Editor’s note: Analysis: The latest earnings report from Hewlett Packard Enterprise shows the tech giant still faces near-term challenges continue to impact its transformation efforts, says Technology Business Research Analyst Stephanie Long.

HAMPTON, N.H. – Near term challenges persist as HPE maintains its focus on portfolio restructuring

In CY1Q17, Hewlett Packard Enterprise achieved $7.4 billion in revenue from continuing operations, a decline of 13% year-to-year.

Declines continued to plague HPE’s performance as the vendor moves forward with its major portfolio overhaul. CY1Q17 saw significant portfolio adjustments for HPE, as the vendor finalized acquisitions including that of SimpliVity, Cloud Cruiser and Niara. HPE finalized the spin-merge of its Enterprise Services business in April, and is planning to finalize the spin-merge of its Software business in September, adding further complexities to its portfolio realignment efforts.

While acquisitions greatly enhance HPE’s existing infrastructure portfolio and position HPE well to address evolving infrastructure demands, and spin-merges sharpen HPE’s infrastructure focus, this high degree of change in a short time span hindered revenue performance.

However, TBR believes HPE is focused on the long-term, and recognizes the near-term challenges such massive portfolio changes will create.

From a business unit perspective, Software declined 11% year-to-year to $685 million and Enterprise Group (EG) declined 13% year-to-year to $6.2 billion as reported while Financial Services increased 11% year-to-year to $872 million.

TBR believes restructuring efforts are hindering HPE’s EG and Software performance as portfolio pieces are shifted to better reflect HPE’s go-forward strategy.

Slower demand from tier-1 customers again hindered EG’s server revenue performance in CY1Q17, marking the second quarter of this headwind. Adjusting to exclude tier-1 customers from server performance, HPE reported server revenue declined 1% in constant currency. EG margins were also hindered in CY1Q17, due in part to rising pricing competition and increases in some components costs.

However, HPE’s (NYSE: HPE) high-performance computing (HPC) business and its all-flash solutions were bright spots for EG, both of which experienced year-to-year revenue gains.

TBR believes near-term revenue challenges will persist but HPE remains committed to its strategy to drive long-term revenue gains.

(C) TBR