Segment Information

Hewlett Packard Enterprise's operations are organized into four segments for financial reporting purposes: Hybrid IT, Intelligent Edge, Financial Services ("FS"), and Corporate Investments. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), the Chief Executive Officer ("CEO"), uses to evaluate, view and run its business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.

A summary description of each segment follows.

Hybrid IT provides a broad portfolio of services-led and software-enabled infrastructure and solutions including secure, software-defined servers, storage, data center networking and HPE Pointnext services, thereby combining HPE's hardware, software and services capabilities to make Hybrid IT simple for its customers. Described below are the business units and capabilities within Hybrid IT.


•	Hybrid IT Product includes Compute, Storage and Data Center Networking ("DC Networking").

◦

Compute offers both Industry Standard Servers ("ISS") as well as Mission-Critical Servers ("MCS") to address the full array of the Company's customers' computing needs. ISS provides a range of products, from entry level servers through premium HPE ProLiant servers. For the most mission-critical workloads, HPE delivers Integrity servers based on the Intel® Itanium® processor, HPE Integrity NonStop solutions and mission-critical x86 ProLiant servers.


◦	Storage offers Converged Storage solutions and traditional storage. Converged Storage solutions include All-Flash Arrays and hybrid storage solutions like HPE Nimble Storage, 3PAR StoreServe, StoreOnce, Big Data, StoreVirtual, and Software Defined and Cloud Group storage products. Traditional storage includes tape, storage networking and legacy external disk products such as MSA and XP.


◦	DC Networking offerings include top-of-rack switches, core switches, and open networking switches. The Company offers a full stack of networking solutions that deliver open, scalable, secure, and agile solutions, by enabling programmable fabric, network virtualization, and network management products.

•

HPE Pointnext creates preferred IT experiences that power a digital business. The HPE Pointnext team and the Company's extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services, support services, and operational services. HPE Pointnext is also a provider of on-premises flexible consumption models that enable IT agility, simplify operations and align costs to business value. HPE Pointnext offerings includes Operational Services, Advisory and Professional Services, and Communications and Media Solutions ("CMS").

Intelligent Edge offers unified, software-defined Aruba Mobile First architecture solutions for connectivity in the campus and branch environments, including wireless local area network equipment, mobility and security software, switches, routers, network management products, and associated customer support, as well as industrial IoT solutions.

Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, and utility programs and asset management services, for customers to enable the creation of unique technology deployment models and acquire complete IT solutions, including hardware, software and services from HPE and others. Providing flexible services and capabilities that support the entire IT life cycle, FS partners with customers globally to help build investment strategies that enhance their business agility and support their business transformation. FS offers a wide selection of investment solution capabilities for large enterprise customers and channel partners, along with an array of financial options to SMBs and educational and governmental entities.

Corporate Investments includes Hewlett Packard Labs and certain business incubation projects.

Segment Policy

There have been no significant changes to the Company's segment accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017, except as described in the 'Segment Realignment' section below.

Hewlett Packard Enterprise periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries. Revenues from these intercompany arrangements are deferred and recognized as earned over the term of the arrangement by the Hewlett Packard Enterprise legal entities involved in such transactions; however, these advanced payments are eliminated from revenues as reported by Hewlett Packard Enterprise and its business segments. Hewlett Packard Enterprise executed intercompany advanced royalty payment arrangements resulting in advanced payments of $439 million during the first nine months of fiscal 2017. In these transactions, the payments were received in the U.S. from a foreign consolidated affiliate, with a deferral of intercompany revenues over the term of the arrangements, approximately 15 years. The impact of these intercompany arrangements is eliminated from both Hewlett Packard Enterprise's consolidated and segment net revenues.

Hewlett Packard Enterprise does not allocate to its segments certain operating expenses, which it manages at the corporate level. These unallocated costs include certain corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, transformation costs, amortization of intangible assets, acquisition and other related charges, restructuring charges, separation costs and defined benefit plan settlement charges and remeasurement (benefit).

Segment Realignment

Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former Enterprise Group ("EG") segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless local area network, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the transfer of net revenue, related eliminations of intersegment revenues and operating profit or loss from the former business units and segments to the newly formed business units and segments as described above.

The Company also implemented certain changes to its allocation methodology for stock-based compensation expense and certain corporate costs, which align to its segment financial reporting and are consistent with the manner in which the operating segments will be evaluated for performance on a prospective basis.

The Company reflected these changes retrospectively to the earliest period presented, which resulted in: (i) the transfer of a portion of stock-based compensation expense, which under the prior allocation methodology was not allocated to the segments, to the Hybrid IT, Intelligent Edge and Financial Services segments; and (ii) the transfer of certain corporate function costs previously allocated to the segments to unallocated corporate costs.

These changes had no impact on Hewlett Packard Enterprise's previously reported net revenue, earnings from operations, net earnings, or net earnings per share.

Segment Operating Results



	Hybrid IT		Intelligent Edge		Financial Services		Corporate Investments			Total
	In millions
Three months ended July 31, 2018
Net revenue	$	6,058	$	784	$	922	$	—		$	7,764
Intersegment net revenue and other	185		1		6		—			192
Total segment net revenue	$	6,243	$	785	$	928	$	—		$	7,956
Segment earnings (loss) from operations	$	661	$	91	$	73	$	(24	)	$	801
Three months ended July 31, 2017
Net revenue	$	5,898	$	707	$	896	$	—		$	7,501
Intersegment net revenue and other⁽¹⁾	182		4		1		—			187
Total segment net revenue	$	6,080	$	711	$	897	$	—		$	7,688
Segment earnings (loss) from operations	$	482	$	104	$	69	$	(24	)	$	631
Nine months ended July 31, 2018
Net revenue	$	18,086	$	2,100	$	2,721	$	(1	)	$	22,906
Intersegment net revenue and other	511		15		11		—			537
Total segment net revenue	$	18,597	$	2,115	$	2,732	$	(1	)	$	23,443
Segment earnings (loss) from operations	$	1,890	$	155	$	217	$	(67	)	$	2,195
Nine months ended July 31, 2017
Net revenue	$	16,782	$	1,864	$	2,565	$	—		$	21,211
Intersegment net revenue and other⁽¹⁾	690		23		27		—			740
Total segment net revenue	$	17,472	$	1,887	$	2,592	$	—		$	21,951
Segment earnings (loss) from operations	$	1,672	$	166	$	222	$	(85	)	$	1,975

(1)

For the three and nine months ended July 31, 2017, the amounts include the elimination of pre-separation intercompany sales to the former Software segment, which are included within Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings. The nine months ended July 31, 2017 also includes the elimination of pre-separation intercompany sales to the former Enterprise Services segment.

The reconciliation of segment operating results to Hewlett Packard Enterprise condensed consolidated results was as follows:



	Three Months Ended July 31,						Nine Months Ended July 31,
	2018			2017			2018			2017
	In millions
Net Revenue:
Total segments	$	7,956		$	7,688		$	23,443		$	21,951
Eliminations of intersegment net revenue and other	(192		)	(187		)	(537		)	(740		)
Total Hewlett Packard Enterprise condensed consolidated net revenue	$	7,764		$	7,501		$	22,906		$	21,211
Earnings before taxes:
Total segment earnings from operations	$	801		$	631		$	2,195		$	1,975
Unallocated corporate costs and eliminations	(44		)	(88		)	(152		)	(308		)
Unallocated stock-based compensation expense	(14		)	(23		)	(64		)	(90		)
Amortization of intangible assets	(72		)	(97		)	(222		)	(235		)
Restructuring charges	(2		)	(152		)	(14		)	(304		)
Transformation costs	(131		)	(31		)	(499		)	(31		)
Acquisition and other related charges	(24		)	(56		)	(70		)	(150		)
Separation costs	2			(5		)	—			(46		)
Defined benefit plan settlement (charges) and remeasurement benefit	—			22			—			38
Interest and other, net	(64		)	(87		)	(163		)	(251		)
Tax indemnification adjustments	2			10			(1,342		)	(1		)
Earnings (loss) from equity interests	11			1			23			(24		)
Total Hewlett Packard Enterprise condensed consolidated earnings (loss) from continuing operations before taxes	$	465		$	125		$	(308	)	$	573

Net revenue by segment and business unit was as follows:



	Three Months Ended July 31,						Nine Months Ended July 31,
	2018			2017			2018			2017
	In millions
Hybrid IT
Hybrid IT Product
Compute	$	3,510		$	3,340		$	10,215		$	9,516
Storage	887			877			2,747			2,375
DC Networking	59			63			167			157
Total Hybrid IT Product	4,456			4,280			13,129			12,048
HPE Pointnext	1,787			1,800			5,468			5,424
Total Hybrid IT	6,243			6,080			18,597			17,472
Intelligent Edge
HPE Aruba Product	706			642			1,890			1,683
HPE Aruba Services	79			69			225			204
Total Intelligent Edge	785			711			2,115			1,887
Financial Services	928			897			2,732			2,592
Corporate Investments	—			—			(1		)	—
Total segment net revenue	7,956			7,688			23,443			21,951
Eliminations of intersegment net revenue and other	(192		)	(187		)	(537		)	(740		)
Total Hewlett Packard Enterprise condensed consolidated net revenue	$	7,764		$	7,501		$	22,906		$	21,211