Hewlett Packard Enterprise Co. (HPE) stocks fell at the end of the week on Friday by 20%, to close the day at $14.31. This fall adds further to the troubles HPE has had this year, with the company’s stocks falling 38% vis-à-vis the S&P 500 index, which rose 9.1%.
HPE has been struggling with declining sales of its servers and data center equipment. This is because the company has been losing out to competition from Amazon (AMZN), Microsoft (MSFT) and Google (GOOG), who are offering on-demand cloud computing resources for businesses.
This drop came as HPE completed the spin-off of most of its software business (including its ArcSight security platform, data analytics and application monitoring software), which will become a part of Micro Focus International (MFGP). With this deal, Micro Focus International has now become the UK’s largest tech company, overtaking its competitor, Sage Group.
HP had acquired British firm Autonomy in 2011 for $11 billion to gain access to the enterprise software market. However, the deal was a disaster, with HP firing Autonomy’s Chief Executive Officer Leo Apotheker, writing off almost $9 billion of the deal and filing lawsuits against Michael Lynch and Sushovan Hussain (previously the Chief Executive Officer and Chief Financial Officer of Autonomy).
The deal took place before HP split into HPE and HP Inc. in November 2015, however, HPE took responsibility for the acquisition during the split, and now, this spin off closes the doors to that unfortunate acquisition. HPE will narrow its focus back to data center hardware and software. HPE plans to cater specifically to customers running their services in house as well as on the cloud.
This spin-off comes four days before HPE is due to report out its third quarter results. Analysts predict that this year’s earnings are going to be lower than last year’s. In 2016, the third quarter earnings were 49 cents per share, on $12.21 billion revenue. This year, however, analysts are calculating earnings to be at 26 cents per share, on $7.49 billion revenue. The good news is that this spin-off will not only help HPE offload its software enterprise business, but will also deliver $8.8 billion to the company and its stock holders. So, the third quarter results, due to be released on Tuesday, September 5, 2017, may hold some good news for HPE’s investors.
HPE has been trying to get back on its feet since its split from its sister company HP Inc. in 2015. HP Inc. focuses on the PC and printer business. The company had also announced at the beginning of 2017 that it would be purchasing Simplivity, a data center hardware startup, for $650 million. This purchase was slated to be followed up by a $1 billion buyout of Nimble Storage, a storage hardware start up, in March 2017. These purchases, however, have not had the desired impact, with HPE has been missing its revenue targets for four continuous quarters now.
Meg Whitman, the Chief Executive Officer of HPE, stated that she would nurse HPE back to health before she thought of leaving. However, it was revealed that she was recently negotiating for the role of Chief Executive Officer of Uber. This has further shaken investor confidence in the company.
HPE stated that things aren’t as bleak as they seem. There were two company spin offs this year. One included the distribution of 50.1% of its stock to HPE shareholders. And HPE spokesperson told Fortune in an email that an HPE share in December of 2016 was worth $23.20, and now the same share was worth $25.75.