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HPE: Cray Acquisition Could Boost Its Operating Profits

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Hewlett Packard and Cray

Hewlett Packard Enterprise (HPE) is set to acquire supercomputer manufacturer Cray (CRAY) for $35 per Cray share. The $1.30 billion cash deal is expected to close by the first quarter of Hewlett Packard’s fiscal 2020 ending in October. The acquisition is expected to boost Hewlett Packard’s presence in federal business and academia. The acqusition would bring together Cray’s technology and Hewlett Packard’s broad product portfolio to provide customers with integrated solutions and supercomputing products to fulfill their data-intensive needs.

Hewlett Packard expects to incur one-time integration costs that will be included in its free cash flow outlook of $1.9 billion–$2.1 billion for fiscal 2020. The deal is expected to boost Hewlett Packard’s adjusted operating profit and earnings in the first year after the deal closes.

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Hewlett Packard’s operating margin trend 

Hewlett Packard has been expanding its operating margins for the past four quarters due to cost-saving measures through its HPE Next initiative and improved supply chain. In the first quarter ending in January, Hewlett Packard’s operating margins expanded from 7.3% in the first quarter of 2018 to 8.9% in the first quarter. However, the operating margins contracted from 10.1% in the fourth quarter of 2018.

Hewlett Packard has been focusing on high margin value areas like hyper-converged and composable infrastructure, which is boosting its margins. The company’s constant focus on the HPE Next initiative, which launched during the third quarter of fiscal 2017, is expected to help Hewlett Packard save ~$1.5 billion over the next three years.

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