Enterprise-level hardware and software maker Hewlett Packard Enterprise Co. (HPE) reported earnings last week that missed Wall Street estimates, and HPE CFO Tarek Robbiati detailed how the global supply chain is still the biggest hurdle for the company.
"The supply chain globally across
our industry is still not stable," Robbiati said on Yahoo Finance Live
(video above). "It will take us a little bit of time to get to that
point."
HPE — which was spun off from HP in
2015 to focus on servers, storage, networking, software and support — reported adjusted
earnings per share of $0.44 during the second quarter, which missed
analyst expectations by $0.01 and were down from $0.46 per share a year prior.
"We have to look back at how much
dependence there was on a supply chain that was based in Asia and in China, in
particular, and the fact that the supply chain is decoupling from Asia and from
China," Robbiati said. "That obviously takes time."
COVID-related lockdowns have hampered
supply chains around the world for more than two years. China, whose
manufacturing sector accounted for nearly 30% of the world's total
economic output in 2019, has a zero-COVID policy, meaning that its major cities
can shut down at any point if officials are concerned about a rise in the
number of new cases.
This was the case in Shanghai until
recently, which served as a reminder that the pandemic issue is not resolved
yet — especially since global coronavirus cases are ticking up again.
"We have been coming from decades
where 40% of the global manufacturing capacity was in China," Robbiati
said. "And that will have to find a new equilibrium and be a lot more
distributed across various countries in the globe, in Europe, and also in
Asia."
A tanker is unloaded at a 300,000-ton crude oil terminal in Yantai Port, East China's Shandong province, May 23, 2022. (CFOTO/Future Publishing via Getty Images)
HPE has already started making moves
in that direction by opening a new factory in the Czech Republic.
The plant was built in order to make
HPE's supply chain "geared for the future" by being both speedy and
cost-efficient, Robbiati said. Still, the company doesn't expect to achieve
stability in its supply chain until 2023, he added.
"Obviously you cannot expect
decades to be reversed in a quarter or two," Robbiati said. "It will
take us, I would say, a few quarters to navigate this and we're in the process
of doing so, and so is the entire industry."
China wasn't the only macro factor
weighing on HPE's supply chains. In its quarterly results, the company
attributed lower unadjusted earnings to $126 million in charges related
to the business's exit from Russia and Belarus.
Nearly 1,000 companies have
ceased operations in Russia and Belarus in response to Russia's invasion
of Ukraine. For many of these companies, that has meant taking on financial
losses as a result.
Ukraine supplies about 50%
of the world's neon gas, which is a key aspect of producing semiconductor
chips, so the disruption is dealing another blow to an industry that HPE relies
on.
Citi Research recently explained that "trade routes between China and the United States were seen as the center of the storm. But the epicenter of the stresses now seems to have now moved equally to Europe and the trade ties between Russia-Ukraine and the European Union. These linkages are significant given the natural complementarities between the two economies — Europe as a leading global manufacturer, and Russia and Ukraine as commodities and materials exporters."
Source: finance.yahoo.com