Hewlett Packard Enterprise Financial Update

Mixed Results with Soft Financial Guidance

Hewlett Packard Enterprise recently released mixed results while providing a softer-than-expected financial outlook due to facing "market headwinds", particularly within the networking business sector.

CEO Insights

CEO Antonio Neri shared in an interview that the company experienced a slowdown in the networking business at the close of the fiscal first quarter that concluded on January 31. Despite this, Neri remains optimistic about a potential demand recovery in the second half of 2024. One of the challenges highlighted by Neri is that customers are taking more time to adopt new systems.

AI-Related Server Success

Despite challenges, HP Enterprise has seen a surge in AI-related server orders, with a total of $4 billion in orders since the beginning of fiscal 2023. This has increased the company's backlog to $3 billion, showing a $500 million growth in the latest quarter alone. Neri pointed out that 25% of all server orders now have ties to AI, a number that is continuously increasing.

Financial Overview

In terms of financial performance, HP Enterprise reported revenue of $6.8 billion for the quarter, which is a decrease of 14%. This figure fell below the company's projected range of $6.9 billion to $7.3 billion and also missed the Wall Street consensus of $7.1 billion as per FactSet. Despite this, non-GAAP profits of 48 cents per share were within the high end of the expected range of 42 to 50 cents that investors were informed about. The consensus estimate was 45 cents per share.

Neri expressed satisfaction with the profitability results, highlighting strong performance in both gross margin and operating margins. He credited this success to disciplined cost management practices within operating expenses.

HP Enterprise Reports Q1 Revenue Decline and Segment Changes

In the first quarter of the fiscal year, HP Enterprise experienced a decrease in server revenue, dropping by 23% to $3.4 billion. The company announced a shift in segment reporting, merging the Compute, High Performance Computing, and AI segments into the servers segment.

Revenue Highlights by Segment

• Intelligent Edge: Notable growth was seen in the Intelligent Edge segment, including the Aruba networking business, with revenue reaching $1.2 billion, a 3% increase from the previous year.

• Hybrid Cloud: Revenue from the Hybrid Cloud segment totaled $1.2 billion, reflecting a 10% decline.

• Financial Services: Revenue remained steady at $873 million compared to the same period last year.

Future Projections and Guidance

For the upcoming quarter ending in April, HP Enterprise anticipates revenue ranging between $6.6 billion and $7 billion, below the consensus forecast. Adjusted profits are forecasted to fall between 36 to 41 cents per share, below market expectations of 45 cents.

Looking further ahead to the full fiscal year of October 2024, HP Enterprise expects revenue to remain flat or increase by up to 2%. Adjusted profits are projected to range from $1.82 to $1.92 per share. The company also revised its free cash flow expectations to be "at least $1.9 billion."

Acquisition Update and Market Performance

HP Enterprise's planned acquisition of Juniper Networks is progressing as scheduled, with the transaction set to finalize by late 2024 or early 2025. Despite challenges, HP Enterprise remains committed to its strategic objectives.

As of the latest reporting period, HP Enterprise shares had seen an 11% decrease year-to-date.