Hewlett Packard Enterprise Company (NYSE:HPE) Q4 2019 Earnings Conference Call - Final Transcript
Nov 25, 2019 • 05:00 pm ET
[Operator Instructions] Our first question today will come from Katy Huberty with Morgan Stanley. Please go ahead.
Thank you. Good afternoon. As we look into the January quarter, do you have any thoughts around the revenue trajectory. Just looking at street expectations for a revenue increase of 2% to 3% from the October quarter, but since the spin from HP, there isn't a consistent seasonality and, in fact, revenues have been flat to down in past January quarters?
Hi, Katy. Good afternoon. It's Tarek here. So as a broad reminder on fiscal year '20, we do expect to grow revenue adjusted for currency overall. Now when you specifically get into the Q1 of fiscal year '20, you have two effects to take into consideration. Number one, the reality that we're operating in is different than one it was in fiscal year '18 owing to the macro environment. And number two, we will consolidate the contribution of revenue from Cray in full for the first quarter. So, on the whole, we do expect within the context of what I mentioned and with seasonality that will grow revenue for the full year and on a first quarter basis will be roughly flat sequentially relative to where we stand right now.
Okay, that's helpful. And Tarek, how should we think about the contribution from lower commodity costs on gross margin, of the 260 basis point gross margin expansion. How much of that would you say is from commodity costs? Thank you.
Yes. So far, as we explained at SAM and even in prior earnings releases, some of the gross margin expansion is structural in nature as a result of the products and the mix of what we sell, and the remainder is driven by commodities. So I would say 50/50 is the rough split between what is structural and mix related on one side versus commodities on the other. We feel that the commodities environment is probably at best it could be right now and is going to continue for a little bit. The question is how long will that be continuing for. We do believe that the profitability level that we are experiencing right now are there to stay for at least couple of quarters.
And I will Katy, couple of things. One thing I am pleased is our disciplined with pricing. I think the team has done a very good job, despite the changes in commodity price and to drive the right configuration for the right [Indecipherable] and the right pricing, which as you can see, we have achieved what I believe a record year of profitability in the Hybrid IT business. But as we talked before, the structural changes continue to be there because obviously the systems with more IP built into, particularly, with software defined as well as the configuration for density and more data kind of driven type of configurations give us the confidence on that AUP stability as we go along.
Great. Thank you, Katy. I appreciate it.