. The initiative is expected to generate cost savings of approximately $1.5 billion in the upcoming three years.

HPE Next has helped the company improve its margins by simplifying the organizational structure and redesigning its business practice. HPE Next has also led the company to utilize the 20% YoY growth in R&D to invest in organic innovation. Cost savings, through the HPE Next program, along with share repurchases, are expected to boost earnings over the coming quarters.

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