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Hewlett-Packard Enterprise and HP Inc. Results Go in Opposite Directions

The split is done. One goes up, and the other goes down.

HP

The computing giant formerly known as Hewlett-Packard ceased to be on Nov. 1 when it split into two companies, HP Inc. and Hewlett Packard Enterprise.

Today the new companies reported the results of their final quarter and fiscal year together and projected their outlook for the quarter to come, and the picture isn’t entirely pretty.

As a combined company, HP finished the quarter with sales down 7 percent to $28.4 billion, or down 2 percent after adjusting for the effect of currency exchange rates. (The U.S. dollar remains strong, and HP did a lot of business in international markets.) Earnings per share were 93 cents, down 12 percent year-on-year.

HPE, the enterprise company containing the servers, storage, networking and IT services business, posted sales that fell 4 percent year-on-year to $14.1 billion, but rose 3 percent after adjusting for currency effects.

The good news at HPE was the guidance for the coming quarter and year. The company stuck to its previous forecast, saying it expects to earn between $1.85 and $1.95 per share in the 2016 fiscal year, and between 37 cents and 41 cents for the first fiscal quarter, ending in February. The outlook for the quarter was slightly behind the forecasts of analysts, who had expected 43 cents. HPE shares rose by nearly 3 percent in after-hours trading.

CEO Meg Whitman said the seasonal revenue fluctuations are different from what they were with the combined company. “The enterprise and software businesses are back-end loaded, and so that may be affecting how our guidance appears,” she said in an interview. The units comprising HPE have posted two consecutive quarters of revenue growth, she said. That’s something she couldn’t say during nearly all of her tenure as CEO of the combined company.

She defended again the plan to split the companies in two. “The wisdom behind the split is becoming apparent. You can already start to feel it,” she said. “The two companies are more nimble and more agile than they were combined. … Now they’re off and running.”

Later on a conference call she set five priorities for the year ahead: Grow revenue (at least after accounting for the effect of currencies), grow operating profits and free-cash flow, execute on what she called the “innovation road map” and stabilize revenue in the long-troubled Enterprise Services business.

Sales in the Enterprise Group, the main hardware unit, rose 2 percent, or 9 percent after backing out currency effects, and posted a 14 percent operating margin. Networking revenue rose 35 percent, and server sales rose 5 percent. Storage sales fell 7 percent, and sales of specialized servers fell 8 percent.

Revenue in the Enterprise Services group fell 9 percent year-on-year to $5 billion, and it ran an operating margin of 8.2 percent. That decline was led by outsourcing revenue, which fell 11 percent, while application and business services group revenue fell 5 percent, though it would have grown slightly without the currency hit. Software sales fell 7 percent to $958 million.

“HPE’s results were pretty much as I expected, with strength in hardware and weaknesses in software and services,” said analyst Patrick Moorhead, head of Moor Insights and Strategy, a research firm based in Austin, Texas. “What matters most strategically is its drive toward the hybrid cloud.” Hybrid cloud services combine computing hardware that is rented from a third party like Amazon Web Services or Microsoft Azure with computing capacity derived from hardware that the customer owns.

It was a different picture at HP Inc., the personal computing and printing company. Shares fell by more than 5 percent after hours as it forecast fiscal 2016 earnings in the range of $1.59 to $1.69 a share, below the outlook of analysts, who expected $1.77. Earnings per share in the first quarter will come in between 33 cents and 38 cents versus the 42 cents analysts had called for. The company attributed part of the miss — about 9 cents — to a change relating to how it accounts for retirement plans and some related costs. IBM and Lexmark have made similar changes recently.

Sales of personal computers fell 14 percent year-on-year, led by machines sold to businesses, which declined 15 percent. Sales to consumers fell 12 percent. Overall unit sales fell 12 percent, led by desktop machines, which fell 17 percent, and notebooks, which fell 5 percent.

Printing revenue fell by 14 percent, led by sales of individual printers, which fell 17 percent. Sales of printers sold to businesses fell 23 percent, while consumer sales fell 14 percent. Revenue from the sale of ink and paper fell 10 percent.

CEO Dion Weisler in an interview with Re/code said despite the decreases, HP Inc. managed to bolster its share in market segments it considers important: “We continue to outperform the market overall.” Global share rose to 19.7 percent, while its share of the commercial segment rose to 23.7 percent, the company’s highest position ever.

The tough market conditions, he said, represent “the new normal.”

“We can’t afford to just compete on price,” Weisler said. He reiterated a promise to make $1 billion in productivity improvements and to accelerate plans to cut $300 million worth of what he called non-revenue generating costs. “We promised to cut $300 million there over three years, and will have to pull that in,” he said.

“I am a bit surprised in the big dropoff in HP Inc.’s results in both PCs and printers,” Moorhead said. “People shouldn’t be too alarmed yet as I believe it is bleeding off its existing inventory, in order to get a fresh start.”

This article originally appeared on Recode.net.

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